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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2">As filed with the Securities and Exchange Commission on March&nbsp;14, 2003
</FONT>

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<P align="center"><FONT size="4"><B>SECURITIES AND EXCHANGE COMMISSION</B></FONT><BR>
<FONT size="3">WASHINGTON, D.C. 20549
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<P align="center"><FONT size="5"><B>FORM 20-F</B>
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<P align="center"><FONT size="2">ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES<BR>
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
</FONT>
<P align="center"><FONT size="2">COMMISSION FILE NUMBER 1-14968
</FONT>
<P align="center"><FONT size="6"><B>PARTNER COMMUNICATIONS COMPANY LTD.</B></FONT><BR>
<FONT size="2">(Exact name of Registrant as specified in its charter)
</FONT>
<P align="center"><FONT size="2">ISRAEL
</FONT>
<P align="center"><FONT size="2">(Jurisdiction of incorporation or organization)
</FONT>
<P align="center"><FONT size="2">8 AMAL STREET<BR>
AFEQ INDUSTRIAL PARK<BR>
ROSH-HA&#146;AYIN 48103<BR>
ISRAEL
</FONT>
<P align="center"><FONT size="2">(Address of principal executive offices)
</FONT>
<P align="center"><FONT size="2">Securities registered pursuant to Section&nbsp;12(b) of the Act:
</FONT>
<P align="center"><FONT size="2">NONE
</FONT>
<P align="center"><FONT size="2">Securities registered pursuant to Section&nbsp;12(g) of the Act:
</FONT>
<P align="center"><FONT size="2"><U>Title of class</U>
</FONT>
<P align="center"><FONT size="2">American Depositary Shares<BR>
Ordinary Shares*
</FONT>
<P align="left"><FONT size="2">*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not for trading, but only in connection with the registration of American
Depositary Shares representing such ordinary shares, pursuant to the
requirements of the Securities and Exchange Commission.
</FONT>
<P align="center"><FONT size="2">Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:
</FONT>
<P align="center"><FONT size="2">NONE
</FONT>
<P align="left"><FONT size="2">Indicate the number of outstanding shares of each of the issuer&#146;s classes of
capital or common stock as of the close of the period covered by the annual
report:
</FONT>
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    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
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    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ORDINARY SHARES OF NIS 0.01 EACH</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">181,595,222</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<P align="left"><FONT size="2">Indicate by check mark whether the Registrant (1)&nbsp;has filed all reports
required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12&nbsp;months (or for such shorter period that the
Registrant was required to file such reports), and (2)&nbsp;has been subject to such
filing requirements for the past 90&nbsp;days:
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    <TD width="6%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
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    <TD align="center" valign="top"><FONT size="2">YES&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#120;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
NO&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
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<P align="center"><FONT size="2">Indicate by check mark which financial statement item the Registrant has<BR>
elected to follow:
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    <TD valign="top" align="center"><FONT size="2">ITEM 17&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
ITEM 18&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#120;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
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<A name="toc"><DIV align="CENTER" style="page-break-before:always"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

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<TR><TD colspan="9"><A HREF="#000">INTRODUCTION</A></TD></TR>
<TR><TD colspan="9"><A HREF="#001">FORWARD-LOOKING STATEMENTS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#002">ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#003">ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#004">ITEM 3. KEY INFORMATION</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#005">ITEM 4. INFORMATION ON THE COMPANY</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#006">ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#007">ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#008">ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#009">ITEM 8. FINANCIAL INFORMATION</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#010">ITEM 9. THE OFFER AND LISTING</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#011">ITEM 10. ADDITIONAL INFORMATION</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#012">ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#013">ITEM 12. &#096; DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#014">ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#015">ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND<BR> USE OF PROCEEDS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#016">ITEM 15. CONTROLS AND PROCEDURES</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#017">ITEM 16. &#091;RESERVED&#093;</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#018">ITEM 17. FINANCIAL STATEMENTS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#019">ITEM 18. FINANCIAL STATEMENTS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#020">ITEM 19. EXHIBITS</A></TD></TR>
<TR><TD colspan="9"><A HREF="#021">SIGNATURES</A></TD></TR>
<TR><TD colspan="9"><A HREF="#022">CERTIFICATIONS</A></TD></TR>
<TR><TD colspan="9"><A HREF="#023">EXHIBIT INDEX</A></TD></TR>
<TR><TD colspan="9"><A HREF="u45961exv1w1.txt">Articles of Association</A></TD></TR>
<TR><TD colspan="9"><A HREF="u45961exv4wxayw7.txt">Agreement with LM Ericsson (Nov 25, 2002)</A></TD></TR>
<TR><TD colspan="9"><A HREF="u45961exv4wxayw13.txt">Supplemental Agreement (April 18, 2002)</A></TD></TR>
<TR><TD colspan="9"><A HREF="u45961exv4wxayw27.txt">General License for Partner Amendment # 12</A></TD></TR>
<TR><TD colspan="9"><A HREF="u45961exv4wxayw28.txt">General License for Partner Amendment # 13</A></TD></TR>
<TR><TD colspan="9"><A HREF="u45961exv4wxayw29.txt">General License for Partner Amendment # 14</A></TD></TR>
<TR><TD colspan="9"><A HREF="u45961exv4wxayw30.txt">General License for Partner Amendment # 15</A></TD></TR>
<TR><TD colspan="9"><A HREF="u45961exv4wxayw31.txt">General License for Partner Amendment # 16</A></TD></TR>
<TR><TD colspan="9"><A HREF="u45961exv4wxayw32.txt">General License for Partner - Amendment # 17</A></TD></TR>
<TR><TD colspan="9"><A HREF="u45961exv4wxayw41.txt">Amending Agreement to the Facility Agreement</A></TD></TR>
<TR><TD colspan="9"><A HREF="u45961exv8.txt">List of Subsidiaries</A></TD></TR>
<TR><TD colspan="9"><A HREF="u45961exv10wxayw1.txt">Consent of Kesselman & Kesselman</A></TD></TR>
<TR><TD colspan="9"><A HREF="u45961exv10wxayw2.txt">Section 906 Certifications</A></TD></TR>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B>TABLE OF CONTENTS</B>
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    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Page</B></FONT></TD>
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    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">PART I</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">INTRODUCTION</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">FORWARD-LOOKING STATEMENTS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 3. KEY INFORMATION</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 4. INFORMATION ON THE COMPANY</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">82</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">99</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">122</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 8. FINANCIAL INFORMATION</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">136</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 9. THE OFFER AND LISTING</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">140</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 10. ADDITIONAL INFORMATION</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">143</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">159</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">PART II</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 15. CONTROLS AND PROCEDURES</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 16. &#091;RESERVED&#093;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">PART III</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 17. FINANCIAL STATEMENTS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 18. FINANCIAL STATEMENTS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">163</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ITEM 19. EXHIBITS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">164</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">166</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<P align="center"><FONT size="2">Page 1
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<DIV align="left"><A NAME="000"></A></DIV>
<P align="center"><FONT size="2"><B>INTRODUCTION</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As used herein, references to &#147;we,&#148; &#147;our,&#148; &#147;us,&#148; &#147;Partner&#148; or the
&#147;Company&#148; are references to Partner Communications Company Ltd. and to its
wholly owned subsidiary, Partner Future Communications 2000 Ltd., except as the
context otherwise requires. In addition, references to our &#147;financial
statements&#148; are to our consolidated financial statements except as the context
otherwise requires.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In this document, references to &#147;$,&#148; &#147;US$,&#148; &#147;US dollars&#148; and &#147;dollars&#148; are
to United States dollars and references to &#147;NIS&#148; and &#147;shekels&#148; are to New
Israeli Shekels. This annual report contains translations of NIS amounts into
US dollars at specified rates solely for the convenience of the reader. No
representation is made that the amounts referred to in this annual report as
convenience translations could have been or could be converted from NIS into US
dollars at these rates, at any particular rate or at all. The translations of
NIS amounts into US dollars appearing throughout this annual report have been
made at the representative exchange rate on December&nbsp;31, 2002 of NIS 4.737 =
US$1.00 as published by the Bank of Israel, unless otherwise specified. See
&#147;Item&nbsp;3A. Key Information&#151;Selected Financial Data&#151;Exchange Rate Data.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We maintain our financial books and records in shekels. Our financial
statements included in this annual report are prepared in accordance with
accounting principles generally accepted in the United States, or US GAAP, and
the accompanying discussion of the results of our operations is based on our
results under US GAAP. See &#147;Item&nbsp;18. Financial Statements&#148; and &#147;Item&nbsp;5A.
Operating and Financial Review and Prospects&#151;Operating Results&#148;.
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<P align="center"><FONT size="2">Page 2
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<DIV align="left"><A NAME="001"></A></DIV>
<P align="center"><FONT size="2"><B>FORWARD-LOOKING STATEMENTS</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This annual report includes forward-looking statements within the meaning
of Section&nbsp;27A of the US Securities Act of 1933, as amended, Section&nbsp;21E of the
US Securities Exchange Act of 1934, as amended, and the safe harbor provisions
of the US Private Securities Litigation Reform Act of 1995. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about Partner.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Words such as &#147;believe,&#148; &#147;anticipate,&#148; &#147;expect,&#148; &#147;intend,&#148; &#147;seek,&#148; &#147;will,&#148;
&#147;plan,&#148; &#147;could,&#148; &#147;may,&#148; &#147;project,&#148; &#147;goal,&#148; &#147;target&#148; and similar expressions
often identify forward-looking statements but are not the only way we identify
these statements. All statements other than statements of historical fact
included in this annual report, including the statements in the sections of
this annual report entitled &#147;Item&nbsp;3D. Key Information&#151;Risk Factors,&#148; &#147;Item&nbsp;4.
Information on the Company&#148; and &#147;Item&nbsp;5. Operating and Financial Review and
Prospects&#148; and located elsewhere in this annual report regarding our future
performance, plans to increase revenues or margins or preserve or expand market
share in existing or new markets, reduce expenses and any statements regarding
other future events or our future prospects, are forward-looking statements.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because such statements involve risks and uncertainties, actual results
may differ materially from the results currently expected. Factors that could
cause such differences include, but are not limited to:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">uncertainties about the degree of growth in the number of consumers in
Israel using wireless personal communications services and the growth in
the Israeli population;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the risks associated with the implementation of a third-generation
network and business strategy, including risks relating to the operations
of new systems and technologies, substantial expenditures required and
potential unanticipated costs, uncertainties regarding the adequacy of
suppliers on whom we must rely to provide both network and consumer
equipment and consumer acceptance of the products and services to be
offered;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the impact of existing and new competitors in the market in which we
compete, including competitors that may offer less expensive products and
services, desirable or innovative products, technological substitutes, or
have extensive resources or better financing;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the effects of vigorous competition in the market in which we operate,
which may decrease prices charged, increase churn and change our customer
mix, profitability and average revenue per</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 3
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">user;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the availability and cost of capital and the consequences of increased
leverage;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the effects of the high degree of regulation
in the telecommunications market in which
we operate;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">fluctuations in foreign exchange rates;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the results of litigation filed or that may be filed against us; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the possibility of the market in which we compete being impacted by
changes in political, economic or other factors, such as monetary policy,
legal and regulatory changes or other external factors over which we have
no control;</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">as well as the risks discussed in &#147;Item&nbsp;3D. Key Information&#151;Risk Factors,&#148;
&#147;Item&nbsp;4. Information on the Company&#148; and &#147;Item&nbsp;5. Operating and Financial
Review and Prospects&#148;. In light of these risks, uncertainties and assumptions,
the forward-looking events discussed in this annual report might not occur.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
</FONT>
<P align="center"><FONT size="2">Page 4
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link2 "ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS" -->
<DIV align="left"><A NAME="002"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS</B>
</FONT>

<P align="left"><FONT size="2">Not applicable.
</FONT>
<!-- link2 "ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE" -->
<DIV align="left"><A NAME="003"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE</B>
</FONT>

<P align="left"><FONT size="2">Not applicable.
</FONT>
<P align="center"><FONT size="2">Page 5
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<!-- link2 "ITEM 3. KEY INFORMATION" -->
<DIV align="left"><A NAME="004"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 3. KEY INFORMATION</B>
</FONT>

<P align="left"><FONT size="2"><B>3A. Selected Financial Data</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth our selected financial data as at and for
each of the years in the five-year period ended December&nbsp;31, 2002 prepared in
accordance with US GAAP. The selected financial data for each of the years in
the three-year period ended December&nbsp;31, 2002 and at December&nbsp;31, 2002 and 2001
are derived from our consolidated financial statements set forth elsewhere in
this annual report. The selected financial data for each of the years in the
two-year period ended December&nbsp;31, 1999 and at December&nbsp;31, 2000, 1999 and 1998
are derived from other financial statements not appearing in this annual
report. We were incorporated in September 1997 and began full commercial
operations on January&nbsp;1, 1999. The selected financial data set forth below
should be read in conjunction with &#147;Item&nbsp;5. Operating and Financial Review and
Prospects&#148; and the financial statements and notes thereto included elsewhere in
this annual report.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="23"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="23"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1998</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1999</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>

    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation into</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="19"><FONT size="1"><B>New Israeli Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>US dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="19"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="23"><FONT size="1"><B>In thousands (except per share data)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Statement of Operations Data</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Revenues, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">899,217</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,103,859</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,249,349</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,054,563</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">855,935</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of revenues (1998&#151;operating
expenses, net(1))</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27,289</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,483,061</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,161,507</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,719,163</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,069,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">647,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross profit (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(27,289</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(583,844</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(57,648</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">530,186</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">985,105</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">207,960</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Selling and marketing expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">46,157</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">265,124</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">327,881</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">292,960</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">308,079</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">65,037</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">General and administrative expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,737</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">158,588</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">154,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">134,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">143,594</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30,313</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating profit (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(94,183</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,007,556</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(540,166</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">102,944</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">533,432</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">112,610</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financial expenses, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">290,397</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">228,609</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">400,927</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">445,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">93,979</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss on impairment of investments in
non-marketable securities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,862</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">856</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)&nbsp;before cumulative
effect of a change in accounting principles</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(99,193</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,297,953</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(768,775</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(306,845</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">84,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,775</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cumulative effect, at beginning of
year, of a change in accounting
principles</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)&nbsp;for the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(99,193</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,297,953</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(768,775</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(303,362</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">84,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,775</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"></FONT></DIV></TD>

<TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">Page 6
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="4%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="23"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="23"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1998</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1999</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation into</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="19"><FONT size="1"><B>New Israeli Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>US dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="19"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="19"><FONT size="1"><B>In thousands (except per share data)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Earnings (loss) per ordinary share and per ADS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Basic:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Before cumulative effect</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.71</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8.86</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.30</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.72</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cumulative effect</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.71</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8.86</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.30</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.70</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Diluted:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Before cumulative effect</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.71</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8.86</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.30</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.72</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cumulative effect</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.71</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8.86</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.30</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.70</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted average number of shares<BR>outstanding</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Basic:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">140,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">146,481,482</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,888,888</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,909,274</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">179,984,090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">179,984,090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Diluted:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">140,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">146,481,482</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,888,888</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,909,274</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">183,069,394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">183,069,394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Other Financial Data</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capital expenditures, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">548,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">823,995</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">544,927</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">599,493</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">556,376</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">117,453</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">EBITDA(2)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(95,336</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(581,959</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(58,741</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">656,369</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,052,240</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">222,132</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Statement of Cash Flows Data</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash provided by (used in)
operating activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(71,198</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(835,949</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(353,272</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">422,548</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">682,191</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">144,013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash used in investing activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,901,833</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(690,396</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(809,731</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(629,061</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(815,968</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(172,254</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash provided by financing
activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,989,543</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,924,930</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">748,775</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">210,916</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">129,865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27,415</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Balance Sheet Data (at year end)</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">109,824</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">774,242</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">588,545</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">631,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">816,416</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">172,348</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Investments and long-term
receivables</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,112</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">119,524</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">140,969</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">45,991</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,709</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed assets, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">546,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,216,765</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,507,045</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,749,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,864,511</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">393,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">License and deferred charges, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,613,914</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,436,949</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,289,933</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,112,959</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,269,348</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">267,965</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,270,033</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,436,068</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,505,047</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,634,128</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,996,266</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">843,628</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>


    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current liabilities(3)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">931,380</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">571,261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">583,243</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,194,704</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">735,153</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">155,194</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term liabilities(3)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,435,526</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,063,815</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,832,964</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,633,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,357,497</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">708,781</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,366,906</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,635,076</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,416,207</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,827,904</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,092,650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">863,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shareholders&#146; equity (capital
deficiency)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(96,873</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">800,992</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">88,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(193,776</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(96,384</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(20,347</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total liabilities and shareholders&#146;
equity (net of capital
deficiency)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,270,033</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,436,068</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,505,047</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,634,128</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,996,266</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">843,628</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"></FONT></DIV></TD>

<TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">Page 7
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="23"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="23"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1998</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1999</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation into</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="19"><FONT size="1"><B>New Israeli Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>US dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="19"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="19"><FONT size="1"><B>In thousands</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Reconciliation Between Operating
Cashflows and EBITDA</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash provided by (used in)
operating activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(71,198</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(835,949</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(353,272</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">422,548</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">682,191</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">144,013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Liability for employee rights upon
retirement</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(447</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,583</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(11,581</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(18,736</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(18,632</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,933</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accrued interest, exchange and
linkage differences on long-term
liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(141,663</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,214</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(54,522</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(91,027</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(19,216</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>


    <TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amount carried to deferred charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
<TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
<TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,489</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,805</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">803</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accrued interest, exchange and
linkage differences on security
deposit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
<TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
<TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
<TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,574</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,590</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,925</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,462</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left"><FONT size="2">Sundry</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5,000</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,560</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">181</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
<TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
<TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
<TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase (Decrease) in accounts
receivable:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left"><FONT size="2">Trade</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,146</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">204,732</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">197,308</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">55,944</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56,638</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,957</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22,060</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(23,970</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,056</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,701</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Decrease (Increase) in accounts
payable and accruals:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left"><FONT size="2">Trade</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(76,044</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(133,238</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(93,499</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(57,271</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(31,909</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,736</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left"><FONT size="2">Shareholder&#151;current account</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(629</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(20</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,230</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
<TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
<TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(26,915</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8,063</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(84,685</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(68,068</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(14,796</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,124</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left"><FONT size="2">Increase (Decrease) in inventories</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">53,681</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">43,921</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">65,614</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(36,859</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,996</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,744</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left"><FONT size="2">Financial Expenses(4)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">283,248</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">221,906</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">393,739</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">437,993</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">92,461</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cumulative effect, at beginning of
year and change in accounting principles</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
<TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
<TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,483</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
<TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
<TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">EBITDA</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(95,336</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(581,959</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(58,741</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">656,369</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,052,240</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">222,132</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">After deduction of incidental revenues amounting to NIS 4.7&nbsp;million.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">EBITDA represents earnings (loss)&nbsp;before interest, taxes, depreciation,
amortization, exceptional items and capitalization of intangible assets.
EBITDA is presented because it is a measure commonly used in the
telecommunications industry and is presented solely to enhance the
understanding of our operating results. EBITDA, however, should not be
considered as an alternative to operating income or income for the year as
an indicator of our operating performance. Similarly, EBITDA should not be
considered as an alternative to cash flows from operating activities as a
measure of liquidity. EBITDA is not a measure of financial performance
under generally accepted accounting principles and may not be comparable
to other similarly titled measures for other companies. EBITDA may not be
indicative of our historic operating results; nor is it meant to be
predictive of potential future results. The EBITDA figures presented above
are substantially the same as those resulting from the calculation of
Consolidated Adjusted EBITDA pursuant to US GAAP as required under the
indenture governing our 13% senior subordinated notes due 2010.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 8
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">See Notes 5, 6 and 7 to our consolidated financial statements for
information regarding long-term liabilities and current maturities of
long-term bank loans. With respect to our loans from Bank Hapoalim, see
&#147;Item&nbsp;5B. Operating and Financial Review and Prospects&#151;Liquidity and
Capital Resources.&#148;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(4)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Financial expenses excluding any charge for the amortization of
pre-launch financial costs.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><B>Selected Operating Data</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>At December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Industry Data</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Estimated population of Israel (in thousands)(1)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,347</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Estimated Israeli mobile telephone subscribers (in thousands)(2)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,470</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,333</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Estimated Israeli mobile telephone penetration(3)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">63%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">84%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">95%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>Year ended December 31,*</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>Three months ended</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>March 31,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Sept. 30,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Dec. 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1999</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Partner Data</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Subscribers (000&#146;s) (at period end)(4)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">355</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">834</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,837</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,596</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,703</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,758</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,837</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Prepaid</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">389</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">540</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">453</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">502</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">514</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">540</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Postpaid (private)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">829</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">888</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">933</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Postpaid (business)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">240</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">293</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">255</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">268</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">278</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD align="right"><FONT size="2">293</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">

<TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Share
of total Israeli<BR>subscribers (at
period<BR>end)(5)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Average monthly usage per subscriber
(mins.)(6)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">456</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">392</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">318</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">280</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">284</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">284</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">279</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">272</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Average monthly revenue per subscriber
including inroaming (NIS)(7)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">393</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">306</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">214</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">183</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">184</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">185</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">187</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Prepaid</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">151</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">127</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">127</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">129</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">120</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Postpaid (private)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">192</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">167</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">167</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">169</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">172</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">161</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Postpaid (business)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">354</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">343</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">337</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">344</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">347</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">343</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Churn rate(8)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.8%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.5%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.8%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.9%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.3%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.6%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.7%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.9%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Subscriber acquisition costs per
subscriber (NIS)(9)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,464</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">819</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">470</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">443</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">463</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">495</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">482</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Estimated coverage of Israeli
population (at period end)(10)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">96%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97%</FONT></TD>
    <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Number of operational base stations
(at period end)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">846</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,355</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,882</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,035</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,901</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,986</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,035</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">Page 9
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>Year ended December 31,*</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>Three
months ended</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>March 31,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Sept. 30,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Dec. 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1999</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Partner Data</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Number of microsites out of total
number of operational base stations
(at period end)(11)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">347</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">703</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">690</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">703</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">710</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Number of employees (full time
equivalent) (at period end)(12)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,453</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,523</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,685</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,469</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,564</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,648</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,685</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">*</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Until the end of 1998 we were mainly engaged in planning and
establishing our cellular network. We launched our commercial services in
January 1999.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The estimated population of Israel at December&nbsp;31, 2000 and 2001 is
published by the Central Bureau of Statistics in Israel. The figures for
2002 are the Company&#146;s estimates.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">We have estimated the total number of Israeli mobile telephone
subscribers from information contained in published reports issued by, and
public statements made by, Pelephone and Cellcom or by their shareholders
and from Partner subscriber data at December&nbsp;31, 2000, 2001 and 2002. The
figure for MIRS 2001 is the Company&#146;s estimate. As MIRS received a general
license on February&nbsp;5, 2001 their subscribers have not been included in
the Israeli subscriber count in prior years. MIRS&#146;s entire subscriber base
has been included in the Israeli subscriber count from the date on which
MIRS received its license.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Total number of estimated Israeli mobile telephone subscribers expressed
as a percentage of the estimated population of Israel. This includes
dormant subscribers as well as other subscribers who are not included in
the Israeli population figures, such as Palestinians, new immigrants, and
foreign workers.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(4)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In accordance with general practice in the mobile telephone industry, we
use the term &#147;subscriber&#148;, unless the context otherwise requires, to
indicate a telephone, rather than either a bill-paying network customer,
who may have a number of telephones connected to the network, or a mobile
telephone user who may share a single telephone with a number of other
users. &#147;Subscriber&#148; includes our prepaid customers. Our prepaid service
was launched on June&nbsp;29, 2000. References to the number of subscribers are
stated net of subscribers who leave or are disconnected from the network,
or who have not generated revenue for the Company for a period of over six
consecutive months ending at a reporting date.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(5)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Total number of Partner subscribers expressed as a percentage of the
estimated total number of Israeli subscribers.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(6)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">We have calculated Partner average monthly usage per subscriber by (i)
dividing, for each month in such period, the total number of minutes of
usage, excluding in-roaming usage, during such month by the average of the
number of Partner subscribers, and (ii)&nbsp;dividing the sum of such results
by the number of months in the relevant period.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(7)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">We have calculated Partner average monthly revenue per subscriber by (i)
dividing, for each month in such period, the Partner revenue during such
month, excluding revenue from equipment sales and including revenue from
foreign Global System for Mobile Communications, or GSM, network operators
for</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 10
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">calls made by their roaming customers while in Israel using our network, by
the average of the number of Partner subscribers, and (ii)&nbsp;dividing the sum
of such results by the number of months in the relevant period. We have
presented the amounts in NIS.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(8)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">We define the &#147;churn rate&#148; as the total number of subscribers who
disconnect from our network, either involuntarily or voluntarily, in a
given period expressed as a percentage of the average of the number of
our subscribers at the beginning and end of such period. From June
2001, our churn rate has also included subscribers who have not generated
revenue for the Company for a period of the last six consecutive months
ending at a reporting date. Involuntary churn includes disconnections due
to non-payment of bills or suspected fraudulent use, and voluntary churn
includes disconnections due to subscribers switching to a competing mobile
telephone network or terminating their use of our services. In the
quarter ended September&nbsp;30, 2002, we refined our reporting procedures for active
subscribers. This change caused a reduction in the reported number of
active subscribers for the third quarter of 2002 of 41,000 subscribers. Some of the additional churn provided for, related to
periods prior to the third quarter of 2002.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(9)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Subscriber acquisition costs (SAC)&nbsp;include mainly handset and car kit
costs, net of revenues received from sales of handsets, referred to as
&#147;handset subsidies&#148;, and commissions paid to dealers, distributors and
sales personnel. Subscriber acquisition costs per subscriber are
calculated by dividing the subscriber acquisition costs incurred during

the reporting period by the number of subscribers acquired in the
reporting period.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The aforementioned components of SAC are included in our consolidated
financial statements as follows: handset and car kit costs&#151;in &#147;cost of
revenues&#148;; commissions paid to dealers, distributors and sales personnel&#151;in
&#147;selling and marketing expenses&#148;; and revenues received from sales of
handsets&#151;in &#147;revenues, net&#148;.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(10)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">We measure coverage using computerized models of our network, radio
propagation characteristics and topographic information to predict signal
levels at two meters above ground level in areas where we operate a cell
site. According to these coverage results, we estimate the population
serviced by our network and divide this by the estimated total population
of Israel. Estimates are published by the Central Bureau of Statistics in
Israel.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(11)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">We did not begin to record data on the number of microsites until the
second quarter of 1999.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(12)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">A full-time employee is contracted
to work a standard 186 hours per month.
Part-time employees are converted to full-time equivalents by dividing
their contracted hours per month by the full-time standard. The result is
added to the number of full-time employees to determine the number of
employees on a full-time equivalent basis.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 11
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="left"><FONT size="2"><B><I>Exchange Rate Data</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth, for the years indicated, exchange rates
between the shekel and the US dollar, expressed as shekels per US dollar and
based upon the daily representative rate of exchange on the last day of each
year as published by the Bank of Israel.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1998</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1999</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Average(1)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.140</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.077</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.220</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.736</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">High</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.367</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.288</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.416</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.994</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Low</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.536</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.967</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.067</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.437</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">End of period</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.160</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.153</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.041</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.416</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.737</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Calculated based on the average of the exchange rates on the last
day of each month during the relevant period.</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>September</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>October</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>November</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>December</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>January</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>February</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">High</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.890</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.862</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.756</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.791</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.898</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.924</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Low</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.738</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.634</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.632</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.769</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.810</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">On March&nbsp;12 2003, the exchange rate was NIS 4.832 per US dollar as published by
the Bank of Israel.
</FONT>
<P align="left"><FONT size="2">Changes in the exchange rate between the shekel and the US dollar could
materially affect our financial results.
</FONT>
<P align="left"><FONT size="2"><B>3B. Capitalization and Indebtedness</B>
</FONT>
<P align="left"><FONT size="2">Not applicable.
</FONT>

<P align="left"><FONT size="2"><B>3C. Reasons for the Offer and Use of Proceeds</B>
</FONT>
<P align="left"><FONT size="2">Not applicable.
</FONT>

<P align="center"><FONT size="2">Page 12
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2"><B>3D. Risk Factors</B>
</FONT>
<P align="left"><FONT size="2"><B>We expect our growth to slow,
because Israel&#146;s mobile telephone market is
highly penetrated, making it difficult to obtain new subscribers.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although we have experienced substantial subscriber growth since our
commercial launch in 1999, we expect the growth of the Israeli market for
mobile telephones to slow because the market is highly penetrated. The
population of Israel at December&nbsp;31, 2002 was approximately 6.7&nbsp;million. At
December&nbsp;31, 1998, prior to our full commercial launch, approximately 35% of
the Israeli population had mobile telephones. At December&nbsp;31, 2002, that
percentage is estimated to be 95%, although this includes dormant subscribers
as well as other subscribers who are not included in the Israeli population
figures, such as Palestinians, new immigrants, and foreign workers. Because the
Israeli market for mobile telephones is highly penetrated, future demand for
our services may not develop at the same rate as it has in the past, and
depends largely on our ability to retain existing subscribers in our network
and to attract subscribers from the other mobile telephone network operators.
While our market share, based on internal estimates, has increased from
approximately 13% of Israeli mobile subscribers at December&nbsp;31, 1999 to
approximately 29% at December&nbsp;31, 2002, we expect our market share growth to
slow down in 2003.
</FONT>
<P align="left"><FONT size="2"><B>A continuing deterioration in the
economic conditions in Israel may adversely
affect our financial condition and results of operations.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are incorporated and based in, and currently derive almost all our
revenues from markets within, the State of Israel. Primarily due to the global
economic downturn and Israel&#146;s security and political situation, the Israeli
economy has slipped into recession. The rate of unemployment is rising,
consumer spending has decreased and many businesses are experiencing financial
difficulties. A continuing deterioration in the economic conditions in Israel
may adversely affect usage patterns of our services and the ability of our
customers to pay for our services, which would adversely affect our financial
condition and results of operations. Such continuing deterioration may also
cause us to delay our future investments and our launch of Universal
Mobile Telecommunications System, or UMTS third generation,
technology, also known as Wideband Code
Division Multiple Access, or W-CDMA technology. In addition, if
the economic deterioration in Israel continues, it may also affect the ability
of Israeli banks to provide us with financing under our current credit facility
and additional financing on reasonable terms and conditions, should we need it
in the future.
</FONT>

<P align="center"><FONT size="2">Page 13
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2"><B>The political and military
conditions in Israel may adversely affect our
financial condition and results of operations.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The political and military conditions in Israel directly influence us.
Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors. Hostilities
involving Israel, the interruption or curtailment of trade between Israel and
its trading partners, political instability within Israel or its neighboring
countries and changes in Israeli laws and regulations, including taxation, are
likely to cause our revenues to fall and harm our business.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since October 2000, there has been a substantial deterioration in the
relationship between Israel and the Palestinians, which has resulted in
increased violence, and the situation has recently worsened due to the
possibility of an Iraqi attack against Israel in response to an attack by the
United States and its allies against Iraq. The future effect of this
deterioration and violence on the Israeli economy and our operations is
unclear. Ongoing violence between Israel and its Arab neighbors and
Palestinians may have a material adverse effect on our business, financial
condition or results of operations. Due to the substantial deterioration in the
political situation in Israel, we have already experienced and may continue to
suffer from a decrease in incoming roaming services.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some of our directors, officers and employees are currently obligated to
perform annual reserve duty. Additionally, all such reservists are subject to
being called to active duty at any time under emergency circumstances. We
cannot assess the full impact of these requirements on our workforce and
business if conditions should change, and we cannot predict the effect on us of
any expansion or reduction of these obligations. Under emergency circumstances,
the government also has the right to revoke temporarily some of the spectrum
granted to us, to protect the security of the State of Israel or to ensure the
provision of necessary services to the public. This may materially harm our
ability to provide services to our subscribers in such emergency circumstances.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We cannot assure you that we are fully prepared for every disaster or
emergency situation, or that we could recover fully from such an occurrence,
and we cannot predict the effect on us of any such circumstances.
</FONT>
<P align="left"><Font size="2"><B>Increased competition from existing competitors may affect our market share and
require us to reduce our tariffs in the future, may increase our subscriber
acquisition costs and customer retention costs and may continue to increase our
churn rate.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We compete primarily with Cellcom, which launched its services in 1994,
and Pelephone, which launched its services in 1986, two of the other mobile
telephone network operators in Israel. Although we were once the only GSM
network operator in Israel, Cellcom began providing GSM 1800 services during
the second half of 2002, and we expect competition to intensify as it will be
much
</FONT>
<P align="center"><FONT size="2">Page 14
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2">easier than before for Cellcom to attract new subscribers, including those who
are currently our subscribers. As a result, we may face an increase in our
churn rate and may be forced to increase our customer retention costs,
including subsidies towards upgrades of subscribers&#146; handsets, in order to
retain our subscribers. Moreover, we have lost and do not expect to regain a
material part of our revenues from roaming services offered to GSM subscribers
visiting from abroad. These developments may adversely affect our market share
and financial condition and results of operations.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to public reports, Cellcom also intends to launch a technology
called Enhanced Data Rates for GSM Evolution, or EDGE, enabling the transfers
of data at rates of up to approximately 380 Kbps. Additionally, Pelephone is
adding an overlay to its existing CDMA network, which is called CDMA-1x, a
technology that enables the transfer of data at speeds of up to approximately
300 Kbps. If Cellcom or Pelephone successfully launch these new advanced
technologies before we launch UMTS third generation technology, or if any of our
competitors successfully launches third generation services, before we do,
we will be at a competitive disadvantage.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pelephone also recently launched a new brand called &#147;ESCAPE&#148;, or &#147;ESC&#148;,
which is primarily aimed at young subscribers, which we believe are a very
important target market of ours. Pelephone is investing heavily in promoting
its new brand. However, we cannot predict at this stage the impact of the
launch of this new brand on our ability to retain our subscribers and attract
new subscribers from the other mobile telephone network operators.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also
compete with an Enhanced Specialized Mobile Radio, or &#147;trunking&#148;,
network known as MIRS. MIRS was granted a general license to operate as a
mobile telephone operator on February&nbsp;5, 2001. As a result of the general
license, the use of MIRS&#146;s network has grown and may continue to grow
significantly, and this growth could adversely affect our market share.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To the extent that fixed-line telephones are used instead of mobile
telephones, we also compete with Bezeq, which owns 50% of Pelephone and is the
only incumbent public fixed-line operator in Israel. We also may face
competition from new fixed-line operators. Additional fixed-line telephone
service licenses may be granted in the future. If any of our competitors is
granted such a license, we may be at a competitive disadvantage relative to
those existing mobile telephone operators who are able to offer combined
packages of fixed-line and mobile telephone services.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the Palestine Telecommunication Co. Ltd., or Paltel, operates
a GSM mobile telephone network under the name &#147;Jawwal&#148; in the Palestinian
Authority administered areas of the
</FONT>
<P align="center"><FONT size="2">Page 15
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2">West Bank and Gaza Strip, as well as a fixed-line network. Paltel&#146;s GSM network
competes with our network in some border coverage overlap areas.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Competition may require us to increase our subscriber acquisition costs
and customer retention costs. Competition may also limit our ability in the
future to increase tariffs, or cause us to reduce tariffs. We experienced a
material increase in churn in 2002 and expect a further material increase in
churn in 2003. For more information, see &#147;Item&nbsp;5A. Operating Results&#151;Churn&#148;.
Competition may further increase our expected level of churn. The impact of
increased competition could have a material adverse effect on our business,
financial condition or results of operations.
</FONT>
<P align="left"><FONT size="2"><B>Risks and uncertainties in connection with UMTS third generation technology
mean that we may not make an economic return on our investment in acquiring
UMTS third generation spectrum, establishing a UMTS third generation network,
or developing UMTS third generation services.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The technology for new UMTS third generation services has not yet been
fully developed by the limited number of suppliers of the handsets, network
equipment and software to be used by us and our competitors in providing UMTS
third generation services. If these suppliers do not provide reasonably priced
devices, technologically proven network equipment and software with sufficient
functionality or speed or if they experience delays in the delivery or
functional deployment of such devices and related network equipment or
software, our ability to develop our UMTS third generation network, and our
customers&#146; ability to access it, will be impaired. We also rely on applications
developers to develop services that will stimulate demand for our UMTS third
generation network, although we cannot predict whether customer demand will
develop as expected. If applications developers fail to develop such services,
or experience delays in their development of such services, our ability to
generate revenues from our UMTS third generation networks will be adversely
affected.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;UMTS third generation technology is newer and has less mature standards
than second generation technology. We may not be able to roll-out or operate
new technologies to perform as expected or favorably when compared to existing
or emerging competing communications technologies, such as second generation
technology, as well as technologies in connection with UMTS third generation
mobile communications services that are being or will be developed around the
world. Competing communications technologies also include those discussed
below, in &#147;&#151;The telecommunications industry is subject to rapid and
significant changes in technology which could reduce the appeal of our
services.&#148; See also &#147;&#151;Increased competition from existing competitors may
affect our market share and require us to reduce our tariffs in the future, may
increase our subscriber acquisition costs and customer retention costs and may
continue to increase our churn rate.&#148;
</FONT>
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<P align="left"><FONT size="2">Consequently, the UMTS third generation network and services that we intend to
establish and develop through investing substantial capital resources may not
gain market acceptance. As well, testing UMTS third generation networks in live
environments has been limited, and it is not yet clear how large-scale usage
will affect the capacity and functionality of UMTS third generation networks
and therefore what the optimal network density, which determines the cost of
our network roll-out, will be. Furthermore, it is not yet clear if customers
will adopt UMTS third generation services, how widespread the usage of these
new services will be, how many customers will be willing to pay for such
services and devices and whether the revenue generated from these services will
justify the costs involved in establishing and operating our UMTS third
generation network. For these reasons, we cannot be certain that our UMTS third
generation-related investments will provide an economic return.
</FONT>
<P align="left"><FONT size="2"><B>The telecommunications industry is subject to rapid and significant changes in
technology which could reduce the appeal of our services.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may face competition from technologies currently in development or that
will be developed in the future, including fixed-line and cordless
technologies, satellite-based personal communications services, private and
shared radio networks, and other communications services that have the
technical capability to handle mobile telephone calls including interconnection
to the fixed-line telephone network. The effect of emerging and future
technological changes on the viability or competitiveness of our network cannot
be accurately predicted. We cannot assure you that the technologies we employ
or intend to employ, including UMTS third generation technology, will not
become obsolete or subject to competition from new technologies in the future.
</FONT>
<P align="left"><FONT size="2"><B>We operate in a highly regulated telecommunications market which limits our
flexibility to manage our business. In particular, the regulator&#146;s decisions,
including those relating to tariffs, may materially adversely affect our
results of operations.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business is subject to government regulation regarding licensing,
competition, frequency allocation and costs and arrangements pertaining to
interconnection and leased lines. Our business and operations could be
adversely affected by changes in laws, regulations or government policy
affecting our business activities, such as decisions by the regulator
increasing the rate of royalties to be paid to the State of Israel, enlarging
the types of revenues which the royalties apply to, setting policies and
imposing new regulations governing electronic trade and M-Commerce, or further
reducing call or SMS termination tariffs, as well as the amendment or
revocation of our license. For example, as of January&nbsp;1, 2003, the Ministry of
Communications reduced the call termination tariffs to mobile telephone
</FONT>
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<P align="left"><FONT size="2">networks from NIS 0.50 per minute to NIS 0.45 per minute. For more information, see &#147;Item&nbsp;4B. Business
Overview-Interconnection&#148;. According to our
estimation, this reduction in call termination tariffs will have a major
adverse impact on our revenues and results of operations.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Had the call termination tariffs been reduced to NIS 0.45 per minute for
all of 2002, the proforma negative impact on our revenues and net income would
have amounted to approximately NIS 110&nbsp;million and NIS 62&nbsp;million,
respectively, as a result of the reduction in the call termination tariffs that
we would have collected and paid, together with the related royalties. The
Ministry of Communications has also recently indicated that it may further
reduce call and SMS termination tariffs.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As well, the Ministry of Communications has started an inquiry into SMS
termination tariffs. The Antitrust Authority has also been reviewing SMS
interconnection agreements and has informed us preliminarily that the SMS
interconnection arrangements are in restraint of trade. The Antitrust Authority
has indicated that it will refrain from action for the time being to allow the
Ministry of Communications to resolve the matter. The result of either of these
two inquiries could be the reduction or elimination of SMS termination tariffs,
which would adversely affect our results of operations.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During an emergency, including a major communications crisis in Israel&#146;s
national communications network, a natural disaster, or a special security
situation in Israel, control of our network may be assumed by a lawfully
authorized person in order to protect the security of the State of Israel or to
ensure the provision of necessary services to the public. During such extreme
circumstances, the government also has the right to withdraw temporarily some
of the spectrum granted to us.
</FONT>
<P align="left"><FONT size="2"><B>We may be unable to obtain necessary financing to support our network expansion
and enhancement plans.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating a mobile telephone network like ours requires high levels of
capital investment and marketing expenditures. From January&nbsp;1, 1998 to December
31, 2002 we made cumulative net capital expenditures of approximately NIS 3,073
million ($649&nbsp;million), and paid license fees and associated costs totaling
approximately NIS 1,793&nbsp;million ($378&nbsp;million).
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In an auction process completed on December&nbsp;18, 2001, the Ministry of
Communications awarded us the two bands of spectrum for which we had submitted
bids: one band of 1800 MHz spectrum, which is GSM compatible, or GSM 1800
spectrum, and one band of UMTS third generation spectrum. The cost of the
license fees is NIS 180&nbsp;million (approximately $38&nbsp;million) for the GSM 1800
spectrum, payable in two installments, and NIS 220&nbsp;million (approximately $46
million) for the
</FONT>
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<P align="left"><FONT size="2">UMTS third generation spectrum, payable in six installments. To date, we have
paid NIS 108&nbsp;million and NIS 100&nbsp;million for the GSM 1800 spectrum and the UMTS
third generation spectrum, respectively. For more information, see &#147;Item&nbsp;5B.
Operating and Financial Review and Prospects&#151;Liquidity and Capital Resources.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will incur additional substantial capital expenditures in building out
our UMTS third generation network and increasing the capacity of our existing
network. We estimate that capital expenditures in connection with building out
our UMTS third generation network will be approximately $300&nbsp;million over the
three to five years from the beginning of the network build-out, with
approximately $150&nbsp;million in capital expenditures required in the first twelve
months of the build-out. The network build-out is expected to begin towards the
end of 2003 or the beginning of 2004. Although at present we believe we have a
fully funded business plan, including the support necessary for our UMTS third
generation operations, we may require additional funding for capital
expenditures in connection with building out our UMTS third generation network.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may also be forced to incur additional debt or raise additional equity
to meet such costs and any unanticipated requirements. This may include
entering into additional credit arrangements or issuing debt or other
securities, which may require consents under our credit agreement and indenture
and under the terms of our license. As well, any offering of more than 10% of
our currently outstanding ordinary shares would require the approval of the
Ministry of Communications, pursuant to the terms of our license. See &#147;&#151;Our
telecommunications license imposes certain restrictions on who can own our
shares. If these restrictions are breached, we could lose our license.&#148; If for
any reason adequate financing is not available as needed, our business,
financial condition or results of operations could be materially adversely
affected.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, there is a risk that we have underestimated our future
capital requirements or overestimated our future revenues and operating profits
in the build-out and operation of a third generation network. If so, our future
business, financial condition and results of operations could be materially
adversely affected.
</FONT>
<P align="left"><FONT size="2"><B>Our credit facility and our indenture each contain a number of restrictions and
obligations that limit our operating and financial flexibility.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our credit facility and the indenture governing our 13% senior
subordinated notes due 2010 each contain a number of financial, operating and
other obligations that limit our operating and financial flexibility. These
covenants, among other things, restrict our ability to pledge our assets, enter
into certain types of lease financing, dispose of assets, make loans or give
guarantees, make
</FONT>
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<P align="left"><FONT size="2">certain acquisitions or engage in mergers or consolidations, incur borrowing
(other than permitted borrowings), make any substantial change to the nature of
our business or engage in any other business. Permitted borrowings include
shareholders loans and subordinated debt (including notes) and an aggregate
amount in loans and credits, performance guarantees and letters of credit of up
to a maximum of $50&nbsp;million, provided that the aggregate amount of loans and
credits alone do not exceed $25&nbsp;million. Our subsidiaries may incur borrowings
provided they maintain a defined debt to equity ratio, and we may make
acquisitions with the proceeds of certain debt and equity offerings.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, we may not pay dividends or similar payments on our ordinary
shares or repay principal or interest on shareholders&#146; loans or principal on
subordinated debt, or make payments to shareholders generally by way of return
or repurchase of capital, other than by way of a permitted distribution. A
permitted distribution means an amount not exceeding, in the aggregate, 50% of
the excess cash flow arising in the previous financial year, and is subject to
our compliance with additional conditions, including that an actual or
potential event of default does not exist, that we are able to meet outstanding
operating expenditure requirements, that we have repaid (and cannot re-borrow)
at least 50% of the total bank commitments under the credit facility, that such
distribution is made no earlier than December&nbsp;31, 2005, and that we comply with
certain minimum coverage ratios. Payments of interest on our notes are
restricted in the event amounts due under the credit facility are unpaid or an
event of default has occurred.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our credit facility contains covenants regarding achieving certain levels
of financial ratios during each of the ratio periods (semi-annual or annual
periods) during the term of the credit facility. These ratios include:
</FONT>
<P>
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    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Fixed Charge Coverage Ratio (EBITDA divided by the sum of debt
service, capital expenditures and tax payments), which has to be not less
than 83% by the end of 2002, and not less than 105% by the end of June
2008.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Facility Debt Coverage Ratio (EBITDA divided by the aggregate advances
made under the credit facility), which has to be not less than 33% by the
end of 2002 and not less than 65% by the end of June 2008.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Total Debt Coverage Ratio (EBITDA divided by Total Debt (as defined in
the credit facility)), which has to be not less than 25% by the end of
2002, and not less than 45% by the end of 2008.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">ADSCR (EBITDA divided by Debt Service (as defined in the credit
facility)), which has to be not less than 200% by the end of 2002, and not
less than 165% by the end of 2008.</FONT></TD>
</TR>
</TABLE>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deviation of up to 5% is permitted in ADSCR and in any one of the other
three covenants in each ratio period, provided such deviation is not repeated
in any of the three immediately following ratio periods.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability to continue to comply with these and other obligations depends
in part on the future performance of our business. There can be no assurance
that such obligations will not materially adversely affect our ability to
finance our future operations, or the manner in which we operate our business.
In particular, any non-compliance with performance-related covenants and other
undertakings of our credit facility or indenture could result in an
acceleration of our outstanding debt under the credit facility and the
indenture and restrict our ability to draw additional funds, which could have a
material adverse effect on our business, financial condition or results of
operations.
</FONT>
<P align="left"><FONT size="2"><B>Our substantial leverage could adversely affect our financial health.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are highly leveraged. At December&nbsp;31, 2002, our total long-term
indebtedness was approximately NIS 3,297&nbsp;million ($696&nbsp;million).
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This debt represents approximately 103% of our total capitalization (bank
loans plus notes payable net of capital deficiency) at December&nbsp;31, 2002. Our
credit facility and the indenture governing our notes permit us to incur
additional indebtedness subject to some limitations. The indenture does not
place a limit on the amount of indebtedness that we may incur in financing the
acquisition of network assets, including licenses, equipment and inventory, or
for capital expenditures and working capital for our business.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our substantial debt could adversely affect our financial health by, among
other things:
</FONT>
<P>
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    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">increasing our vulnerability to adverse economic conditions or
increases in prevailing interest rates, particularly if any of our
borrowings are at variable interest rates;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">limiting our ability to obtain the additional finance we need to
operate, develop and expand our business;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
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    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">requiring us to dedicate a substantial portion of our cash flow from
operations to service our debt, which reduces the funds available for
operations and future business development; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
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    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">exposing us to the effects of foreign exchange fluctuations on our
obligations under our notes, which are denominated in US dollars.</FONT></TD>
</TR>
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<P align="left"><FONT size="2"><B>We may not be able to make our debt payments in the future.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability to meet our debt obligations will depend on whether we can
successfully implement our strategy, as well as on financial, competitive,
legal and technical factors, including some factors that are beyond our
control. If we are unable to generate sufficient cash flow from operations to
meet principal and interest payments on our debt, we may have to refinance all
or part of our indebtedness.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We cannot ensure that any such refinancing would be possible on terms that
we could accept or that we could obtain additional financing. If refinancing
were not possible or if additional financing were not available, we may have to
sell our assets under circumstances that might not yield the highest prices, or
default on our debt obligations, including the notes, which would permit our
noteholders and holders of other outstanding indebtedness to accelerate their
maturity dates.
</FONT>
<P align="left"><FONT size="2"><B>Our business may be impacted by the
shekel exchange rate fluctuations and
inflation.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of our revenues and a majority of our operating expenses
are denominated in shekels. However, through December&nbsp;31, 2002, a substantial
amount of our operating expenses were linked to non-shekel currencies. These
expenses related mainly to the acquisition of handsets where the price paid by
us is based on various foreign currencies. In addition, a substantial majority
of our capital expenditures are incurred in, or linked to, non-shekel
currencies, and our notes are denominated in US dollars and require US dollar
interest payments. Thus, any devaluation of the shekel against the dollar (or
other foreign currencies), will increase the shekel cost of our non-shekel
denominated or linked expenses and capital expenditures. Such an increase may
have an adverse impact on our results, which may be material. In addition, we
expect that we will make investments in our UMTS third generation network
predominately in foreign currency. Material changes in exchange rates may cause
the amounts that we must invest to increase materially in shekel terms. We
hedge some of our foreign currency commitments, but we do not currently hedge
the principal payable on our notes. As of December&nbsp;31, 2002, the notional
amounts of our foreign currency derivatives were approximately $249&nbsp;million.
Our derivative transactions are mainly designed to hedge the cash flows related
to the payments of dollar interest on our notes and those related to anticipated
payments in respect of purchases of handsets and fixed assets in foreign
currency. The transactions are primarily foreign currency transactions and
purchases and sales of currency options. See Note 12(b) to our consolidated
financial statements.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our bank credit facility borrowings are primarily in shekels, and some of
our shekel bank borrowings are linked to the Israeli consumer price index, or
CPI. We may not be permitted to raise our tariffs pursuant to our license in a
manner that would fully compensate for any increase in the
</FONT>
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<P align="left"><FONT size="2">Israeli CPI. Therefore, an increase in the rate of inflation may also have a
material adverse impact upon us by increasing our financial expenses without an
offsetting increase in revenue.
</FONT>
<P align="left"><FONT size="2"><B>Historically, we have experienced substantial operating and net losses.
Although, for the first time, in 2002 we experienced net income, we cannot
assure you that we will continue to do so, or that future net income will
offset our cumulative losses.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To date, the launch and development of our business have required
substantial capital, operating and marketing expenditures. These expenditures
have historically resulted in net cash outflows, negative EBITDA and
substantial operating and net losses. For the years ended December&nbsp;31, 1999 and
2000, we had negative EBITDA of approximately NIS 582&nbsp;million and NIS 59
million, respectively. Although we generated positive EBITDA of approximately
NIS 656&nbsp;million and NIS 1,052&nbsp;million ($222&nbsp;million) for the years ended
December&nbsp;31, 2001 and 2002, respectively, and net income of approximately NIS 84
million ($18&nbsp;million) in 2002, we may experience net losses and continue to
have net cash outflows in the next few years while we continue to expand our
network and build and maintain our subscriber base.
</FONT>
<P align="left"><FONT size="2"><B>Operating a mobile telecommunications network involves the inherent risk of
fraudulent activities and potential abuse of our services, which may cause loss
of revenues and non-recoverable expenses.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There is
an inherent risk in operating a mobile telecommunications network
with regard to potential abuse by individuals, groups, businesses or
other organizations who use our mobile telecommunications services and avoid paying for them. The effects of such fraudulent
activities may be, among others, the loss of revenue due to us and out of
pocket expenses which we will have to pay to third parties in connection with
those services, such as interconnect fees, payments to international operators
or to operators overseas and payments to content providers. Such payments may
be non-recoverable. Although we are taking measures in order to prevent
fraudulent activities, we have suffered in the past, and may suffer in the
future, from these activities. The financial impact of fraudulent activities
that have occurred in the past has not been material. However, we cannot assure
you that future fraudulent activities, if they occur, will not materially
affect our financial condition and results of operations.
</FONT>
<P align="left"><FONT size="2"><B>We have had difficulties obtaining some of the permits for which we have
applied, and have not yet applied for other permits that are required for the
erection of our antenna sites. These difficulties could continue and therefore
affect our ability to erect or maintain antenna sites. This could have an
adverse effect on the extent, quality and capacity of our network
coverage</B>
</FONT>
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<P align="left"><FONT size="2"><B>which could prevent us from achieving or maintaining the network coverage and
quality requirements contained in our license and adversely affect our
business.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to establish our mobile telephone network and achieve the
coverage required by our license, we have undertaken the rapid deployment of
antenna sites throughout Israel. In addition, in order to adapt our network for
GSM 1800 and UMTS third generation technology, we will be required to erect
additional antennas and make modifications to our existing antennas. The
erection and operation of these antenna sites require building permits from
local or regional zoning authorities, as well as a number of additional permits
from governmental and regulatory authorities, including:
</FONT>
<P>
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    <TD width="96%"><FONT size="2">erection and operating permits from the Ministry of the Environment;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
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    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">permits from the Civil Aviation Authority, in certain cases; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">permits from the Israeli Defense Forces.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Like our competitors, we have experienced difficulties in obtaining some
of these consents and permits, especially from local building authorities. Our
ability to maintain and improve the extent and quality of our network coverage
depends in part on our ability to obtain appropriate sites and approvals to
install our network infrastructure, including antenna sites. In addition, as
part of our UMTS third generation network build out, we are erecting additional
antenna sites and making modifications to our existing antenna sites, for which
we require new consents and approvals. If we continue to experience difficulty
in obtaining approvals for the erection of antenna sites, this could adversely
affect our existing network and delay the erection of additional antenna sites
to our network. This difficulty could have an adverse effect on the extent,
quality and capacity of our network coverage and on our ability to continue to
market our products and services effectively. Our inability to resolve these
issues in a timely manner could also prevent us from achieving or maintaining
the network coverage and quality requirements contained in our license.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It has been our policy not to operate an antenna site until we have
received the required permits from the Ministry of the Environment, the Civil
Aviation Authority and the Israeli Defense Forces, or at least until all third
party environmental testing necessary for those permits has been successfully
completed. We believe that all of our antenna sites meet the International
Radiation Protection Agency&#146;s standards.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Ministry of the Environment will issue permanent permits for antenna
sites only after required local or regional building permits are obtained. As a
result, approximately 36% of our antenna sites are operating without permits
from the Ministry of the Environment, although all
</FONT>
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<P align="left"><FONT size="2">environmental testing necessary for those permits has been successfully
completed by third parties authorized to conduct such testing by the Ministry
of the Environment. Many of these antenna sites are commonly referred to as
microsites, which are small antenna devices that emit low levels of radiation

comparable to those emitted by our handsets. Additionally, as required by the
Ministry of the Environment, an authorized third party annually verifies that
each of our antenna sites complies with the International Radiation Protection
Agency standards adopted by the Ministry of the Environment.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, a small percentage of antenna sites are operating without
permits from the Civil Aviation Authority and the Israeli Defense Forces. Also,
some local and regional building authorities have caused a number of
administrative delays to the granting of building permits for the erection of
antenna sites, which has resulted in delays in obtaining local building
permits. As a result, we, like other mobile telephone operators in Israel, have
erected antenna sites without the issuance of a building permit from the
relevant local or regional authority. As of December 31, 2002, 50% of our
antenna sites are operating without local building permits. A substantial
portion of these are microsites. Applications have been submitted to the
relevant local or regional authority and are at various stages of the approval
process for approximately 20% of our antenna sites, and the application process
has not been commenced for approximately 30% of our sites. We believe
that a portion of the sites for which the application process has not been commenced do not
require local building permits under the Planning and Building Law.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The erection of an antenna site without a required local building permit
is a violation of the Planning and Building Law, 1965 and, in some cases, has
resulted in a demolition order being imposed on us and in the filing of
criminal charges and civil proceedings against us and our officers and
directors. To date, we have been largely successful in avoiding or delaying the
execution of demolition orders. So far, settlements have resulted in the
imposition of demolition orders for the relevant sites, execution of which has
been stayed for a period of time to allow us to obtain the necessary permits or
to relocate the relevant antenna site. These settlements have not involved any
admission of guilt by our officers and directors. We are facing greater
difficulty in reaching these settlements. Therefore, we cannot assure you that
we will continue to be successful in this regard or that we will not be faced
with demolition orders and criminal charges, including against our officers and
directors. In addition, we, like the other mobile telephone operators in
Israel, may be required to dismantle antenna sites for which we have not yet
obtained the required consents and permits.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, we, like the other mobile telephone operators in Israel,
provide repeaters, also known as bi-directional amplifiers, to subscribers
seeking an interim solution to weak signal reception within specific indoor
locations. These repeaters, which we install at the subscribers&#146; premises upon
their request, consist of an indoor box attached to a small outdoor antenna of
between 40 and 70 cm
</FONT>
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<P align="left"><FONT size="2">(approximately one to two feet), receive signals from a network antenna site
and amplify them within a specific room or rooms. The radiation emission from
these outdoor antennas is comparable to that of the handset whose signal it is
transmitting. In light of the lack of a clear policy of the local planning and
building authorities, and in light of the practice of the other mobile
telephone operators, we have not requested permits under the Planning and
Building Law for the repeaters. However, we have received from the Ministry of
Communications a type approval for the repeaters. A type approval is an
approval given by the Israeli Minister of Communications, pursuant to the
relevant provisions of the Communications Law (Telecommunications and
Broadcasting), 1982, for a specific type of user equipment in order to enable
the owner of a general license to connect this equipment to the owner&#146;s
communications network. We have also approached the Ministry of the
Environment, asserting that no permits are necessary for the repeaters, based
on the Ministry&#146;s previous advice that permits are not necessary for devices
with comparable levels of emission called &#147;Fixed Cellular Terminals&#148;. If the
local planning and building authorities determine that permits are necessary
for the installation of these devices, it could have a negative impact on our
ability to obtain permits for our antenna sites.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;National Building Plan No.&nbsp;36 was recently approved by the Israeli
government, after the National Committee removed from the draft a provision
which would have required notification to owners of adjoining assets of an
intention to erect an antenna site in a residential area. The plan has been
published in the &#147;Reshumot&#148; (the official gazette of the State of Israel), and
has been in effect since June 2002.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To date, we have been subject to minimal monetary penalties. There is no
certainty that future penalties will be in the same amounts, but we believe
that the total amount of these penalties would not have a material effect on
our business and/or financial condition.
</FONT>
<P align="left"><FONT size="2"><B>We are dependent upon our ability to interconnect with other telecommunications
carriers. We also depend on Bezeq for transmission services. The failure of
these carriers to provide these services on a consistent basis could have a
material adverse effect on us.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability to provide commercially viable mobile telephone services
depends upon our ability to interconnect with the telecommunications networks
of existing and future fixed-line, mobile telephone and international operators
in Israel in order to complete calls between our customers and parties on the
fixed-line or other mobile telephone networks. All fixed-line, mobile telephone
and international operators in Israel are legally required to provide
interconnection to, and not to discriminate against, any other licensed
telecommunications operator in Israel. We have signed interconnection
agreements with Pelephone, Cellcom and MIRS, the other mobile telephone network
operators in Israel, and with Bezeq International and Barak, two of the three
international operators in
</FONT>
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<P align="left"><FONT size="2">Israel, and we have an operating arrangement with the third Israeli
international operator, Golden Lines. We have no control over the quality and
timing of the investment and maintenance activities that are necessary for
these entities to provide us with interconnection to their respective
telecommunications networks. The failure of these or other telecommunications
providers to provide reliable interconnections to us on a consistent basis
could have a material adverse effect on our business, financial condition or
results of operations.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently lease most of our transmission capacity from Bezeq, and we
lease additional capacity from other suppliers, primarily Cellcom. We have no
control over the quality and timing of the investment and maintenance
activities that are necessary for these suppliers to provide us with
transmission services. Disruptions, stoppages, strikes and slowdowns
experienced by them may significantly affect our ability to provide mobile
telephone services. In particular, Bezeq has experienced labor disputes with

its employees, including stoppages, notably in recent years as the
privatization of Bezeq and liberalization of the telecommunications market in
Israel have developed. The failure by our suppliers to provide reliable
transmission services to us on a consistent basis could have a material adverse
effect on our business, financial condition or results of operations.
</FONT>
<P align="left"><FONT size="2"><B>We may be required in the future to offer access to our network infrastructure
to other operators. This may lower the entry barriers for potential new
competitors and adversely affect our financial condition and our ability to
provide services to our subscribers.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the Communications Law (Telecommunications and Broadcasting), 1982,
the Ministry of Communications has the power to require us, like the other
telephone operators in Israel, to offer access to our network infrastructure to
other operators, although the Ministry of Communications has not required us to
do so yet. Our amended license also requires us, upon demand by the Minister of
Communications, to permit other operators to provide telecom services using our
network. This will lower the entry barriers for potential new competitors and
increase the likelihood of additional new competitors entering the mobile
telephone market in Israel. Our capacity is limited, and if we are required to
allocate capacity to other operators, the services to our subscribers may be
harmed. If we fail to agree with new operators that are given access to our
network regarding the tariffs for the usage of our infrastructure, the Ministry
of Communications may determine those tariffs. If the Ministry of
Communications sets those tariffs too low, this may adversely affect our
financial condition.
</FONT>
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<P align="left"><FONT size="2"><B>We can only operate our business for as long as we have a license from the
Ministry of Communications.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conduct our operations pursuant to a general license granted to us by
the Ministry of Communications on April&nbsp;7, 1998. Our original license was valid
until 2008. As a result of our obtaining additional spectrum in the December
2001 spectrum auction in Israel, our license has been extended until February
2022. Our license may be extended for an additional six-year period upon our
request to the Ministry of Communications and a confirmation from the Ministry
that we have met certain performance requirements, and we may request renewal
of our license for successive six-year periods thereafter, subject to
regulatory approval. We cannot be certain that our license will not be revoked,
will be extended when necessary, or, if extended, on what terms an extension
may be granted.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additionally, although we believe that we are currently in compliance with
all material requirements of our license, the interpretation and application of
the technical standards used to measure these requirements, including the
requirements regarding population coverage and minimum quality standards, and
other license provisions may not be certain, and disagreements have arisen and
may arise in the future between us and the Ministry of Communications. We have
provided a bank guarantee to the Ministry of Communications in the amount of
$20&nbsp;million to guarantee our performance under our license. For more
information, see &#147;Item&nbsp;5B. Operating and Financial Review and
Prospects&#151;Liquidity and Capital Resources.&#148; If we are found to be in material
breach of our license, the guarantee may be forfeited and our license may be
revoked.
</FONT>
<P align="left"><FONT size="2"><B>Our marketing strategy is based
upon the international Orange Brand. If our license
agreement terminates or is revoked, we will lose one of our main competitive
strengths.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our marketing strategy is based upon the international Orange Brand. We
can operate our business under the Orange Brand only if we have the right to
use it under the brand license agreement with Orange International Developments
Limited, a subsidiary of Orange plc, described in &#147;Item&nbsp;4B.
Business Overview&#151;Intellectual Property.&#148; Under this license agreement, we are required to comply
with the Orange Brand guidelines established by Orange International. We have
the right to use the Orange Brand as long as we are able and legally eligible
under the laws of Israel to offer telecommunications services to the public in
Israel. However, the brand license agreement may be terminated by mutual
agreement, or at our discretion, or by Orange International if a court
determines that we have materially misused the brand and we continue to
materially misuse the brand after such determination of material misuse. If we
lose the right to use the Orange Brand, our financial condition and results of
operations may be materially adversely affected.
</FONT>

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<P align="left"><FONT size="2"><B>Our telecommunications license imposes certain restrictions on who can own our
shares. If these restrictions are breached, we could lose our license.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As with other companies engaged in the telecommunications business in
Israel, our license requires that, at a minimum, 20% of the economic and voting
interest, and certain other defined means of control, of our company be owned
by Israeli citizens and residents. In addition, no transfer or acquisition of
10% or more of any of such means of control, or the acquisition of control of
our company, may be made without the consent of the Ministry of Communications.
Our license also restricts cross-ownership and cross-control among competing
mobile telephone operators, including the ownership of 5% or more of the means
of control of both our company and of a competing operator, without the consent
of the Ministry of Communications, which may limit certain persons from
acquiring our shares. Shareholdings in breach of these limits could have two
consequences. First, the shares that are in excess of the limits will be
converted into &#147;dormant&#148;&nbsp;shares, with no rights other than the right to receive
dividends or other distributions to shareholders, and to participate in rights
offerings. Second, the breach of the limits could be the basis for revoking our
license unless our principal shareholders, who currently hold an aggregate of
approximately 75% of our ordinary shares, continue to hold an aggregate of at
least 51% of our ordinary shares.
</FONT>
<P align="left"><FONT size="2"><B>We depend on a limited number of suppliers for our network equipment. Our
results of operations could be adversely affected if our suppliers fail to
provide us with adequate supplies of network equipment or maintenance support
on a timely basis.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We purchase our network equipment, such as switching equipment, base
station controllers and base transceiver stations and network software, from
Ericsson and from Nokia. Although our network utilizes standard equipment that
is produced by several suppliers, we cannot be certain that we will be able to
obtain equipment from one or more alternative suppliers on a timely basis in
the event that either Ericsson or Nokia is unable to satisfy our equipment
requirements in a timely manner, especially if the growth in demand for mobile
telephone network equipment exceeds the ability of suppliers of this equipment
as a whole to meet such demands. Our results of operations could be adversely
affected if Ericsson, Nokia or an alternative supplier fails to provide us with
adequate supplies of equipment, as well as ongoing maintenance support, in a
timely manner. In addition, our results of operations could be adversely
affected if the price of network equipment rises significantly. In our
experience, suppliers from time to time extend delivery times, limit supplies
and increase the prices of supplies due to their supply limitations and other
factors.
</FONT>

<P align="center"><FONT size="2">Page 29
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<P align="left"><FONT size="2"><B>There are alleged health risks related to antenna sites and the use of mobile
telecommunications devices, including handsets, which could expose us to
liability and lead to reduced usage of mobile phones or increased difficulties
in obtaining sites or permits to erect sites for base stations.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are aware of recent allegations that there may be health risks
associated with the effects of electromagnetic signals from antenna sites and
from mobile telephone handsets and from other mobile telecommunications
devices. In the construction and operation of our base stations we observe the
standards established by the International Radiation Protection Agency, which
sets guidelines for the safe exposure level for all uses of radio spectrum.
These standards have been adopted by the Ministry of the Environment.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have received type approval from the Ministry of Communication for all
of the handsets and other terminal equipment we sell. The Ministry of the
Environment also has authority to regulate the sale of handsets in Israel.
However, in accordance with the current practice among mobile telephone
operators in Israel, we have not obtained approvals or exemptions from the
Ministry of the Environment for the handsets we provide because, to date,
neither the Ministry of the Environment nor the Ministry of Health has issued
standards for the permitted level of radiation emissions from handsets.
However, as of June&nbsp;15, 2002, we have been required to provide information to
purchasers of handsets on the Specific Absorption Rate, or SAR, of the handset,
as well as its compliance with certain standards pursuant to a regulation
promulgated by the Ministry of Industry and Trade under the Consumer Protection
Law. In the event that new standards for permitted radiation emission levels
from handsets are issued, we will be obliged to comply with them.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While there is currently no substantiated link between exposure to
electromagnetic signals at the level transmitted by our base transceiver
stations and our mobile telephone handsets and long-term damage to health, the
actual or perceived health risks of mobile telephone communications devices
could adversely affect us through a reduction in subscribers, reduced usage per
subscriber, increased difficulty in obtaining sites for base stations, and
exposure to potential liability. Furthermore, we are unable to obtain insurance
with respect to such liability.
</FONT>
<P align="left"><FONT size="2"><B>Our company is controlled by a small number of shareholders.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2002, our principal shareholders, comprising our founding
shareholders Hutchison Whampoa Limited, Matav-Cable Systems Media Ltd., and
Elbit Limited, together with the former limited partners of our founding
shareholder Tapuz Cellular Systems Limited Partnership, collectively held
approximately 75% of our shares. At December&nbsp;31, 2002, Hutchison Whampoa
Limited indirectly owned approximately 42.6% of our shares, Elbit Limited owned
approximately 12.2%, Matav-Cable Systems Media Ltd. indirectly owned
approximately 7.4%, and the former limited partners in Tapuz Cellular Systems
Limited Partnership, Eurocom Communications Ltd. (and its wholly owned
subsidiary, Tapuz Cellular Systems Ltd.) and Polar Communications Ltd., owned
approximately 9.9% and 2.4%, respectively.
</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of the principal shareholders directly holding Partner shares and
Elbit.COM Limited, Elbit&#146;s wholly owned subsidiary, is a party to a
relationship agreement relating to its investment in our company which governs
their collective relationship as shareholders of Partner. This relationship
agreement sets forth, among other things, each of these parties&#146; rights and
obligations among themselves with respect to the composition of our Board of
Directors, the transfer of shares and other material issues pertaining to their
investment in our company.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These principal shareholders together have the ability to influence our
business through their ability as a group to control all actions that require
shareholder approval and through their representatives on our Board of
Directors. They are not obligated, however, to provide us with financial
support or to exercise their rights as shareholders in our best interests or
the best interests of our minority shareholders and noteholders, and they may
engage in activities that conflict with such interests. If the interests of
these principal shareholders conflict with the interests of our other
shareholders, those shareholders could be disadvantaged by the actions that
these principal shareholders choose to pursue. In addition, our principal
shareholders may cause our business to pursue strategic objectives that may
conflict with the interests of our other shareholders.
</FONT>

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<P align="left"><FONT size="2"><B>Our share price has been and may continue to be volatile in response to
conditions in the global securities markets generally and in the communications
and technology sectors in particular.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our share price has been subject to significant volatility, in part due to
highly volatile securities markets generally, particularly for communications
and technology companies&#146; shares. Factors other than our results of operations
that may affect our share price include, among other things, low trading
volume, market expectations of our performance and projected growth in the
mobile communications market. In addition, our share price may be affected by
factors such as the Israeli economy and the political situation and the level
of business activity or perceived growth (or the lack thereof) in the market in
general, the performance of other mobile telecommunications companies,
announcements by or the results of operations of our competitors, customers and
suppliers, potential litigation and regulation involving ourselves or our
industry, and announcements concerning the success of UMTS third generation
mobile networks, products and services, as well as general market volatility.
</FONT>
<P align="center"><FONT size="2">Page 32
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<!-- link2 "ITEM 4. INFORMATION ON THE COMPANY" -->
<DIV align="left"><A NAME="005"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 4. INFORMATION ON THE COMPANY</B>
</FONT>

<P align="left"><FONT size="2"><B>4A. History and Development of the Company</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We were incorporated in Israel under the laws of the State of Israel on
September&nbsp;29, 1997 as Partner Communications Company Ltd. Our products and
services are marketed under the Orange Brand. Our principal executive offices
are located at 8 Amal Street, Afeq Industrial Park, Rosh Ha&#146;ayin 48103, Israel
(telephone: 972-67-814-888). Our website address is www.orange.co.il.
Information contained on our website does not constitute a part of this annual
report. Our agent for service in the United States is CT Corporation, 111
Eighth Avenue, New York, New York 10011.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our short history, we have achieved a number of important milestones:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In April 1998, we received our license to establish and operate a
mobile telephone network in Israel.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In August 1998, we finalized our long-term credit facility to support
our network and business roll out.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">By October 1998, we completed our
initial network roll out with
approximately 77% coverage of the Israeli population, enabling us to
commence the soft launch of our services to a test market of targeted
customers.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">By January 1999, we had launched full commercial operations with
approximately 88% population coverage, established a nationwide
distribution network and were offering full services with an extensive
media campaign.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In October 1999, we completed our initial public offering of ordinary
shares in the form of American Depositary Shares, and received net
proceeds of approximately NIS 2,092&nbsp;million, with the listing of our
American Depositary Shares on NASDAQ and the London Stock Exchange. We
used part of these net proceeds to repay approximately NIS 1,494&nbsp;million
in indebtedness to our principal shareholders, and the remainder to
finance the continued development of our business.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In February 2000, we introduced post-paid tariff plans, which we
branded &#147;orange to go,&#148; and which allowed subscribers to pay only for
airtime usage without a minimum subscription period and without any
minimum usage commitment. At December&nbsp;31, 2002, we had approximately
890,000 subscribers to our &#147;orange to go&#148; plans, or approximately 48% of
our total subscriber base.</FONT></TD>
</TR>
</TABLE>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In April 2000, we formed a wholly owned subsidiary, Partner Future
Communications 2000 Ltd. to cooperate with and invest in start-up and high
technology companies developing new GSM wireless applications.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In June 2000, we introduced our prepaid subscriber plan, known as &#147;Big
Talk.&#148; At December&nbsp;31, 2002, we had 540,000 subscribers, or approximately
29% of our total subscriber base, in this plan.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">in July 2000, we amended our long-term credit facility, increasing the
amount available to up to $750&nbsp;million.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In August 2000, we completed an offering, registered under the US
Securities Act of 1933, as amended, of $175&nbsp;million (approximately $170.5
million after deducting commissions and offering expenses) 13% unsecured
senior subordinated notes due 2010.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In January 2001, we received accreditation for the ISO 9002 standard
from the Israeli Institute of Quality and Control.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In March 2001, we received a special license issued by the Ministry of
Communications, allowing us to provide internet services.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">On March&nbsp;31, 2001, we had over 1,000,000 subscribers.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In July 2001, we registered our ordinary shares for trading on the Tel
Aviv Stock Exchange.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In an auction process completed on December&nbsp;18, 2001, the Ministry of
Communications awarded us the two bands of spectrum for which we had
submitted bids: one band of GSM 1800 spectrum and one band of UMTS third
generation spectrum.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">On December&nbsp;26, 2001, we filed a shelf registration statement under
the US Securities Act of 1933, as amended, registering $400&nbsp;million of
debt securities and ordinary shares for possible offer and sale during the
next two years.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">On January&nbsp;28, 2002, we had over 1,500,000 subscribers.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In June 2002, our license was extended until February 2022.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In June 2002, we launched &#147;orange obox&#148; services, which enable the
downloading of rich applications and content. These services are based on
the virtual machine platforms, Java to microeditions (J2ME) and
proprietary General Virtual Machine (GVM).</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 34
</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In October 2002, we launched &#147;orange oklik&#148; services, which enable the
transfer of photos, multimedia and animation, based on Multimedia Message
Service, or MMS.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">On December&nbsp;31, 2002, we entered into an amending agreement to our
senior credit facility in order to tailor it to our future business
plan.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">On December&nbsp;31, 2002, we had 1,837,000 subscribers.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For information on our capital expenditures, see &#147;Item&nbsp;5B Liquidity and
Capital Resources&#151;Commitments and Contractual Obligations&#148;.</FONT>

<P align="left"><FONT size="2"><B>4B. Business Overview</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We were the first GSM mobile telephone network operator in Israel. We
received our mobile telephone license in April 1998 and commenced full
commercial operations of our digital GSM 900 mobile telephone network in
January 1999. Since then we have expanded rapidly and at December&nbsp;31, 2002 we
had 1,837,000 subscribers, representing an estimated 29% of total Israeli
mobile telephone subscribers at that date. During 2002, we increased our
customer base by approximately 26%, an increase of approximately 379,000
subscribers. At December&nbsp;31, 2002 our network covered approximately 97% of the
Israeli population. We had constructed and installed 2,035 base transceiver
stations (including microsites) by December&nbsp;31, 2002, with 153 of those
stations installed in 2002. At December&nbsp;31, 2002, most of our subscribers had
post-paid tariff plan contracts with us, approximately 29% of our subscribers
were in prepaid subscriber plans, and approximately 16% of our subscribers were
business subscribers.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We market our services by capitalizing on the strong international Orange
Brand and the experience of our principal shareholders and their affiliates,
primarily Hutchison Whampoa Limited. The Orange Brand, which is licensed to us,
has been used successfully in other markets to promote mobile telephone
services. Market surveys show that we have achieved strong brand awareness in
Israel.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently operate in the 900 MHz and the 1800 MHz band. Our services
include standard and enhanced GSM services, as well as value added services and
products such as voice mail, voice messaging, Color Picture Messaging, icon,
ringtone and game downloads, information services, High Speed Circuit Switched
Data, General Packet Radio Services, or GPRS, which enables the packet transfer
of data in an &#147;always on&#148; mode at a speed of up to 20-30 Kbps, personal
numbering and data and fax transmission services. We also offer our subscribers
the ability to roam using their mobile
</FONT>
<P align="center"><FONT size="2">Page 35
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2">phones outside Israel. At December&nbsp;31, 2002, we offered international roaming
through 250 operators covering 104 countries.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have set forth in the following table an estimate of each operator&#146;s
share of total subscribers in the Israeli cellular market at December&nbsp;31, 1999,
2000, 2001 and 2002:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="1"><B>Market share*</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1999</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Partner</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cellcom</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">48</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">46</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">41</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">39</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Pelephone</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">39</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">MIRS**</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">*</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Based on information contained in published reports issued by, and
public statements made by, Pelephone and Cellcom or by their shareholders and
from Partner subscriber data at December&nbsp;31, 1999, 2000, 2001 and 2002. The
figures for MIRS in 2001 and 2002 are the Company&#146;s estimates.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">**</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">As MIRS received a general license at February&nbsp;5, 2001 their
subscribers have not been included in the Israeli subscriber count in
prior years. MIRS&#146;s entire subscriber base has been included in the
Israeli subscriber count from the date on which MIRS received its license.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We operate in one business segment, GSM mobile telephony and related
services, and one geographic segment, Israel.
</FONT>
<P align="left"><FONT size="2"><B>Overview of mobile telecommunications industry in Israel</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are currently four mobile telephone network operators in Israel:
Partner, Pelephone, Cellcom and MIRS. Pelephone is an Israeli corporation owned
by Bezeq, the public fixed-line operator in Israel (50%) and by Pelephone
Holdings, LLC (50%), a Delaware corporation owned by Shamrock Holdings. Bezeq
has a four-year call option to purchase the shares owned by Shamrock Holdings.
Pelephone currently operates nationwide mobile telephone networks in Israel
using both the N-AMPS analog and the CDMA digital system and is in the process
of upgrading its network to CDMA1x. The major beneficial shareholders of
Cellcom are BellSouth, the Safra Group and Discount Investment Corporation Ltd.
Cellcom operates a nationwide mobile telephone network based on D-AMPS digital
technology, and it began providing GSM services in the DCS 1800 band in the
second half of 2002. Recent published reports state that Cellcom is considering
launching EDGE technology. MIRS is an Enhanced Specialized Mobile Radio, or
&#147;trunking,&#148; iDEN network. MIRS&#146;s major shareholders are Motorola Communications
(Israel) Ltd. (66.7%) and Ampal Israel Ltd. (25%).
</FONT>
<P align="center"><FONT size="2">Page 36
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the Palestine Telecommunication Co. Ltd., or Paltel, operates
a GSM mobile telephone network under the name &#147;Jawwal&#148; in the Palestinian
Authority administered areas of the West Bank and Gaza Strip, as well as a
fixed-line network. Paltel&#146;s GSM network competes with our network in some
border coverage overlap areas.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mobile telephones were first introduced in Israel in 1986. For the first
eight years of operation the growth of mobile telephone services in Israel was
slow. There was a single operator, Pelephone, offering analog service, and
prices were relatively high. It was not until the end of 1994, and the launch
of the second mobile telephone operator Cellcom, that growth in mobile phone
usage in Israel increased significantly. Within two years, subscriber numbers
had increased by more than seven times.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since the end of 1996, there has been continued strong growth in the
Israeli mobile telephone market. Market data from industry sources indicates
that the total market size was approximately 6.3&nbsp;million subscribers at
December&nbsp;31, 2002, representing nearly 95% of the Israeli population.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In an auction process completed on December&nbsp;18, 2001, the Ministry of
Communications awarded us the two bands of spectrum for which we had submitted
bids: one band of GSM 1800 spectrum and one band of UMTS third generation
spectrum. Cellcom was also awarded a band of GSM 1800 spectrum in the auction
and began providing GSM 1800 services in the second half of 2002. For more
information, see &#147;Item&nbsp;3D. Risk Factors&#151;Increased competition from existing
competitors may affect our market share and require us to reduce our tariffs in
the future, may increase our subscriber acquisition costs and customer
retention costs and may increase our churn rate.&#148; Cellcom and Pelephone were
also each awarded one band of UMTS third generation spectrum in the auction.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following are some of the special characteristics that we believe
differentiate the Israeli market from other developed mobile telecommunications
markets:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">HIGH MOBILE PHONE USAGE. Israeli usage of mobile phones is relatively
high compared to Western Europe.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">CALLING PARTY PAYS. In Israel, only the party originating a telephone
call pays for the airtime (except for 1-800 numbers). Mobile telephone
network operators do not charge subscribers to receive calls on their
handsets, except while roaming. This encourages higher rates of mobile
telephone usage.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 37
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">HIGH MOBILE TELEPHONE PENETRATION. Since Cellcom&#146;s launch in 1994, the
market has sustained a rapid annual rate of growth from a 2.6% penetration
rate at year-end 1994 to an estimated penetration rate in Israel at
December&nbsp;31, 2002 of 95%, representing approximately 6.3&nbsp;million
subscribers, although this may include subscribers, dormant subscribers
and subscribers to multiple networks as well as other subscribers who are
not included in the Israeli population figures, such as Palestinians, new
immigrants, and foreign workers.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">FIVE DIFFERENT MOBILE TELEPHONE TECHNOLOGIES. The four mobile
telephone licensees in Israel have systems based on five technologies.
Pelephone uses both the N-AMPS analog and the CDMA digital systems and
Cellcom uses D-AMPS and GSM systems. MIRS uses an iDEN system. We are
currently one of two network operators using a GSM digital system. GSM is
an advanced, internationally accepted technology used by over 790&nbsp;million
people worldwide as of December&nbsp;31, 2002.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">FAVORABLE GEOGRAPHY. Israel covers an area of approximately 8,000
square miles (20,700 square kilometers) and its population tends to be
centered in a small number of densely populated areas. In addition, the
terrain of Israel is relatively flat. These factors facilitate the roll
out of a cellular network in a cost effective manner.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">STRONG POTENTIAL FOR VALUE ADDED SERVICES. Published market data shows
that the relatively young Israeli population has a propensity to accept
and use high technology products. We believe that this characteristic of
the Israeli population will facilitate further growth in the Israeli
mobile telecommunications market as well as the acceptance of new value
added services as they become available on our network.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><B>Strategy</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our mission is to continue and maintain our position as a leading provider
of quality and innovative mobile communications solutions in Israel and to
promote the Orange Brand into a leading consumer brand in Israel. In order to
achieve our mission, we are implementing strategies designed to:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Provide high quality customer service to subscribers.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Ensure that our subscribers enjoy high quality network with nationwide
coverage.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Promote the Orange Brand through a broad-based marketing campaign.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 38
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Offer packages of innovative voice and data services and unique tariff
structures that are responsive to the needs of the various target customer
segments in Israel.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Develop applications tailored to the needs of various subscriber segments.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Deliver content and information services to subscribers through our
network, taking into consideration the different segments in the market.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Further develop dedicated, wide-reaching sales and distribution
channels for all targeted market segments.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><B>Competitive Strengths</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that the following competitive strengths differentiate us from
our competitors and will assist us in achieving our mission and implementing
our strategies:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">HIGH QUALITY NETWORK. We believe that we set high standards for
network quality. We also believe that our EFR voice coding technology
produces high sound quality. In addition, we believe that our use of
sophisticated network planning and optimization tools and techniques and
our investment in dense base station coverage have produced a high quality
network. Moreover, the additional spectrum granted to us as a result of
our success in the December 2001 spectrum auction in Israel will further
improve the capacity and quality of our network.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">DATA SERVICES AND APPLICATIONS LEADERSHIP. We believe that we are a
leader in the development and provision of mobile data and content
services in Israel. Our content services may be viewed in three ways.
First, we provide our subscribers with a wide range of information
services under the brand &#147;SIM center&#148; that can be accessed from their
handsets. The combination of services available to a subscriber depends
upon the subscriber&#146;s handset type and tariff plan. Second, our present
and planned content services may be divided along applications lines:
entertainment; location-based; information services and community
services. Third, we presently provide our services using the following
interfaces: interactive voice response, or IVR; short messages service, or
SMS; and Wireless Application Protocal, or WAP. We have rolled out
WAP-enabled services and GPRS services, orange obox services and orange
oklik services. In addition, we have signed agreements with several
content providers to expand the variety of content services available to
our subscribers.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 39
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">INTERNATIONAL ROAMING. We believe that we provide the most convenient
and comprehensive roaming services available to Israelis traveling abroad
and to visitors to Israel using their own GSM phones.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">STRONG AND EXPERIENCED SHAREHOLDER. One of our principal shareholders,
Hutchison Whampoa Limited, is a global leader in the mobile
telecommunications market. It has a substantial interest in 3G operating
companies in Austria, Australia, Denmark, Hong Kong, Ireland, Italy,
Sweden and the United Kingdom. We benefit from the knowledge and
experience of Hutchison Whampoa Limited. In addition, we have signed a
cost sharing agreement with Hutchison Telecommunications Limited and
certain of its subsidiaries, for the joint acquisition and development of
information technology platforms and software solutions, hardware, content
and other services in connection with the 3G business. For more
information see &#147;Item&nbsp;7B. Related Party Transactions &#151; Transactions with
Affiliates&#148;.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">STRONG BRAND IDENTITY. Since the launch of full commercial operations,
we have made a substantial investment in promoting the Orange Brand in
Israel to represent quality, innovation and customer service. Our
broad-based domestic marketing campaign has resulted in a rapid wide-scale
recognition of the Orange Brand in Israel. The Orange Brand is currently
used in countries that include the UK, Hong Kong, Australia, France,
India, Switzerland and Denmark.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">STRONG AND MOTIVATED MANAGEMENT TEAM. We have been able to attract a
number of Israeli senior managers from the telecommunications, high-tech
and consumer products industries. All senior managers are highly
incentivized through our stock and performance based incentive packages.
We believe that the performance-based incentive package aligns the
interests of senior management with those of our investors.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><B>Marketing and brand</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that a focused marketing strategy is critical to support our
goal of sustaining our position as a leading provider of quality and innovative
mobile communications solutions in Israel. Our marketing strategy is based upon
the strong international Orange Brand and emphasizes network quality, feature
rich services, innovation and customer service. In carrying out this strategy
we have made a substantial effort in promoting the Orange Brand in Israel as a
vehicle for differentiating our services from those of our competitors. We
believe the brand, which is licensed to us, has been a significant factor in
our success. Independent research shows that unaided awareness of the cellular
operators in Israel including the Orange Brand is very high, although we are a
much more recent entrant into the Israeli market.
</FONT>
<P align="center"><FONT size="2">Page 40
</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our marketing strategy is based on the concept of high value for money,
introducing advanced services for subscribers. In order to carry out our new
strategy, we offer our subscribers tariffs which are generally at the level of
those charged by our competitors, and technologies and services that we believe
are more advanced, such as our advanced information and content services. In
July 2000 we began offering our WAP mobile services. These services enable our
subscribers to access our mobile portal, all through WAP-enabled handsets. In
December 2000, we launched High Speed Circuit Switched Data, or HSCSD, which
enables the transmission of data at a speed of up to 43 Kbps. In September
2002, we launched GPRS services on our network.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, during 2002 we launched orange obox services and orange oklik
services. We consider both orange obox services and orange oklik services as
our major platforms for future growth in usage.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to promote our advanced new services and to increase awareness of
these services, we are taking many promotional steps, using a broad range of
advertising media. We also intend to maintain our advertising presence in the
media in order to maintain high exposure for our brand and advanced
technologies.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our marketing also focuses on promoting our services to the various
segments of the Israeli population. We advertise our services in several
languages. We also target campaigns to the large Orthodox Jewish community. In
addition to traditional media, we promote our services by sponsoring cultural
and community programs, including the International Film Festival which takes
place every year in Jerusalem, and which is a major cultural event in Israel,
attracting interest both in Israel and abroad. We use the distinctive Orange
Brand logo in all our promotional activities and advertising and all mobile
phones sold to our subscribers bear the logo.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2002, approximately 16% of our subscribers were business
subscribers. We are continually developing tailored value added services to
meet the special needs of business subscribers.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have a license to use the Orange Brand. Under the brand license
agreement, we have the right to use the Orange Brand in connection with
promoting our network services in Israel for as long as we hold a license to
operate a mobile telephone system in Israel. See &#147;Item&nbsp;4B. Information on the
Company&#151;Business Overview&#151;Intellectual Property.&#148; The Orange Brand is
currently used by mobile telecommunications operators in countries that include
the UK, Hong Kong, Australia, France, Switzerland, Denmark and India.
</FONT>
<P align="center"><FONT size="2">Page 41
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<P align="left"><FONT size="2"><B>Services and products</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal business is the provision of mobile telephone services in
Israel. Our goal is to offer our subscribers a wide range of sophisticated and
easy to use services based upon the latest proven technology. In addition to
our standard and enhanced GSM services, including international dialing and
roaming, we offer our customers value added services, including voice mail,
short message services, intelligent network services, content based on our
mobile portal, data and fax transmission and other services. Our use of High
Speed Circuit Switched Data and GPRS Technologies enable high speed data
transmission. Our orange obox service enables the downloading of rich
applications and content, and our orange oklik services enable subscribers to
send photos, multimedia and animation from handset to handset and from handset
to web, using our MMS platform. We also offer 24-hour, seven days a week
customer service, as well as handset repair and replacement services, to
subscribers who acquire these services.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additionally, in January 2001, we received the accreditation of the ISO
9002 Standard from the Israeli Institute of Quality and Control. ISO 9002 is a
quality management system specification whose requirements are aimed primarily
at achieving customer satisfaction by preserving standardization at all stages,
and throughout company processes.
</FONT>
<P align="left"><FONT size="2"><B><I>Tariff plans</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since the beginning of our full commercial operations, we introduced
tariff plans aimed at bringing innovation to the Israeli mobile communications
market. Our original tariff plans were based on one or more of the following
basic elements:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Rewarding high usage with decreasing marginal airtime charges as more
airtime is used each month. The per minute tariff rates paid by a
subscriber under these tariff plans decline as the number of minutes used
in a month by that customer increases.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Charging fees based on airtime usage. These tariff plans do not
include an additional fixed monthly fee or interconnect charges imposed by
other mobile and fixed-line providers for calls made by our subscribers
that terminate on third party networks.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Charging for value added services on a usage basis with no fixed
monthly fee.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Providing discounts for calls to designated numbers within a
subscriber&#146;s calling circle.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Some of our rates are related to the time of day that a call is placed.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 42
</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February 2000, we introduced the first post paid tariff plans without a
minimum monthly fee, which we branded &#147;orange to go.&#148; Our orange to go plans
are based on the following basic elements:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">No monthly payment charge.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">No commitment for minimum usage.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">No contractual obligations for a minimum subscription period.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Limited handset subsidies.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The elements of the orange to go tariff plans are applied, packaged and
marketed in various ways to create tariff packages designed to appeal primarily
to the private sector and target markets, including families, soldiers,
Orthodox Jewish, Arab and Russian communities, young adults (b.u.) and students.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since May 2000, on most of our orange to go tariff plans, the customer
pays a fixed rate per minute in addition to call termination tariffs depending
on the network on which the call terminates.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many of our subscribers sign up to the orange family plan. Under this
plan, two to four individuals, and from 2003 two to five individuals, who
subscribe as a group are given large discounts on calls made to each of the
other family members&#146; orange phones. For our orange family subscribers under
the orange to go tariff plan, we offer a fixed rate for calls made to other
family members&#146; orange phones.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We offer our orange b.u. subscribers who are under the orange to go tariff
plan a monthly refund, which is given against voice and SMS usage.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, our new orange soldiers and orange students
tariff plans, as well as our main tariff plan for the Jewish Orthodox
community, include a uniform airtime tariff for all calls made in Israel, both
for calls within our network and for calls originating on our network and
terminating on a Bezeq fixed-line network or other cellular networks.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under our original tariff plans for business customers, which are still
available, we offer lower airtime tariffs, which vary according to the size of
the business, and extra discounts for calls between employees of the business.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To date, we have a wide range of tariff plans for our business customers,
based on one or more of the following elements:
</FONT>
<P align="center"><FONT size="2">Page 43
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Monthly minimum payment including a bundle of minutes.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Discounts on airtime tariffs between users who are registered under
one business customer.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>

    <TD width="96%"><FONT size="2">Monthly minimum payment for unlimited calls between users who are
registered under one business customer.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Uniform tariff for all calls in Israel, both for calls within our
network and for calls originating on our network and terminating on Bezeq
fixed-line network or other cellular networks.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Rewarding high usage with a decreasing marginal airtime charge as more
airtime is used each month. The per minute tariff rates decline as the
number of minutes used in a month by a customer increases.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our prepaid plan, known as &#147;Big Talk,&#148; was launched on June&nbsp;29, 2000.
Under the plan, our subscribers purchase a handset and a nationally distributed
phone charge card, available in fixed denominations. Upon purchase of the phone
card or prepaying by credit card, customers can use our network, including some
of our value added services, without the need to register with us or enter into
any contract. Under this plan, there are some reduced tariffs for certain hours
with no obligation to use our network for a minimum period of time and no
monthly subscription fee or monthly bill. Since December 2002, we offer our
prepaid customers a limited roaming service, which includes incoming calls and
SMS only, provided that the customer is registered for this service. Our
prepaid plan enables us to compete in the growing prepaid mobile services
market. Certain prepaid customers receive handset subsidies. These subsidies
are lower than those received by other subscribers.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, we have a few GPRS, WAP and orange obox services packages,
which include a monthly payment for these services.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We developed several retention and churn prevention plans to retain our
subscribers. Some of these plans are based on a subscriber&#146;s ranking according
to financial and economic parameters. In addition, we have developed tools to
predict a subscriber&#146;s potential to churn from our network, thus enabling us to
proactively approach the subscriber with an attractive offering.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that the combination of our tariff plans and our advanced
technology and content services provides attractive value in the Israeli mobile
telephone market and that our pricing strategy has facilitated subscriber
growth.
</FONT>
<P align="center"><FONT size="2">Page 44
</FONT>
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<P align="left"><FONT size="2"><B><I>International roaming</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Israelis are frequent travelers. According to the Israel Central Bureau of
Statistics, in 2002, more than 3.27&nbsp;million overseas departures of Israelis
were recorded, and more than 862,000 people visited Israel during 2002. Roaming
allows a mobile phone subscriber to place and to receive calls while in the
coverage area of a network to which he does not subscribe and to be billed for
such service by his home network. Unique among mobile telephone technologies,
facilitating international roaming was a primary design goal of the GSM system
from its inception. A GSM roamer can therefore expect to enjoy substantially
the same services, features and security while traveling as he does at home. We
consider international roaming to be a significant source of revenue.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our roaming service was created within the framework of the GSM technical
standard and the policies and procedures set forth by the GSM Association. A
bilateral relationship is created between two GSM operators by signing a
roaming agreement based upon the GSM Association&#146;s general template, modified
as appropriate for the particular circumstances. After technical and billing
tests are successfully concluded, the connection is opened commercially and
each party&#146;s subscribers may use the other party&#146;s network. At December&nbsp;31,
2002, we had open commercial roaming relationships with 250 operators in 104
countries or jurisdictions. Creating roaming relationships with multiple
operators in each country increases potential incoming roaming revenue for us
and gives our subscribers more choice in coverage, services and prices in that
country.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since we operate on the 900 MHz band, which is the most widely-used among
GSM operators worldwide in terms of handsets, all of our subscribers may roam
to all but three of the 90 countries where we have roaming capability using
their own handsets without modification. GSM networks in those three countries,
the United States, Canada and Chile, use the 1900 MHz band. Our subscribers who
own dual- or tri-band handsets that work on GSM 1900 as well as GSM 900 may
also use their own handsets in those three countries. Other subscribers who
advise us of their intention to visit those countries are lent free-of-charge a
compatible handset into which they insert their SIM, thus retaining their own
phone number, phone book and all other regular features.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since 900 MHz is the most widely-used GSM band, most GSM handsets in the
world are already compatible with our network. GSM networks operating on 1800
or 1900 MHz who offer international roaming to their subscribers generally make
some arrangement for their subscribers to receive or rent a 900 MHz-compatible
handset. Most GSM subscribers worldwide who roam are therefore capable of using
our network immediately upon their arrival in Israel. Since we launched our GSM
1800 network, subscribers with GSM 1800 handsets are able to use our network
even without having to obtain a 900 MHz-compatible handset.
</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If Paltel&#146;s GSM network is successful in attracting customers and the
Palestinian economy remains closely linked to that of Israel, we have the
potential to increase the roaming income derived from Palestinians who commute
daily to or through Israel or visit frequently.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cellcom was awarded a band of GSM 1800 spectrum in the December 2001
auction for additional spectrum in Israel. It began providing GSM 1800 services
in the second half of 2002. Cellcom offers international roaming services
through its commercial roaming agreements to some destinations and to others
through an agreement with a third party. At present Pelephone subscribers
cannot use their Israeli handsets for roaming on any GSM network, and there are
no networks in Western Europe using technologies or frequencies compatible with
Pelephone&#146;s CDMA network and Cellcom&#146;s TDMA network. Pelephone and Cellcom
rent, lend or give their subscribers GSM handsets that contain a SIM from a GSM
network that provides service in its own country and roaming to GSM
networks elsewhere.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, Pelephone and Cellcom&#146;s TDMA subscribers traveling to North
America may have a US cellular identification and number added to their
existing Israeli phone or may rent or be lent a different phone. Cellcom also
offers its subscribers automatic roaming with limited coverage in the US and
Canada through a major D-AMPS carrier operating in the US. Pelephone and
Cellcom subscribers who find themselves using analog (AMPS)&nbsp;networks are
subject to the same call interception and phone duplication risks as
subscribers of those networks. Also, since in order to prevent fraud, many AMPS
networks in the United States do not permit international direct dialing, some
Pelephone and Cellcom subscribers using those networks are required to use a
calling or credit card to call back to Israel or elsewhere overseas. MIRS
offers its subscribers an automatic roaming service on Nextel&#146;s network in the
United States and in South America.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Charges to Pelephone or Cellcom&#146;s TDMA customers appear on the customer&#146;s
bill, and arrangements can be made to forward or transfer calls received at
their Israel mobile number onward to the local cellular number overseas.
Handsets and services relating to roaming are provided to the customers either
directly by Pelephone and Cellcom or through agents.
</FONT>
<P align="left"><FONT size="2"><B><I>Value added services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to standard GSM value added services, including call waiting,
call forwarding, caller identification and conference calling, we currently
offer and are developing a variety of additional value added services. Value
added network services are important to our business as they create
differentiating factors and increase customer usage and satisfaction. We follow
all major market developments regarding value added network services, and we
intend to implement and offer those
</FONT>
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<P align="left"><FONT size="2">services that are likely to be popular with customers and which would add value
to our business. Some of the value added services that we offer are available
only to subscribers who have certain handset models. The value added services
we currently offer include the following:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">VOICE MAIL. Our voice mail offers what we believe are among the most
advanced features available today, such as SMS notification of messages
received, including time of day and caller identification, and call
return.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">SHORT MESSAGE SERVICE (SMS). Subscribers can type, send, receive,
reply to and forward text messages using any handset we sell.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">VOICE MESSAGING. Our voice messaging service allows subscribers to
send voice messages to lists of more than 400 people, with prioritization
and receipts requested.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">FAX MAIL. Subscribers can receive, store, and forward fax messages
through their handsets, freeing them from the need to own their own fax
machine or to be near a particular fax machine.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">CALLING SERVICES. These services include conference calls, caller
identification, call waiting, conditional call forwarding, and calls to
one of our numbers that rings two phones&#151;one handheld and the other a car
phone.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">WORLD WIDE WEB-SMS GATEWAY. This service enables subscribers to
receive messages on their handset from people who visit our web site.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">ACCOUNT BALANCE. All subscribers can request and receive current
information on their Partner account balance and air time usage directly
on their handset display.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">DATA SERVICES. We currently provide our subscribers data transfer
capability at a rate of 14.4 Kbps. This capability enables our subscribers
to browse the internet, access their intranet data, send and receive
e-mails and other data transfer applications. This functionality is mainly
accessed through WAP enabled handsets and Personal Digital Assistants,
such as hand held computers and laptop computers, linked to standard
handsets.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">HIGH SPEED CIRCUIT SWITCHED DATA (HSCSD). This infrastructure
development enables the transmission of data at a speed of up to 43.2
Kbps, which is higher than the 14.4 Kbps speed previously available on GSM
networks.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">ELECTRONIC BILL PRESENTATION. This service enables our subscribers to
view, analyze and compare their private Partner accounts.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 47
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">INFORMATION AND CONTENT SERVICES. We provide voice and text-based
information and content services. The voice-based information services are
provided through Interactive Voice Response platforms, which include
interactive information services and radio programs. Text based
information services are provided through our current SMS and WAP
technologies. We have expanded our information services to SIM-tool kit
applications. Interactive information services include services such as:
stock quotes, personal stock portfolio management, stock indices, currency
exchange rates, news headlines, sport news and results, lottery results,
weather reports in Israel and abroad (for our roaming subscribers), daily
horoscopes, travel and leisure deals, entertainment tickets information,
TV listings and airlines information. For purposes of these services we
have relationships with content providers.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">GENERAL PACKET RADIO SERVICE (GPRS). This technology enables the
packet transfer of data in an &#147;always on&#148; mode, at speeds of up to 20-30
KBps.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">WAP SERVICES. We have WAP technology that enables WAP-related
services. WAP services create a significant incremental
demand for content services and increase usage of our network.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">RADIO BU 99 FM INTERACTIVE ACTIVITIES. We provide our subscribers with
the ability to participate in Radio bu 99 FM programs, games, quizzes, to
vote, to chat and to participate in other interactive activities, using
SMS, such as sending advance notification of a certain band upon
subscriber request. This FM radio station is well positioned among
12-24-year olds, and is associated with our &#147;orange b.u.&#148; plan.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">ORANGE OKLIK. These services enable subscribers to send photos,
multimedia and animation from handset to handset and from handset to web,
based on Multimedia Message Services (MMS)&nbsp;platform.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">ORANGE OBOX. This service enables the downloading of rich applications
and content, including games, interactive screensavers, karaoke and 16
poly ringtones, combined with a unique range of handsets. This service is
based on the virtual machine platforms, Java to Micro Editions
(J2ME) and proprietary General Virtual Machine (GVM).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">DOUBLE RING. Double Ring enables our subscribers to receive calls made
to their mobile telephone on either their mobile or their fixed-line
telephone.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">VIRTUAL PRIVATE NETWORK. User groups are able to be formed in multiple
layers, and the members can then reach each other through short dialing
codes, like extension numbers.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 48
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">SHORT CODE DIALING FOR ROAMERS. This service allows foreign GSM users
roaming in Israel to use their home services dialing codes during their
stay in Israel and allows our subscribers while roaming abroad to use the
short dialing codes available on our network.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">FIELD PERSONNEL MANAGEMENT. This service provides a comprehensive
system for businesses to manage their field personnel via our network,
including dispatching, scheduling, task assignment by real time location
and confirmation back to the customer.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">PERSONAL VOICE MAIL GREETINGS. This service enables subscribers to
personalize their voice mailbox greetings by easily applying professional,
customizable pre-recorded messages.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">INTERNATIONAL SAVING. This service enables our subscribers to reduce
their costs of international calls while roaming.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">ORANGE PAGES. This service enables subscribers to receive information
about a nearby business or service (such as a taxi service) through IVR
and to connect to that business or service immediately.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><B><I>Entertainment accessories</I></B>
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">ICONS. This service enables subscribers to download icons from our
website and save them on their handsets. Subscribers can also design their
own icons and send them to friends.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">RING TONES. This service enables subscribers to personalize the ring
tones heard upon receiving an incoming call. Subscribers can also compose
their own ringtones and send them to friends. We also offer our
subscribers an innovative extension to this service, which enables them to
receive a whole song as a ring tone.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">4 U. This service enables subscribers to &#147;send&#148; a recorded greeting,
accompanied by a song or a joke selected by the subscriber, to another
subscriber (on any Israeli network) at a predetermined time.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">PICTURE MESSAGING. This service enables subscribers to send and
receive pictures.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">ORANGE GAMEZ. This service is a games platform which enables
subscribers to play various interactive games via WAP, the internet, SMS
and IVR.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 49
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<P align="left"><FONT size="2"><B><I>Handsets</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide handsets to our contract subscribers at discounts of up to 100%
when they first become subscribers. The price at which the handset is provided
depends upon the tariff package and special promotions. When subscribers under
our &#147;orange to go&#148; and &#147;Big Talk&#148; plans receive handset subsidies, such

subsidies are significantly lower than those received by our subscribers who
sign 36-month contracts. Since October 2001, subscribers who return the handset
of a competing network are entitled to discounts, depending on their actual
monthly bill and the type of handset purchased.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently offer a range of different handset models supplied by a
number of manufacturers, all of which are branded with the Orange logo. We
offer handsets to satisfy our subscribers&#146; roaming needs in the 900 MHz, 1800
MHz and 1900 MHz bands. We evaluate the technical features of every new mobile
handset and, if we decide to make it available to subscribers, we obtain a type
approval from the Ministry of Communications for such handset. We advise our
sales representatives and dealers on compatibility and technical issues. All
our handsets are EFR compatible to provide high voice quality. Most of our
handset models have Hebrew language displays. Because of the wide international
acceptance of GSM technology, handset manufacturers generally make their latest
model handsets available for use on GSM networks before networks based on other
technology. Recently, we have begun selling some innovative handsets with
enhanced applications, including multicolor screens, 16 poly ringtones and MMS
capabilities.
</FONT>
<P align="left"><FONT size="2"><B>Customer service</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We aim to provide the best quality customer service in Israel through
quick, simple and reliable handling of all customer needs and interactions. We
invest in both state of the art technology and training of customer service
skills in order to achieve this goal. At December&nbsp;31, 2002, approximately 1,421
employees, on a full-time equivalent basis, worked in our customer service
division. Our customer service division consists of both call center services
and face-to-face service centers. Call center services are divided into
different centers&#151;general, finance, network, international roaming, business,
data and prepaid&#151;in order to provide focused and professional responses to our
customer inquiries in four languages 24 hours a day, seven days a week.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our face-to-face customer service consists of 32 service points serving
the customer as a one-stop-shop in both sales and service areas.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, we give our customers various self-service channels: IVR,
Web-Based service and service via SMS.
</FONT>
<P align="center"><FONT size="2">Page 50
</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;1, 2003, we merged our customer service division and our sales
division into an integrated Customer Division.
</FONT>
<P align="left"><FONT size="2"><B>Customer contracts, credit policy, billing bad debt and disconnection</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Part of our subscriber contracts for customers on our original tariff
plans provide for a 36-month term. Under the terms of these contracts,
customers who terminate their contracts prior to the expiration of the 36-month
term and have purchased their handset from us or our dealers can be charged by
us for payment of the residual price of their handset. This charge reflects the
difference between the price they paid for the handset, if any, and the list
price, adjusted for the number of months that the customer has been a
subscriber. Subscribers are billed monthly in arrears for airtime charges and
charges per services. We outsource the printing and sending of bills to third
parties. Most of our business customers have signed 36-month contracts.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Most of our individual subscribers subscribe and pay for their services by
credit card. All credit card accounts are subject to an initial maximum credit
limit each month, which varies depending upon the type of credit card and for
which we obtain prior approval from the card issuer. When a subscriber account
reaches this limit, we may seek approval from the card issuer. If the approval
is not granted by the card issuer, we may require the customer to provide other
means of payment or arrange an increase in the approved limit from his credit
card issuer. If this does not occur, the customer&#146;s usage may be limited or
suspended until we receive a cash deposit or guarantee from the customer.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All business subscribers and some of our individual subscribers can
subscribe and pay for their services by credit card or direct debit. Customers
acquiring more than fifteen handsets (or eight through our dealers) are subject
to a credit scoring review performed by outside credit agencies. All customers
are subject to a monthly maximum credit limit. When the monthly limit is
exceeded, usage may be limited. Roaming access for direct debit subscribers is
subject to credit scoring by outside credit agencies and may require additional
guarantees or credit checks.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subscribers are subject to periodic credit risk reviews, taking into
consideration payment history, disconnection history and new circumstances. If
payment for a subscriber&#146;s monthly bill is not received within 27&nbsp;days of the
issue of the bill, roaming and international call service is suspended. After
31 to 36&nbsp;days, all outgoing call service is suspended. After 45&nbsp;days, all
services are suspended, after 60&nbsp;days, we begin legal proceeding regarding the
debt collection and ultimately, after 150&nbsp;days, all services are disconnected.
If the subscriber does not reinstate service after being disconnected, we may
require him to pay the residual value of his handset.
</FONT>
<P align="center"><FONT size="2">Page 51
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<P align="left"><FONT size="2"><B>Distribution</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As the third entrant into a competitive market, we recognize that
effective distribution channels are a key success factor for our business. We
have developed and are executing a multi-channel approach to target the various
segments of the market and to coordinate our sales strategy. We distribute our
services primarily through:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">direct sales through Partner-owned sales centers and business sales
representatives; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">indirect sales through traditional networks of specialist dealers and
non-traditional networks of retail chains and stores, which account for a
majority of our sales.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><B><I>Direct sales</I></B>
</FONT>
<P align="left"><FONT size="2"><I>Orange sales and service centers</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently operate six Orange Brand stores which focus on sales to
individual customers. These stores are sales and service centers with a uniform
design, typically 1,100 square feet (100 square meters) in size, and offer high
service standards. The Orange Brand stores are conveniently located in highly
visible locations, such as shopping malls, in the Tel Aviv area, Jerusalem,
Haifa and Be&#146;er Sheva. These stores serve as flagship stores to help introduce
the Orange Brand and our services to the Israeli market and to generate a high
level of repeat business and referrals. In the future, we also expect these
stores to become involved in the sale of advanced data services and other
technologically sophisticated applications. We have built three new Orange
sales and service centers, each approximately 5,500-9,000 square feet (500-800
square meters) in size, located in the outskirts of Tel Aviv, Jerusalem and
Haifa. Our new centers serve as &#147;one-stop shops&#148; for direct customer service,
in which our representatives will demonstrate the use of new products and
services. In addition, we have opened 23 service centers, each approximately
2,152 square feet (200 square meters) in size. These centers offer our
customers various services, including handset maintenance services.
</FONT>
<P align="left"><FONT size="2"><I>Direct sales force</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2002, we had a sales force comprised of sales
representatives, account managers and area managers, targeting business
clients. We primarily focus on small- and medium-sized enterprises which tend
to use more airtime and yield higher margins. Small to medium-sized businesses
are serviced by a team of regional representatives and customer account
managers located in five regional offices. Large corporate customers are
serviced by a team of national representatives and customer account managers.
Prominent individuals are served by national VIP
</FONT>
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<P align="left"><FONT size="2">representatives. We provide our sales force with regular training to ensure
that they are capable of selling advanced solutions such as mobile data,
intranet extension and connectivity, virtual private networks and other value
added services that appeal to corporate customers. Our direct sales force is
supported by an outsourced telemarketing department which makes initial contact
with prospective customers and makes appointments for the sales
representatives. The telemarketing department is another channel for direct
sales by phone.
</FONT>
<P align="left"><FONT size="2"><B><I>Indirect sales</I></B>
</FONT>
<P align="left"><FONT size="2"><I>Traditional dealer networks</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2002, we had agreements with 46 traditional dealers
providing 94 points of sale, consisting of specialists selling a range of our
products. The private dealer network is an important distribution channel
because of its ability to attract existing cellular users to our network. Our
dealer network focuses primarily on sales to individual customers and, to a
lesser extent, small business customers. Our dealers are highly professional
and some of them have previous experience selling cellular services in Israel.
One of our dealers has a workforce of approximately 100 salesmen for
&#147;door-to-door&#148; sales. In addition, we have specific dealers that target the
Jewish Orthodox, Arab, Russian communities, as well as other segments of the
Israeli population with the appropriate style, language and locations. We
provide regular training to employees of our dealers to update them on our
products and services. We believe that the ongoing sales success of our
existing distribution channels will continue to attract dealers to our network.
Our dealer managers visit dealers on a regular basis to provide information and
training, answer questions and solve any problems that may arise in the
activation process. We pay our dealers competitive commissions and provide
handset subsidies to them. However, dealers are not entitled to commissions for
any customers that terminate their service within 60&nbsp;days of activation.
</FONT>
<P align="left"><FONT size="2"><I>Non-traditional dealer networks</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-traditional dealers consist of generalist retailers or specialist
stores that sell related products. This distribution channel is not common in
the Israeli cellular market today, and we believe that it provides us with a
competitive advantage over and differentiates us from our competitors.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have a contract with Super-Pharm, the largest drug store chain in
Israel, to sell our network services in their stores. At December&nbsp;31, 2002, our
services were sold in 107 Super-Pharm stores nationwide in a variety of
formats, including Partner shop-in-shops, kiosks, wall-unit displays and at
front counters. In 2002, approximately 17.5% of our new subscribers were
recruited through
</FONT>
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<P align="left"><FONT size="2">sales by Super-Pharm. Under our agreement with Super-Pharm, in addition to
Super-Pharm continuing to sell our network services in their stores, we are
cooperating with them in a new chain of stores that Super-Pharm has
established, called Super-Link, and that is dedicated to selling communications
services and equipment. Six such stores have been opened to date, and the
intention is to open 10 more. This agreement replaces our previous agreement
with Super-Pharm, which expired in December 2000. The initial term of
our current agreement was until December&nbsp;31, 2001, and the term of the agreement is
renewable each year for an additional one year unless one of the parties
chooses to notify the other party 180&nbsp;days before its termination of its
willingness to terminate the agreement. Currently the term of the agreement is
until December&nbsp;31, 2003.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, we are developing our distribution network with other
non-traditional dealers, such as the Ituran chain, which sells, installs and
maintains car security and tracking systems in approximately 46 locations
throughout Israel. They also sell and install our car kits in these sites.
Another non-traditional dealer is Eurocom Communications Ltd. See &#147;Item&nbsp;7.
Major Shareholders and Related Party Transactions.&#148; We provide regular training
to the employees of our non-traditional dealers to update them on our products
and services.
</FONT>
<P align="left"><FONT size="2"><B>Our network</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that we have built an extensive, resilient and advanced mobile
network system in Israel, allowing us to offer our services with extensive
coverage and consistent high quality. Through December&nbsp;31, 2002, we have made
net capital expenditures of NIS 2,399&nbsp;million ($506&nbsp;million) in our network
infrastructure and other related fixed assets.
</FONT>
<P align="left"><FONT size="2"><B><I>Overview</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The &#147;first generation&#148; of wireless communications, based on analog
technology, provides simple voice telephony. The &#147;second generation&#148; of
wireless communications, such as the digital GSM standard, provides additional
data facilities ranging from short messaging services to narrow band data,
which is sufficient for the basic data services offered by network operators,
but cannot support high resolution video or multimedia applications.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;New
types of services are made possible by the roll out of technological
developments that will increase the speed and efficiency of existing GSM
networks such as GPRS, which is a 2.5G technology. 2.5G technology network
operators are able to deliver multimedia and high speed services before third
generation services are introduced.
</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Third generation wireless communications, which are expected to offer full
interactive multimedia capabilities at data rates of up to 2 Mbits per second,
are expected to bring wirefree networks significantly closer to the
capabilities of fixed line networks. Improvements in coding and data
compression technology will provide better voice quality and more reliable data
transmission. UMTS is the global standard adopted for the implementation of
third generation wirefree telecommunications.
</FONT>
<P align="left"><FONT size="2"><B><I>Infrastructure</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2002, our GSM network consisted of 1,309 macrobase
transceiver stations and 726 microbase transceiver stations, all linked to 29
base station controllers. The base station subsystem is controlled by 11 mobile
switching centers. Base transceiver stations, mobile switching centers and base
station controllers are interconnected by approximately 3,900 transmission
links. In addition, our network is interconnected with the public switched
telephone network operated by Bezeq in several locations across Israel. Our
network is also directly connected to the mobile networks of Pelephone, Cellcom
and the three Israeli international operators, Bezeq International, Barak and
Golden Lines, and indirectly to MIRS and the fixed and mobile telephone
networks of Paltel. During 2002, our network was directly connected to the
mobile networks of Pelephone and Cellcom for the purpose of bilateral transfer
of SMS&#146;s. In February 2003, we added an SMS direct connection to MIRS. See
&#147;Item&nbsp;4B. Information on the Company&#151;Business Overview&#151;Interconnection.&#148;
Ericsson and Nokia supply our base station controller and base transceiver
station sites for our network in Israel.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our transmission network is made up of leased lines from Bezeq, Cellcom
and Pelephone and our own microwave links. Currently most of our transmission
network consists of leased lines. As our network currently covers approximately
97% of the Israeli population, we are now selectively expanding the capacity
and quality of our network primarily in urban areas by adding infrastructure to
improve outdoor and indoor coverage. We plan to continue increasing the
capacity and quality of our network in order to accommodate the anticipated
growth in the number of our customers.
</FONT>
<P align="left"><FONT size="2"><B><I>Network Design</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our primary design objective is to build a mobile telephone network
engineered to provide excellent voice quality, call reliability, high capacity
and high coverage quality and to maintain technical advantages over our
competitors. In formulating our network design objectives, we have been guided
by our business strategy to build the highest quality network. We work to
quality standards which exceed those set forth in our license. The quality
parameters that we seek to satisfy
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<P align="left"><FONT size="2">are those that we believe are important to mobile phone users: voice quality,
low &#147;blocked call&#148; rate, low &#147;dropped call&#148; rate and deep indoor penetration,
especially in densely populated areas or areas of special commercial interest.
Blocked calls are calls that fail because access to the network is not possible
due to insufficient network resources. Dropped calls are calls that are
involuntarily terminated.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With these quality parameters in mind, we have rolled out an advanced
radio network, using macrocellular and microcellular base transceiver stations
and advanced frequency planning software in very high density metropolitan
areas in order to provide &#147;deep&#148; indoor coverage and sufficient capacity for
latent demand. This technology is designed to maximize spectrum utilization and
enhance service quality. Our transmission network design confers the following
benefits: (i)&nbsp;necessary bandwidth for GSM services; (ii)&nbsp;resilience; (iii)&nbsp;use
of high transmission rate back-bone routes based on Synchronous Digital
Hierarchy; and (iv)&nbsp;the ability to utilize a new generation of sophisticated
technology to optimize the system and increase capacity where necessary. Our
switching architecture is based on two transit switches connected to all of our
systems and platforms, which improves reliability and facilitates expansion. We
are optimizing our network with an advanced radio method called Synthesized
Frequency Hopping. This method is increasing the capacity of our network and
improving the quality of the performance we supply our subscribers. Because our
network was planned with our key quality parameters in mind, we believe that we
will be able to continually upgrade the quality of our network as our business
develops.
</FONT>
<P align="left"><FONT size="2"><B><I>Spectrum allocation and
capacity</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Spectrum availability is limited and is allocated by the Ministry of
Communications through a licensing process. Pursuant to the terms of our
license and subsequent allocations, we were allocated 2x10.4 MHz in the 900 MHz
frequency band, of which 2x2.4 MHz are shared with Paltel in the West Bank and
the Gaza Strip. We also have an agreement to use an additional 2x2.4 MHz of
spectrum in the 900 MHz frequency band on a shared basis with Paltel. Under
this agreement, which has been endorsed by the Ministry of Communications, we
are permitted to use this additional spectrum in Israel so long as we do not
cause interference in areas where Paltel operates.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the December 2001 spectrum auction in Israel, the Ministry of
Communications awarded us the two bands of spectrum for which we had submitted
bids: 2 x 10 MHz of GSM 1800 spectrum and 2 x 10 MHz and 1 x 5 MHz of UMTS
third generation spectrum. During 2002, we started deploying GSM 1800 MHz band
base transceiver stations to enhance the capacity of our GSM 900 MHz network,
and to further improve our GSM 900 MHz network&#146;s quality.
</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We seek to optimize the use of our current spectrum allocation by adding
more base transceiver stations in combination with advanced design and
operation techniques. We have experienced in the past, and may experience in
the future, interference in the GSM 900 spectrum allocated to us. We intend to
continually enhance the quality of our coverage and capacity in response to
changing consumer demands.
</FONT>
<P align="left"><FONT size="2"><B><I>Dropped Calls</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dropped calls are calls that fail to complete when dialed or are
terminated involuntarily. Since the launch of full commercial
operations, our dropped call rate has steadily improved. Our monthly
dropped call rate has declined from 3.50% for January 1999 to 1.71% for
December 1999, to 1.44% for December 2000, to 1.3% for December 2001 and to
1.15% for December 2002.
</FONT>
<P align="left"><FONT size="2"><B><I>Other systems</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Home Location Register, or HLR, stores details of our subscribers and
their location. We have installed a special purpose HLR which prevents a single
point of failure in our network from affecting the service to all our
subscribers. Our Authentication Center automatically verifies each SIM&#146;s
authenticity by performing an encrypted transaction when the mobile telephone
is switched on. Our Short Message Service Center handles short messages sent by
our subscribers to other mobile telephones. The Voice Mail System takes
messages for subscribers and allows them to retrieve and forward messages and
faxes after being notified by short message of the receipt and source of the
voice message. The Partner Information Hub that we launched in January 2000
enables all our subscribers to receive data information services on their
handsets using SMS technology. During 2000, we increased our SMS Center
capacity four-fold. The system is used for mobile originated, SMS information
services and other monitor and control systems based on SMS. We also extended
our information services with an IVR system by CTware Ltd., which allows voice
access to many information services. Dozens of such services are currently
available including news, games, entertainment, jokes, radio and others. We
have purchased Ericsson&#146;s Mobile Positioning System (MPS)&nbsp;platform. This is a
technology platform which enables us to provide location-based services to a
large number of subscribers. A system which enables location-based services has
been launched in 2001. During 2002, we launched orange oklik services, which
are based on Multimedia Messaging Service Center (MMSC), an Ericsson platform.
In addition, we have developed with Samsung (Korea) a system which enables the
downloading of rich applications and content. These services, which are branded
&#147;orange obox&#148;, are based on GVM, a technology which was originally developed in
Korea on CDMA-1x technology and has been implemented on our GSM network. We
intend to offer our subscribers in 2003 downloads of video clips through our
MMSC platform and will enable subscribers
</FONT>
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<P align="left"><FONT size="2">to prepare their own personal photo album on the web with a direct connection
to a paper development photo laboratory. Our &#147;test bed&#148; laboratory enables
start-up companies to develop and evaluate new GSM services without interfering
with the operation of our network. Since September 2000, we have also offered
foreign GSM users roaming in Israel, and our subscribers while roaming abroad,
the ability to use some of their home services&#146; dialing codes during their stay
in Israel with a system developed by star*home.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have also enhanced the authentication ability in our network, in order
to strengthen the protection of our network against fraud and interception.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;29, 2000, we installed and launched an Ericsson prepaid system. In
May 2002, we upgraded the Ericsson platform in order to support our larger
prepaid subscriber base and to allow us to offer a wider range of services.
Also in June 2000, we launched WAP services based on a platform designed by
Exalink (now Comverse), an Israeli provider of internet-based services over
wireless devices. We have chosen Ericsson to provide us with a GPRS system that
will enable the high speed packet transfer of data in an &#147;always on&#148; mode. The
WAP over GPRS system will allow our subscribers to have mobile internet
services on line in the future.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have completed the national deployment of our GPRS network and have
launched a variety of supported services in 2002. As part of our GPRS service,
we are using mainly Cisco&#146;s IP Core System. The IP Core System is the first
step towards new advanced services, and can be used on third-generation UMTS
networks as well.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2001, we upgraded our basic data transmission capability to allow a
14.4 Kbps rate over the entire network, an improvement over the previous rate
of 9.6 Kbps.
</FONT>
<P align="left"><FONT size="2"><B><I>Site procurement</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Once a new coverage area has been identified, our technical staff
determine the optimal base station location and the required coverage
characteristics. The area is then surveyed to identify antenna sites. In urban
areas, typical sites are building rooftops. In rural areas, masts are usually
constructed. Technical staff also identify the best means of connecting the
base station to the network, for example, via leased or owned and operated
microwave links or wired links leased from Bezeq. Once a preferred site has
been identified and the exact equipment configuration for that site decided, we
begin the process of obtaining necessary approvals.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The erection of these antennas require building permits from local or
regional authorities, as well as a number of additional permits from
governmental and regulatory authorities, including:
</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">erection and operating permits from the Ministry of the Environment;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">permits from the Civil Aviation Authority, in certain cases; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">permits from the Israeli Defense Forces.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See &#147;Item&nbsp;4B. Information on the Company&#151;Business Overview&#151;Regulation&#148;
for a description of the approvals that are required for the erection and
operation of antenna sites.
</FONT>
<P align="left"><FONT size="2"><B><I>Suppliers</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our network utilizes standard equipment, which is available from a limited
number of suppliers. One of our major GSM equipment suppliers is Ericsson and
its affiliates, which supply us with mobile switching centers, base station
controllers, base transceiver stations, transit transmission centers, operation
support systems and transmission systems equipment. Ericsson is also our major
supplier of GPRS network equipment, including GPRS support nodes and gateway
GPRS support nodes. Nokia also supplies us base station controllers, base
transceiver stations and network management system equipment. See &#147;Item&nbsp;3D. Key
Information&#151;Risk Factors&#151;We depend on a limited number of suppliers for our network
equipment. Our results of operations could be
adversely affected if our suppliers fail to provide us with adequate supplies
of network equipment or maintenance support on a timely basis.&#148; We have
agreements with Baran Raviv, Bintech and H. Mer, all Israeli engineering
companies, for the construction of our sites. We continue to purchase certain
network components from various other key suppliers. We believe that our
network suppliers price structure is competitive with industry standards.
</FONT>
<P align="left"><FONT size="2"><B>Interconnection</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All telecommunications providers with general licenses in Israel have
provisions in their licenses requiring them to allow interconnection of their
networks with all other telecommunications networks in Israel. Currently, our
network is connected to all other telecommunications networks operating with
general licenses in Israel. Our network is directly interconnected to the
networks of Bezeq, Cellcom, Pelephone, MIRS, Bezeq International, Barak and
Golden Lines. Our network is indirectly interconnected to the networks of
Paltel through the Bezeq network for the purpose of bilateral transfer of
calls. During 2002, our network was connected to the networks of Cellcom and
Pelephone for the purpose of bilateral transfer of SMSs, and in February 2003,
we connected our network to the network of MIRS.
</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2002, we entered into an agreement with Matav-Cable Systems
Media Ltd., one of our principal shareholders. The agreement enables our
subscribers to send an SMS to the TV screen of Matav&#146;s digital subscribers and
vice versa. See &#147;Item 7B. Related Party
Transactions&#151;Transactions with Affiliates&#148;.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are currently operating without any formal interconnection agreements
with Bezeq. We are not aware of any interconnect agreement that Cellcom,
Pelephone or MIRS has signed with Bezeq. Our day-to-day arrangements with Bezeq
substantially conform to a draft interconnect agreement negotiated with Bezeq.
The interconnect rates charged by Bezeq are set by Israeli legislation and
Bezeq is required by law not to discriminate against any licensed
telecommunications operator in Israel with respect to the provision of
interconnect services. As of March&nbsp;1, 2000, Bezeq began calculating
interconnect (call termination) fees due to us based on fees actually collected
by Bezeq from its subscribers and imposing an additional collection fee on us.
Until that time, interconnect fees were calculated on the basis of actual
usage. We were not successful in challenging Bezeq&#146;s position in court (a
ruling which we are appealing). In October 2000, a new Interconnect Regulation
became effective, stating that interconnect fees among cellular and fixed line
operators should be based upon actual usage. Nevertheless, Bezeq continued
calculating interconnect fees due to us based on fees actually collected from
its subscribers and imposing an additional collection fee on us. At the end of
2001, following a complaint by us and another mobile operator, the Ministry of
Communications rejected Bezeq&#146;s fee calculation method, stating that the
appropriate basis for calculating interconnect fees due to us is actual usage.
The Ministry of Communications declared that for the period from October&nbsp;2,
2000 until December&nbsp;31, 2002, Bezeq may withhold a certain percentage from the
interconnect fees due to us. As an interim settlement and until we reach an
agreement, if any, with Bezeq, the Minister of Communications has decided to
permit Bezeq to withhold 2.5% of the amounts due us. The Minister of
Communications also indicated that with no agreement between the parties he may
set a different rate at his discretion. In addition, the Minister of
Communications indicated that he would consider applying new rules from January
1, 2003.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recently, since the operators were unable to reach an agreement, the
Ministry of Communications considered a settlement, according to which Bezeq
would deduct 1.1% of the amounts due to us for the period commencing October&nbsp;2,
2000 until December&nbsp;31, 2002. For the period commencing January&nbsp;1, 2003, Bezeq
would pay amounts due to us according to actual usage without any deduction. In
addition, the Ministry of Communications suggested, subject to court approval,
that a deduction of 1.1% of amounts due us would be in effect also for the
period of March 2000 to September 2000.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of February 2003, following comments it received from the operators,
and since the official committee nominated by the Ministry of Communications to
examine Bezeq&#146;s tariffs had not
</FONT>
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<P align="left"><FONT size="2">concluded its work, the Ministry of Communications decided upon an additional
interim settlement, pursuant to which Bezeq would withhold 1.1% of the amounts
due us for the period commencing January&nbsp;1, 2003 until April&nbsp;30, 2003.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently pay Bezeq an interconnection fee based on a tariff structure
that came into force on May&nbsp;1, 2000. The table below illustrates these
interconnection tariffs.
</FONT>
<P align="left"><FONT size="2"><B>Bezeq interconnection tariffs (not including VAT)</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Local call</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Tariff for calls</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="1"><B>Time of day</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>tariff</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>between area codes</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">Sunday through Thursday
08:00&nbsp;a.m.-6:00 p.m.
and Friday 08:00&nbsp;a.m.-1:00 p.m.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
NIS 0.055
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">NIS 0.115</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Sunday through Thursday
6:00 p.m.-10:00 p.m.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
NIS 0.035
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">NIS 0.035</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Sunday through Thursday
10:00&nbsp;p.m.-08:00&nbsp;a.m.
and Friday 1:00 p.m.-Sunday 08:00 a.m.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
NIS 0.024
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">NIS 0.024</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have formal interconnection agreements with Cellcom, Pelephone and
MIRS. The agreements have one-year terms and are renewable for an unlimited
number of additional one-year terms. The agreements can be terminated on 90
days&#146; written notice by either party. The interconnection agreements with
Cellcom, Pelephone and MIRS do not contain any pricing terms. The
interconnection tariffs charged by Cellcom, Pelephone and MIRS are set by a
Ministry of Communications regulation that, coupled with a change to the mobile
telephone operators&#146; licenses, imposes a uniform call termination tariff for
all mobile telephone operators. The uniform tariff, originally set at NIS 0.54
per minute fell to NIS 0.50 on January&nbsp;1, 2001. The uniform tariff was to fall
further to NIS 0.46 on January&nbsp;1, 2002 and finally to NIS 0.42 per minute on
January&nbsp;1, 2003. In addition, these regulations impose a uniform call
termination tariff for incoming international calls to cellular networks of NIS
0.25 per minute. In response to legal proceedings brought by Pelephone against the Ministry of Communications, the Ministry
of Communications agreed that the uniform tariff should remain at NIS 0.50 per
minute until January&nbsp;1, 2003, at which point it has been reduced to NIS 0.45
per minute, rather than at the levels contemplated by the regulations. The
tariffs accepted by the Ministry of Communications have since been formally
adopted by an amendment to the call termination tariff regulations, which were
published by the Ministry of Communications. Because we transfer and receive
all traffic to and from the MIRS (until February 2003) and Paltel networks
through the Bezeq network, we pay Bezeq a transit fee for each call.
</FONT>
<P align="center"><FONT size="2">Page 61
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have a written interconnection agreements with Bezeq International and
Barak. We currently have an operating arrangement with the other international
operator, Golden Lines. As noted already, the Ministry of Communications
regulation and the change to the mobile telephone operators&#146; licenses discussed
above also impose a uniform call termination tariff for incoming international
calls of NIS 0.25 per minute. We have notified the Ministry of Communications
of our objection to this rate.
</FONT>
<P align="left"><FONT size="2"><B>Competition</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are currently four mobile telephone network operators in Israel:
Partner, Cellcom, Pelephone and MIRS. The major beneficial shareholders of
Cellcom are BellSouth, the Safra Group and Discount Investment Corporation Ltd.
Cellcom operates a nationwide mobile telephone network based on D-AMPS digital
technology. Cellcom was awarded spectrum in the DCS 1800 band in the December
2001 spectrum auction in Israel and began providing GSM services in the second
half of 2002. For more information, see &#147;Item&nbsp;3D. Risk Factors&#151;Increased
competition from existing competitors may affect our market share and require
us to reduce our tariffs in the future, may increase our subscriber
acquisition
costs and customer retention costs and may continue to increase our churn
rate&#148;. Our second competitor is Pelephone. Pelephone is an Israeli corporation
owned by Bezeq, the public fixed-line operator in Israel (50%) and by Pelephone
Holdings, LLC (50%), a Delaware corporation owned by Shamrock Holdings. Bezeq
has a four-year call option to purchase the shares owned by Shamrock Holdings.
Pelephone currently operates nationwide mobile telephone networks in Israel
using both the N-AMPS analog and the CDMA digital system. Our third competitor
is MIRS, an Enhanced Specialized Mobile Radio, or &#147;trunking,&#148; network, which
was granted a general license to operate as a mobile telephone operator on
February&nbsp;5, 2001. MIRS&#146;s major shareholders are Motorola Communications
(Israel) Ltd. (66.7%) and Ampal Israel Ltd. (25%).
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to the Company&#146;s estimate, at December&nbsp;31, 2002 Cellcom had an
estimated 2,470,000 customers, representing approximately 39% of the Israeli
mobile telecommunications market. Pelephone had approximately 1,761,000 paying
customers at December&nbsp;31, 2002, representing approximately 28% of the Israeli
mobile telecommunications market. MIRS is estimated to have had over 265,000
users at December&nbsp;31, 2002, representing approximately 4% of the Israeli mobile
telecommunications market. We compete with Cellcom, Pelephone and MIRS
principally on the basis of telecommunications service quality, brand identity,
variety of handsets, tariffing, value added services and the quality of
customer services.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To the extent that mobile telephones are used in lieu of fixed telephones,
we also compete with Bezeq.
</FONT>
<P align="center"><FONT size="2">Page 62
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the Palestine Telecommunication Co. Ltd., or Paltel, operates
a GSM mobile telephone network under the name &#147;Jawwal&#148; in the Palestinian
Authority administered areas of the West Bank and Gaza Strip, as well as a
fixed-line network. Paltel&#146;s GSM network competes with our network in some
border coverage overlap areas.
</FONT>
<P align="left"><FONT size="2"><B>Information technology</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We depend upon a wide range of information technology systems to support
network management, subscriber registration and billing, customer service and
marketing and management functions. These systems execute critical tasks for
our business, from rating and billing of calls, to monitoring our points of
sale and antenna sites, to managing highly segmented marketing campaigns. As
our subscriber base has grown, we have devoted significant resources to
expanding and enhancing our information technology systems and adopting and
implementing new systems, including updating our financial management and
accounting system. We believe these systems have been an important factor in
our achievements since our commercial launch.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While many of our systems have been developed by third-party vendors, all
of them have been modified and refined to suit our particular needs. In certain
instances, we have developed critical information technology systems internally
to meet our specific requirements. For example, significant segments of our
customer service system and business information infrastructure were developed
internally and were designed to integrate our customer service outreach with
our overall sales and marketing effort. In other cases, conversely, we have
outsourced responsibility for certain systems to third parties.
SchlumbergerSema&#151;Sema S.p.a (formerly LHS Verwaltungs GmbH &#038; Co.), for
example, provides and maintains our billing system. We have completed upgrading
our billing system to increase our flexibility to offer new tariff packages and
to support data packet switching services for 2.5 generation and for third
generation in the future. In addition, during 2002 we upgraded our enterprise
resources planning and our customer relations management systems.
</FONT>
<P align="left"><FONT size="2"><B>Intellectual property</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are the registered owners of the trademark &#147;Partner&#148; in Israel with
respect to telecommunications-related devices and services as well as
additional trademarks. We have also registered several internet Web domain
names, including, among others: www.partner.co.il, www.orange.co.il and
www.partnergsm.co.il.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into a brand license agreement with Orange International
Developments Limited, a subsidiary of Orange plc. Under this agreement, Orange
International appointed us as a
</FONT>
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</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2">permitted user of its trademarks in Israel. Under this license agreement, we
have the exclusive right to use the Orange Brand in advertising and promotional materials in Israel. The term of the brand license
began on July&nbsp;1, 1998. The trademark license is royalty-free for the first 15
years of its term. In 2012, the parties are to discuss the royalties to be paid
for a five-year term beginning July&nbsp;1, 2013. In 2017, the parties are to again
consider the royalties to be paid for an additional five-year term beginning
July&nbsp;1, 2018. Under this license agreement, we are required to comply with the
Orange Brand guidelines established by Orange International. We have the right
to use the Orange Brand as long as we are able and legally eligible under the
laws of Israel to offer telecommunications services to the public in Israel.
However, the license agreement may be terminated by mutual agreement, or at our
discretion, or by Orange International if a court determines that we have
materially misused the brand and we continue to materially misuse the brand
after such determination of material misuse.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have also entered into a brand support/technology transfer agreement
with Orange Personal Communications Services Limited. Under this agreement,
Orange Personal will provide us with information and expertise to support the
Orange Brand in Israel at an agreed cost for a minimum of five years beginning
December&nbsp;1, 1998. We may also request additional, optional support from Orange
Personal at a daily rate. From May, 2003, either party may terminate the
agreement effective as of November&nbsp;30 of a particular year by giving written
notice in May of that year. See &#147;Item&nbsp;3D. Risk Factors&#151;Our marketing strategy
is based upon the international Orange Brand. If our license agreement
terminates or is revoked, we will lose one of our main competitive strengths.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, we are a full member of the GSM Association. In conjunction
with the promotion and operation of our GSM network, we have the right to use
their relevant intellectual property, such as the GSM trademark and logo,
security algorithms, roaming agreement templates, and billing transfer
information file formats. We are eligible to remain a member of the GSM
Association for as long as we are licensed to provide GSM service.
</FONT>
<P align="left"><FONT size="2"><B>Regulation</B>
</FONT>
<P align="left"><FONT size="2"><B><I>Overview</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We operate within Israel primarily under the Communications Law
(Telecommunications and Broadcasting), 1982 (the &#147;Telecommunications Law&#148;), the
Wireless Telegraphy Ordinance (New Version), 1972 (the &#147;Wireless Telegraphy
Ordinance&#148;), the regulations promulgated by the Ministry of Communications and
our license. The Ministry of Communications issues the licenses which grant the
right to establish and operate mobile telephone service in Israel, and sets the
terms by which such mobile telephone service is provided. The Israeli
telecommunications market is in a state of transition,
</FONT>
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<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2">moving to a more liberalized environment in which various markets, such as the
mobile, international services, and domestic markets and infrastructure, are
gradually being opened to competition and in which government-owned monopolies
are being privatized. As a result, there is a possibility that changes may take
place in the regulatory framework described below.
</FONT>
<P align="left"><FONT size="2"><B><I>The Israeli regulatory framework</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The regulatory framework under which we operate consists primarily of the
Telecommunications Law and related laws and the general license awarded to us
by the Ministry of Communications. The Wireless Telegraphy Ordinance governs
wireless telegraphy transmissions and equipment. At times, the Ministry of
Communications issues policy papers and correspondence regarding issues not
addressed in the law or the general license or details concerning issues
addressed only generally in the law or the general license. These policy papers
and correspondence also influence the regulatory environment. The regulatory
framework under which we operate consists also of the Planning and Building
Law, 1965 and the Consumer Protection Law, 1981. Additional areas of Israeli
law may be relevant to our operations, including antitrust law, specifically
the Restrictive Trade Practices Law, 1988, and administrative law.
</FONT>
<P align="left"><FONT size="2"><B><I>Telecommunications Law</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The principal law governing telecommunications in Israel is the
Telecommunications Law and related regulations. The Telecommunications Law
prohibits any person, other than the State of Israel, from providing public
telecommunications services without a license issued by the Ministry of
Communications. &#147;Telecommunications&#148; is defined broadly to include
broadcasting, transmission or reception of symbols, signals, signs, text,
visual forms, voice or data by means of wire, wireless systems, optical systems
or other electro-magnetic systems. For telecommunications, the
Telecommunications Law provides for the granting of two types of licenses:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">special licenses, which are limited to a particular type of activity
or service, and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">general licenses, which relate to telecommunications activities over a
public network or for the granting of nationwide services or international
telecommunications services.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General licenses have been awarded to Bezeq, to the four mobile telephone
operators, Pelephone, Cellcom, Partner and MIRS, and to the three international
operators, Barak, Bezeq International and Golden Lines. Special licenses have
been awarded for a variety of services and activities including internet
service provision, telefax (store and forward) services, satellite transmission
services and other value-added services. In addition, the Ministry of
Communications
</FONT>
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<P align="left"><FONT size="2">may issue additional mobile telephone operator licenses in the future. The
Telecommunications Law also provides for the granting of licenses for
broadcasting in the area of cable and satellite television.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Ministry of Communications has the authority to amend the terms of any
license. The grounds to be considered in connection with such an amendment are
government telecommunications policy, public interest, the suitability of the
licensee to perform the relevant services, the promotion of competition in the

telecommunications market, the level of service and changes in technology. The
Ministry of Communications may also make the award of certain benefits,
such as new spectrum, conditional upon the licensee&#146;s consent to a license
amendment. The Ministry of Communications also has the authority to revoke,
limit or suspend a license at the request of the licensee or when the licensee
is in breach of a fundamental condition of the license, when the licensee is
not granting services under the license or is not granting services at the
appropriate grade of service or when the licensee has been declared bankrupt or
an order of liquidation has been issued with respect to the licensee. Public
interest may also be grounds for the rescission or suspension of a license.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Ministry of Communications, with the consent of the Minister of
Finance, may also promulgate regulations to determine interconnect tariffs, or
formulae for calculating such tariffs. Moreover, the Ministry of Communications
may, if interconnecting parties fail to agree on tariffs, or if regulations
have not been promulgated, set the interconnect tariff based on cost plus a
reasonable profit, or based on each of the interconnecting networks bearing its
own costs.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Ministry of Communications has promulgated regulations that, coupled
with a change effected in the mobile telephone operators&#146; licenses, impose a
uniform call termination tariff. For more information, see
&#147;&#151;Interconnection&#148;.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Telecommunications Law also includes certain provisions which may be
applied by the Ministry of Communications to general licensees, including
rights of way which may be accorded to general licensees to facilitate the
building of telecommunications networks or systems and a partial immunity
against civil liability which may be granted to a general licensee, exempting
the licensee, inter alia, from tort liability with the exception of direct
damage caused by the suspension of a telecommunications service and damage
stemming from intentional or grossly negligent acts or omissions of the
licensee. The Ministry of Communications has applied the partial immunity
provisions to us, including immunity in the event that we cause a mistake or
change in a telecommunication message, unless resulting from our intentional
act or gross negligence.
</FONT>
<P align="center"><FONT size="2">Page 66
</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Royalties. Pursuant to the Telecommunication (Royalties) Regulations,
2001, we must pay royalties to the State of Israel every quarter based on our
chargeable revenues, as defined in the regulation, from mobile telephone
services (including airtime, monthly subscription fees, roaming services and
non-recurring), on a cumulative basis, excluding value added tax. Revenues for
purposes of royalty calculation also exclude revenues transferred to other
telecommunications license holders, bad debts, payments for roaming services to
foreign mobile telephone operators and certain other revenues. The regulation
currently provides a rate of 5% of our chargeable revenues in 2001, 4.5% in
2002, 4% in 2003 and 3.5% from 2004.
</FONT>
<P align="left"><FONT size="2"><B><I>Fair Competition and Antitrust Law</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provisions protecting Partner from anti-competitive practices can be found
in our license and in the licenses of the other telecommunications operators,
in the various telecommunications regulations and in the Restrictive Trade
Practices Law. Our license emphasizes the principle of granting users equal
access to the systems of each of the operators upon equitable terms. The
Telecommunications Law also provides certain protection against disruption of
service by Bezeq, whose interconnection and transmission services are necessary
in order for us to be able to provide certain services.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Restrictive Trade Practices Law is the principal statute concerning
restrictive practices, mergers and monopolies. This law prohibits a monopoly
from abusing its market position in a manner that might reduce competition in
the market or negatively affect the public. The law empowers the Commissioner
of Restrictive Trade Practices to instruct a monopoly abusing its market power
to perform certain acts or to refrain from certain acts in order to prevent the
abuse. Bezeq has been declared a monopoly in certain markets, a ruling it is
challenging. For more information see &#147;Item&nbsp;3D. Risk Factors&#151;We operate in a
highly regulated telecommunications market which limits our flexibility to
manage our business.&#148;
</FONT>
<P align="left"><FONT size="2"><B><I>Judicial review of
administrative actions</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Decisions made by the Ministry of Communications as well as by any other
governmental authority may be reviewed by a court upon petition of an affected
party. Traditionally, this review has been granted mainly to the Supreme Court
of Israel sitting as the High Court of Justice. In recent years, the
jurisdiction of the district courts to review administrative action has been
broadened, and many petitions regarding administrative actions are brought
before the district courts, particularly those involving complex questions of
fact. The grounds for court intervention in administrative decisions include,
among others, gross unreasonableness.
</FONT>
<P align="center"><FONT size="2">Page 67
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2"><B><I>Our license</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;7, 1998, the Ministry of Communications granted to us a general
license to establish and operate a mobile telephone network in Israel for which
we paid a license fee and associated costs totaling approximately NIS 1,571
million, including an amount of approximately NIS 12&nbsp;million as a license fee
adjustment to reflect changes in the Israeli CPI from the time we submitted a
bid for our license until the time our license was granted by the Ministry of
Communications. We paid this additional fee under protest and requested a
refund of the fee from the Ministry of Communications. As a result of the
rejection of our request by the Ministry of Communications, we filed a suit in
the Jerusalem District court.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the December 2001 spectrum auction in Israel, we were awarded
additional spectrum (GSM (1800 MHz) spectrum and UMTS third generation (1900
MHz and 2100 MHz) spectrum). Following the award of this spectrum, our license
was amended and extended through 2017. During June 2002, the Minister of
Communications amended and extended the license through 2022.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The cost of the license fees is NIS 180&nbsp;million (approximately $38
million) for the GSM 1800 spectrum, payable in two installments and NIS 220
million (approximately $46&nbsp;million) for the UMTS third generation spectrum,
payable in six installments. To date, we have paid NIS 108&nbsp;million and NIS 100
million for the GSM 1800 spectrum and the UMTS third generation spectrum,
respectively. For more information, see &#147;Item&nbsp;5B. Operating and Financial
Review and Prospects&#151;Liquidity and Capital Resources.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the terms of the amended license, we have provided a $20&nbsp;million
guarantee to the State of Israel to secure the Company&#146;s adherence to the terms
of the license. For more information, see &#147;Item&nbsp;5B. Operating and Financial
Review and Prospects&#151;Liquidity and Capital Resources.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Term.</I> Our license authorizes us on a non-exclusive basis to establish and
operate a mobile telephone network in Israel. A mobile telephone network is a
wireless telephone network through which mobile telephone service is provided
to the public. Our license allocates to us specified frequencies and telephone
numbers. Our license was originally valid for a period of ten years (until
April 2008). As described above, we were granted an amended license as a result
of our success in the December 2001 auction for additional spectrum in Israel.
Among other changes, the amendment extended our license for 20&nbsp;years from
February&nbsp;1, 2002.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The license may be extended for an additional six-year period upon our
request to the Ministry of Communications, and a confirmation from the Ministry
of Communications that we have met the following performance requirements:
</FONT>
<P align="center"><FONT size="2">Page 68
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">observing the provisions of the Telecommunications Law, the Wireless
Telegraphy Ordinance, the regulations and the provisions of our license;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">acting to continuously improve our mobile telephone services, their
scope, availability, quality and technology, and that there has been no
act or omission by us harming or limiting competition in the mobile
telephone sector;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">having the ability to continue to provide mobile telephone services of
a high standard and to implement the required investments in the
technological updating of our system in order to improve the scope of such
services, as well as their availability and quality; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">efficient use of the spectrum allocated to us, compared to alternative
applications.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the end of this additional six-year period, we may request renewal of
our license for successive six-year periods thereafter, subject to regulatory
approval.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Contracting
with customers</I>. Pursuant to our license, our standard
agreement with customers must receive Ministry of Communications approval. We
have submitted our standard agreement to the Ministry of Communications for
approval pursuant to our license. The agreement is still under review by the
Ministry of Communications.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Tariffs</I>. Our license requires us to submit to the Ministry of
Communications our tariffs (and any changes in our tariffs) before they enter
into effect. Our license allows us to set and change our tariffs for outgoing
calls without approval of the Ministry of Communications. However, the Ministry
of Communications may intervene in our tariffs if it finds that our tariffs
unreasonably harm consumers or competition.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Payments</I>. Our license specifies the payments we may charge our
subscribers. These include one-time installation fees, fixed monthly payments,
airtime fees, payments for the use of other telecommunication systems, payments
for handset maintenance and payments for additional services. In most of our
tariff plans we have chosen to charge only for airtime and use of services. See
&#147;Item&nbsp;4B. Information on the Company&#151;Business Overview&#151;Services and
Products&#151;Tariff Plans.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interconnection</I>. Like the licenses of Pelephone, Cellcom and MIRS, our
license requires that we interconnect our mobile telephone network to other
telecommunications networks operating in Israel, including that of Bezeq, the
other mobile telephone operators and the international operators.
</FONT>
<P align="center"><FONT size="2">Page 69
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2">Conversely, Partner must allow other network operators to interconnect to its
network. See &#147;Item&nbsp;4B. Information on the Company&#151;Business
Overview&#151;Interconnection.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Service approval</I>. The Ministry of Communications has the authority to
require us to submit for approval details of any of our services (including
details concerning tariffs). In addition, we are required to inform the
Ministry of Communications 30&nbsp;days prior to the activation of any service on a
specified list of services.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Access
to infrastructure</I>. The Ministry of Communications has the power to
require us, like the other telephone operators in Israel, to offer access to
our network infrastructure to other operators. We may also be required to
permit other operators to provide value-added services using our network.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Universal
service</I>. We are required to provide any third generation service
with the same coverage as our existing network within 24&nbsp;months from the
commercial launch of each such service.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Territory
of license</I>. Our license authorizes us to provide mobile
telephone services within the State of Israel. In May 2000, we were also
granted a license from the Israeli Civil Administration, which is responsible
for administering the territories of the West Bank and Gaza that are not under
the administration of the Palestine Authority.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>License
conditions</I>. Our license imposes many conditions on our conduct. We
must at all times be a company registered in Israel. Our license may not be
transferred, mortgaged or attached without the prior approval of the Ministry
of Communications. We may not sell, lease or mortgage any of the assets which
serve for the implementation of our license without the prior approval of the
Ministry of Communications, other than in favor of a banking corporation which
is legally active in Israel, and in accordance with the conditions of our
license.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our license provides that no direct or indirect control of Partner may be
acquired, at one time or through a series of transactions,
and no means of control may be transferred in a manner which results in a
transfer of control, without the consent of the Ministry of Communications.
Furthermore, no direct or indirect holding of 10% or more of any means of
control may be transferred or acquired at one time or through a series of
transactions, without the consent of the Ministry of Communications. In
addition, no shareholder of Partner may permit a lien to be placed on shares of
Partner if the foreclosure on such lien would cause a change in the ownership
of 10% or more of any of Partner&#146;s means of control unless such foreclosure is
made subject to the consent of the Ministry of Communications. For purposes of
our license, &#147;means of control&#148; means any of:
</FONT>
<P align="center"><FONT size="2">Page 70
</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">voting rights in Partner;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the right to appoint a director or managing director of Partner;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the right to participate in Partner&#146;s profits; or</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the right to share in Partner&#146;s remaining assets after payment of
debts when Partner is wound up.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of our ordinary shares and ADSs grants its holder means of control in
Partner.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, Partner, any entity in which Partner is an Interested Party,
as defined below, an Office Holder, as defined below, in Partner or an
Interested Party in Partner or an Office Holder in an Interested Party in
Partner may not be a party to any agreement, arrangement or understanding which
may reduce or harm competition in the area of mobile telephone services or any
other telecommunications services.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our license also provides that a foreign mobile radio telephone operator,
as defined below, or its controlling corporation, must hold during the five
year period commencing on the date our license was granted by the Ministry of
Communications, 25% of the voting rights and of the rights to appoint directors
or the general manager of Partner. The foreign mobile radio telephone operator
must also provide us all with the information in its possession required for
the establishment of a mobile telecommunications system and for the provision,
marketing and sale of mobile telecommunications services. Accordingly, no
transfer may occur if as a result the foreign mobile radio telephone operator,
or a controlling corporation, will hold less than 25% of the voting rights or
the right to appoint directors or the general manager in Partner. After such
five-year period, this holding may be reduced with the approval of the Ministry
of Communications.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with our initial public offering, our license was amended to
provide that our entering into an underwriting agreement for the offering and
sale of shares to the public, listing the shares for trading, and depositing
shares with the depositary or custodian will not be considered a transfer of
any means of control, as defined below. Pursuant to the amendment, if the ADSs
(or other &#147;traded means of control,&#148; that is, means of control which have been
listed for trade or offered through a prospectus and are held by the public)
are transferred or acquired in breach of the restrictions imposed by the
license with respect to transfer or acquisition of 10% or more of any means of
control, we must notify the Ministry of Communications and request the
Minister&#146;s consent within 21&nbsp;days of learning of the breach. In addition,
should a shareholder, other than a founding shareholder, breach these ownership
restrictions, or provisions regarding acquisition of control or cross-ownership
or cross-control with other mobile telephone operators or shareholdings or
agreements which may
</FONT>
<P align="center"><FONT size="2">Page 71
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<P align="left"><FONT size="2">reduce or harm competition, its shareholdings will be converted into dormant
shares, as long as the Minister&#146;s consent is required but not obtained, with no
rights other than the right to receive dividends and other distributions to
shareholders, and to participate in rights offerings.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The dormant shares must be registered as dormant shares in our share
registry. Any shareholder seeking to vote at a general meeting of our
shareholders must notify us prior to the vote, or, if the vote is by deed of
vote, must so indicate on the deed of vote, whether or not the shareholder&#146;s
holdings in Partner or the shareholder&#146;s vote requires the consent of the
Ministry of Communications due to the restrictions on transfer or acquisition
of means of control, or provisions regarding cross-ownership or cross-control
with other mobile telephone operators or shareholders. If the shareholder does
not provide such certification, his instructions shall be invalid and his vote
not counted.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The existence of shareholdings which breach the restrictions of our
license in a manner which could cause them to be converted into dormant shares
and may otherwise provide grounds for the revocation of our license will not
serve in and of themselves as the basis for the revocation of our license so
long as:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the principal shareholders of Partner continue to hold in the
aggregate at least 51% of the means of control of Partner;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">our Articles of Association include the provisions described in this
paragraph;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">we act in accordance with such provisions;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">our Articles of Association provide that an ordinary majority of the
voting power at the general meeting of Partner is entitled to appoint all
the directors of Partner.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amendment of our license providing for the dormant share mechanism
does not apply to our principal shareholders.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The provisions contained in the amendment to our license are also
contained in our Articles of Association. In addition, our Articles of
Association contain similar provisions in the event the holdings of shares by a
shareholder breaches the Israeli and foreign mobile radio telephone operator
ownership limits contained in our license. The principal shareholders have
informed us that they intend to seek a change to the 51% ownership threshold.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Revoking,
limiting or altering our license</I>. Our license contains several
qualifications that we are required to meet. These conditions are designed
primarily to ensure that we maintain at least a
</FONT>
<P align="center"><FONT size="2">Page 72
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<P align="left"><FONT size="2">specified minimum connection to Israel and that we benefit from the experience
of a foreign mobile radio telephone operator. Other eligibility requirements
address potential conflicts of interest and cross-ownership with other Israeli
telecommunications operators. The major eligibility requirements are set forth
below. A failure to meet these eligibility requirements may lead the Ministry
of Communications to revoke, limit or alter our license, after we have been
given an opportunity and have failed to remedy it.
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Citizens and residents of Israel, as determined by Israeli law, must
hold at least 20% of each of Partner&#146;s means of control.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The majority of our directors, and our general manager, must be
citizens and residents of Israel.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Neither the general manager of Partner nor a director of Partner may
continue to serve in office if he has been convicted of certain legal
offenses.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The foreign mobile radio telephone operator, or a controlling
corporation, must hold at least 25% of the voting rights and of the right
to appoint directors or the General Manager of Partner, during at least
the five year period commencing on the date our license was granted by the
Ministry of Communications.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">No trust fund, insurance company, investment company or pension fund
that is an Interested Party in Partner may: (a)&nbsp;hold, either directly or
indirectly, more than 5% of any means of control in a competing mobile
radio telephone operator without having obtained a permit to do so from
the Ministry of Communications, or (b)&nbsp;hold, either directly or
indirectly, more than 5% of any means of control in a competing mobile
radio telephone operator in accordance with a permit from the Minister,
and in addition have a representative or appointee who is an Office Holder
in a competing mobile radio telephone operator, unless it has been legally
required to do so, or (c)&nbsp;hold, either directly or indirectly, more than
10% of any means of control in a competing mobile radio telephone
operator, even if it received a permit to hold up to 10% of such means of
control.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">No trust fund, insurance company, investment company or a pension fund
that is an Interested Party in a competing mobile radio telephone operator
may: (a)&nbsp;hold, either directly or indirectly, more than 5% of any means of
control in Partner, without having obtained a permit to do so from the
Ministry of Communications; or (b)&nbsp;hold, directly or indirectly, more than
5% of any means of control in Partner in accordance with a permit from the
Ministry of Communications, and in addition have a representative or
appointee who is an Office Holder in Partner, unless it has been legally
required to do so; or (c)&nbsp;hold, either directly or indirectly, more than
10% of any means of control in Partner, even if it received a permit to
hold up to 10% of such means of control.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 73
</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Partner, an Office Holder or Interested Party in Partner, or an Office
Holder in an Interested Party in Partner does not control a competing
mobile radio telephone operator, is not controlled by a competing mobile
radio telephone operator, by an Office Holder or an Interested Party in a
competing mobile radio telephone operator, by an Office Holder in an
Interested Party in a competing mobile radio telephone operator, or by a
person or corporation that controls a competing mobile radio telephone
operator.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our license may also be revoked, limited or altered by the Ministry of
Communications if we have failed to uphold our obligations under the
Telecommunications Law, the Wireless Telegraphy Ordinance or the regulations,
or have committed a substantial breach of the license conditions. Examples of
the principal undertakings identified in our license in this connection are:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">We have illegally ceased, limited or delayed any one of our services;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Any means of control in Partner or control of Partner has been
transferred in contravention of our license;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">We fail to invest the required amounts in the establishment and
operation of the mobile radio telephone system in accordance with our
undertakings to the Ministry of Communications;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">We have harmed or limited competition in the area of mobile radio
telephone services;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">A receiver or temporary liquidator is appointed for us, an order is
issued for our winding up or we have decided to voluntarily wind up; or</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Partner, an Office Holder in Partner or an Interested Party in Partner
or an Office Holder in an Interested Party of Partner is an Interested
Party in a competing mobile radio telephone operator or is an Office
Holder in a competing mobile radio telephone operator or in an interested
party in a competing mobile radio telephone operator without first
obtaining a permit from the Ministry of Communications to do so or has not
fulfilled one of the conditions included in such permit. See &#147;Item&nbsp;4B.
Information on the Company&#151;Business Overview&#151;Regulation&#151;Our Permit
Regarding Cross Ownership.&#148;</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, our amended license, like the licenses of our competitors,
provides that if we participate in a future tender for a mobile
telecommunications license, we may be required by the terms of a new tender, if
we win such tender, to transfer our network to another operator according to
terms which the Minister of Communications may decide upon and to cease
providing mobile telephony services.
</FONT>
<P align="center"><FONT size="2">Page 74
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Change
in license conditions</I>. Under our license, the Ministry of
Communications may change, add to, or remove conditions of our license if
certain conditions exist, including:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">A change has occurred in the suitability of Partner to implement the
actions and services that are the subject of our license.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">A change in our license is required in order to ensure effective and
fair competition in the telecommunications sector.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">A change in our license is required in order to ensure the standards
of availability and grade of service required of Partner.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">A change in telecommunications technology justifies a modification of
our license.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">A change in the electromagnetic spectrum needs justifies, in the
opinion of the Ministry of Communications, changes in our license.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Considerations of public interest justify modifying our license.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">A change in government policy in the telecommunications sector
justifies a modification of our license.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">A change in our license is required due to its breach by Partner.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During a period of an emergency, control of Partner&#146;s mobile radio
telephone system may be assumed by any lawfully authorized person for the
security of the State of Israel to ensure the provisions of necessary service
to the public, and some of the spectrum granted to us may be withdrawn. In
addition, our license requires us to supply certain services to the Israeli
defense and security forces. Furthermore, certain of our senior officers are
required to obtain security clearance from Israeli authorities.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the purposes of this discussion, the following definitions apply:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">&#147;OFFICE HOLDER&#148; means a director, manager, company secretary or any
other senior officer that is directly subordinate to the general manager.</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">&#147;CONTROL&#148; means the ability to, directly or indirectly, direct the
activity of a corporation, either alone or jointly with others, whether
derived from the governing documents of the corporation, from an
agreement, oral or written, from holding any of the means of control in
the corporation or in another corporation, or which derives from any other
source, and excluding the ability derived</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 75
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">solely from holding the office of director or any other office in the
corporation. Any person controlling a subsidiary or a corporation held
directly by him will be deemed to control any corporation controlled by such
subsidiary or by such controlled corporation. It is presumed that a person or
corporation controls a corporation if one of the following conditions exist:
(1)&nbsp;such person holds, either directly or indirectly, fifty percent (50%) or
more of any means of control in the corporation; (2)&nbsp;such person holds,
either directly or indirectly, a percentage of any means of control in the
corporation which is the largest part in relation to the holdings of the
other Interested Parties in the corporation; or (3)&nbsp;such person has the
ability to prevent the taking of business decisions in the corporation, with
the exception of decisions in the matters of sale or liquidation of most
businesses of the corporation, or fundamental changes of these businesses.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">&#147;CONTROLLING CORPORATION&#148; means a company that has control, as defined
above, of a foreign mobile radio telephone operator.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">&#147;FOREIGN MOBILE RADIO TELEPHONE OPERATOR&#148; means an operator of a
mobile telephone system abroad, through which mobile telephone services
are provided to at least 500,000 subscribers.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">&#147;INTERESTED PARTY&#148; means a person who either directly or indirectly
holds 5% or more of any type of means of control, including holding as an
agent.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><B><I>Our permit regarding cross ownership</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our license generally prohibits cross-control or cross-ownership among
competing mobile telephone operators without a permit from the Ministry of
Communications. In particular, Partner, an Office Holder or an Interested Party
in Partner, as well as an Office Holder in an Interested Party in Partner may
not control or hold, directly or indirectly, 5% or more of any means of control
of a competing mobile radio telephone operator. Our license also prohibits any
competing mobile radio telephone operator or an Office Holder or an Interested
Party in a competing mobile radio telephone operator, or an Office Holder in an
Interested party in a competing mobile radio telephone operator or a person or
corporation that controls a competing mobile radio telephone operator from
either controlling, or being an Interested Party in us.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;However, our license, as amended on April&nbsp;14, 2002 also provides that the
Ministry of Communications may permit an Interested Party in Partner to hold,
either directly or indirectly, 5% or more in any of the means of control of a
competing mobile radio telephone operator if the Ministry of Communications is
satisfied that competition will not be harmed, and on the condition that the
Interested Party is an Interested Party in Partner only by virtue of a special
calculation described in
</FONT>
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<P align="left"><FONT size="2">the license and relating to attributed holdings of shareholders deemed to be in
control of a corporation.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An indirect shareholder of Elbit, Discount Investment Company Ltd., is
deemed to be an Interested Party in both Partner and Cellcom by virtue of the
special calculation described above. Accordingly, we applied for and received a
permit from the Ministry of Communications which authorized Discount&#146;s indirect
ownership of equity in both Partner and Cellcom. Our permit was also amended
on April&nbsp;14, 2002 and on June&nbsp;2, 2002. Our permit contains certain
guidelines which apply to Discount and the related companies PEC Israel
Economic Corporation, Elron Electronic Industries Ltd., the parent of Elbit,
Elbit and IDB Development Company Ltd., the parent of Discount, and persons who
control any one of them (collectively, the &#147;IDB Group&#148;). Our permit establishes
limits on the holdings of the IDB Group in the equity of Cellcom and Partner.
Changes in these holdings require a permit from the Ministry of Communications,
and may require Elbit to significantly reduce its holdings in Partner. In
addition, our permit limits the number of directors of Partner that may be
appointed by the IDB Group. Our permit also limits the exchange of information
regarding Partner within the IDB Group and its subsidiaries, limits the
involvement of the two directors and office holders of Discount Investment
Company Ltd. who are also directors of Cellcom in matters relating to Partner,
and prohibits these directors from certain activities within the IDB Group
which would provide them with access to information about Partner.
</FONT>
<P align="left"><FONT size="2"><B><I>ISP license</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;7, 2001, we received a special license issued by the Ministry of
Communications, allowing us through our own facilities to provide internet
access to both mobile and fixed network customers. The license is valid until
March 2003. We applied to the Ministry of Communications for an extension.
</FONT>
<P align="left"><FONT size="2"><B><I>Antenna site permits</I></B>
</FONT>
<P align="left"><FONT size="2"><I>Permits of the Ministry of Environment</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the Pharmacists (Radioactive Elements and Products)
Regulations, 1980 (the &#147;Pharmacists Regulations&#148;) issued under the
Pharmaceutics Ordinance, the Ministry of the Environment is empowered to grant
erection permits and operation permits for our antennae. The granting of such
permits is subject to the satisfaction of conditions to which we are subject
under the Pharmacists Regulations. The application to the Ministry of
Environment must include a discussion of the type of device, its impact on the
environment both during ordinary operation and in times of fault,
</FONT>
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<P align="left"><FONT size="2">and details of the possible dangers posed by the device and the manner in which
these dangers may be prevented or neutralized. In addition, the application
includes an engineer&#146;s sketch of the device and its related equipment. The
Pharmacists Regulations further provide that the permits granted by the
Ministry of Environment are for a one-year period.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Ministry of the Environment has adopted the International Radiation
Protection Agency&#146;s standard as a basis for the consents it gives for the
erection and operation of our antennae. This standard is an international
standard based upon a number of years of scientific study.
</FONT>
<P align="left"><FONT size="2"><I>Local building permits</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Planning and Building Law requires that we receive a building permit
for the construction of our antennae. The local committee or local licensing
authority in each local authority is authorized to grant building permits,
provided such permits are in accordance with the local, regional, and National
Building Plan No.&nbsp;36 which came into effect on June&nbsp;15, 2002. The local
committee is made up of members of the local municipal council. The local
committee is authorized to delegate certain of its powers to subcommittees on
which senior members of the local authority may sit.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The local committee examines the manner in which an application for a
building permit conforms to the plans applying to the parcel of land that is
the subject of the application, and the extent to which the applicant meets the
requirements set forth in the Planning and Building Law. The local committee is
authorized to employ technical, vista, and aesthetic considerations in its
decision-making process. The local committee may grant building permits that
are conditioned upon the quality of the construction of the structure, the
safety of flight over the structure, and the external appearance of the
structure. Every structure located on a certain parcel of land must satisfy the
requirements and definitions set forth in the building plan applicable to such
parcel.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A decision by a local committee not to grant a building permit may be
appealed to the District Appeals Committee. A person harmed by the ruling of
the District Appeals Committee may have such ruling examined judicially by
means of an administrative petition to the District Court sitting as an
Administrative Affairs Tribunal.
</FONT>
<P align="left"><FONT size="2"><I>National Building Plan No.&nbsp;36</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;National Building Plan No.&nbsp;36 which came into effect on June&nbsp;15, 2002
regulates the growth of telecommunications infrastructure in Israel. Chapter&nbsp;A
of National Building Plan No.&nbsp;36 sets forth the licensing, view, flight safety
and electromagnetic radiation requirements for the construction of mobile radio
telephone infrastructure. National Building Plan No.&nbsp;36 was recently approved
by the Israeli
</FONT>
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<P align="left"><FONT size="2">government, after the National Committee removed from the draft a provision
which would have required notification to owners of adjoining assets of an
intention to erect an antenna site in a residential area. National Building
Plan No.&nbsp;36 also adopts the radiation emission standards set by the
International Radiation Protection Agency which were also previously adopted by
the Ministry of the Environment. We believe that we currently comply with these
standards.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other Approvals. The construction of our antennae may be subject to the
approval of the Civil Aviation Administration which is authorized to ensure
that the construction of our antennae does not interfere with air traffic,
depending on the height and location of such antennae. The approval of the
Israeli Defense Forces is required in order to coordinate site frequencies so
that our transmissions do not interfere with the communications of the Israel
Defense Forces.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have received type approval from the Ministry of Communications for all
of the handsets and other terminal equipment we sell. The Ministry of the Environment also has authority to regulate the
sale of handsets in Israel. However, in accordance with the current practice
among mobile telephone operators in Israel, we have not obtained approvals or
exemptions from the Ministry of the Environment for the handsets we provide
because, to date, neither the Ministry of the Environment nor the Ministry of
Health has issued standards for the permitted level of radiation emissions from
handsets. However, as of June&nbsp;15, 2002, we have been required to provide
information to purchasers of handsets on the Specific Absorption Rate, or SAR,
of the handsets as well as its compliance with certain standards pursuant to a
regulation promulgated by the Ministry of Industry and Trade under the Consumer
Protection Law.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We, like other mobile telephone operators in Israel, provide repeaters,
also known as bi-directional amplifiers, to subscribers seeking an interim
solution to weak signal reception within specific indoor locations. These
repeaters, which we install at the subscribers&#146; premises upon their request,
consist of an indoor box attached to a small outdoor antenna of between 40 and
70 cm (approximately one to two feet), receive signals from a network antenna
site and amplify them within a specific room or rooms. The radiation emission
from these outdoor antennae is comparable to that of the handset whose signal
it is transmitting. In light of the lack of a clear policy of the local
planning and building authorities, and in light of the practice of the other
mobile telephone operators, we have not requested permits under the Planning
and Building Law for the repeaters. However, we have received from the Ministry
of Communications a type approval for the repeaters. We have also approached
the Ministry of the Environment, asserting that no permits are necessary for
the repeaters, based on the Ministry&#146;s previous advice that permits are not
necessary for devices with comparable levels of emission called &#147;Fixed Cellular
Terminals.&#148;
</FONT>
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<P align="left"><FONT size="2"><B>4C. Organizational Structure</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have one wholly owned subsidiary, Partner Future Communications 2000
Ltd., an Israeli corporation.
</FONT>
<P align="left"><FONT size="2"><B>4D. Property, Plants and Equipment</B>
</FONT>
<P align="left"><FONT size="2"><B>Headquarters</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We lease our headquarter facilities in Rosh Ha-ayin, Israel, as follows:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Main office at 8 Amal St.&#151;a building of 10,532 square meters plus 6,345
square meters mainly for parking. The lease agreement is for a 20&nbsp;year
period commencing on June 1998. We have an option to shorten the lease
period by five to fifteen years.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Call center at 14 Amal St.&#151;a building of 7,874 square meters plus 5,474
square meters of parking. During 2002, we decided to terminate the lease
agreement in favor of a new building (see 3. below). The move will be
completed in the first half of 2003.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Main office at 6 Amal St.&#151;a building of 9,172 square meters plus 14,877
square meters of parking and service areas. In 2003, we will increase our
lease to 18,151 square meters and 14,877 square meters for parking and
service areas. The lease agreement is for a 16&nbsp;year period commencing in
November 2002. We have an option to shorten the lease period by five to
ten years.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We lease another call center at 5 Kornas St. in Haifa&#151;a building of
2,525 square meters. The lease agreement is for a 5&nbsp;year period commencing in
November 2001. We have the option to extend the lease period for 6&nbsp;years.
</FONT>
<P align="left"><FONT size="2"><B>Network sites</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We lease most of the sites where our mobile telecommunications network
equipment is installed throughout Israel. At December&nbsp;31, 2002, we had 2,035
antenna sites (including micro-sites). The lease agreements relating to our
cell sites are generally for periods of two to three years. We have the option
to extend the lease periods to ten years (including the original lease period).
</FONT>
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<P align="left"><FONT size="2"><B>Service centers and points of sale</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lease agreements for our retail stores and service centers are for periods
of two to five years. We have the option to extend the lease periods to twenty
additional years (including the original lease period). The average size of our
retail stores and service center is approximately 230 square meters. See also
Note 8a(2)(b) to our consolidated financial statements.
</FONT>
<P align="center"><FONT size="2">Page 81
</FONT>
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<!-- link2 "ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS" -->
<DIV align="left"><A NAME="006"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following operating and financial review and prospects are based upon
and should be read in conjunction with our financial statements and selected
financial data, which appear elsewhere in this annual report. You should also
read the risk factors appearing elsewhere in this annual report for a
discussion of a number of factors that affect and could affect our financial
condition and results of operations.
</FONT>
<P align="left"><FONT size="2"><B>5A. Operating results</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We were formed in September 1997. We submitted our bid to the Ministry of
Communications for our license on October&nbsp;28, 1997. The Ministry of
Communications awarded us our license on April&nbsp;7, 1998, and we began full
commercial operations to the general public in January 1999.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See &#147;Item&nbsp;4A. Information on the Company&#151;History and Development of the
Company&#148; for significant events since we commenced commercial operations and
&#147;Item&nbsp;5B. Liquidity and Capital Resources&#148; for information on the costs
required to build and expand our network and services.
</FONT>
<P align="left"><FONT size="2"><B>Revenues</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal source of revenues is from the sale of network services,
primarily network airtime usage fees, and is denominated primarily in shekels.
In each of 2002, 2001 and 2000, approximately 54% of network airtime usage fees
were derived from outgoing calls, with the remainder generated from incoming
calls, roaming and value-added services. We also derive revenues from sales of
handsets, car kits, accessories and handset maintenance services to subscribers
as well as other services. Network airtime usage fees comprise payments from
subscribers originating calls on our network, payments received from other
telecommunications network operators for delivering calls originating on their
networks and terminating on our network and from foreign GSM network operators
for calls made by their roaming customers while in Israel using our network,
also called &#147;in-roaming.&#148; In addition, we receive payments from our subscribers
for calls they originate on networks located outside of Israel, or
&#147;out-roaming.&#148; We recognize revenues from airtime usage at the time we provide
the service to the subscriber. We recognize revenues from handset sales only
upon delivery and the transfer of ownership to the subscriber.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Ministry of Communications has promulgated regulations that, coupled
with a change effected in the mobile telephone operators&#146; licenses, impose a
uniform call termination tariff. The
</FONT>
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<P align="left"><FONT size="2">uniform tariff, originally NIS 0.54 per minute, fell to NIS 0.50 on January&nbsp;1,
2001 until January&nbsp;1, 2003, at which point it was reduced to NIS 0.45 per
minute. For more information, see &#147;Item 4B. Business
Overview&#151;Interconnection&#148;. These changes will substantially decrease our revenues from incoming
calls, and will also to a lesser extent decrease our cost of revenues. Had the
call termination tariffs been reduced to NIS 0.45 per minute for all of 2002,
the proforma negative impact on our revenues and net income would have amounted
to approximately NIS 110&nbsp;million and NIS 62&nbsp;million, respectively, as a result
of the reduction in the call termination tariffs that we would have collected
and paid, together with the related royalties.
</FONT>
<P align="left"><FONT size="2"><B>Cost of revenues and other operating expenses</B>
</FONT>
<P align="left"><FONT size="2">Our principal operating expenditures are:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">subscriber acquisition costs, including primarily handset and car-kit
costs and commissions to dealers;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">upgrade and retention costs;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">network operations costs;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">interconnect fees paid to the fixed-line and other telecommunication
network operators in Israel for calls made by our subscribers carried by
or terminating on the other networks;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">charges paid to foreign GSM network operators for services provided to
our subscribers while outside Israel using their networks;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">charges for leases and maintenance;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">costs of replacing or repairing damaged handsets;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">advertising and promotion;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">customer services costs;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">employee salaries and related expenses;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">depreciation relating to our network-related assets and amortization
of our license; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">royalties paid to the Israeli government under our license.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
average subscriber acquisition costs, per subscriber, for 2002 were NIS
470 ($99), compared to NIS 458 in 2001 and NIS 819 in 2000. The slight increase
in average subscriber acquisition costs is attributed primarily to the
increasing percentage of business subscribers amongst our new subscribers, for
whom we have traditionally incurred higher subscriber acquisition costs
compared to other new subscribers, and higher prices of more sophisticated
handsets, resulting in
</FONT>
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<P align="left"><FONT size="2">higher handset subsidies. Average subscriber acquisition costs may increase
slightly during 2003, if handset prices on newer sophisticated models remain
high, which may lead to an increase in the handset subsidies that we provide.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We anticipate that interconnect fees, royalties to the Israeli government
and costs related to the replacement and upgrading of handsets will continue to
grow in line with the growth of our subscriber base. In addition, because of
the importance of the Orange Brand to our strategy, we expect to continue to
incur significant advertising and marketing costs for the foreseeable future in
order to maintain and enhance the strength of the brand.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the Telecommunication (Royalties) Regulations, 2001, we must
pay royalties to the State of Israel every quarter based on our chargeable
revenues (as defined in the regulation, including airtime, monthly subscription
fees, roaming services and non-recurring) from mobile telephone services, on a
cumulative basis, excluding value added tax. Revenues for purposes of royalty
calculation also exclude revenues transferred to other telecommunications
license holders, bad debts, payments for roaming services to foreign mobile
telephone operators and certain other revenues. The regulation provided a rate
of 5% of our chargeable revenues in 2001 and 4.5% in 2002, and provides a rate of 4% in 2003 and 3.5% from
2004. Before the regulation became effective on January&nbsp;1, 2001, the rate had
been 8%, and the basis on which the royalties were calculated had been narrower
than it is now.
</FONT>
<P align="left"><FONT size="2"><B>Churn</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Churn refers to subscriber disconnections from network services, either
involuntary or voluntary, and from June 2001, subscribers who have not
generated revenue for the Company for a period of over the last six consecutive
months ending at a reporting date. Involuntary churn includes disconnections
due to non-payment of bills or suspected fraudulent use, and voluntary churn
includes disconnections due to subscribers switching to a competing mobile
telephone network or terminating their use of our services. Since we only
launched full commercial operations in January 1999, and since until mid 2002
each Israeli operator used different technologies our current churn rates are
not necessarily indicative of our future churn rates. Our annual churn rate was
10.9% for 2002, compared to 5.8% for 2001 and 5.5% for 2000.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that the increase in the churn rate in 2002 is attributed
predominately to increased churn in the prepaid sector and churn from those
subscribers who joined the network in 1999 with three year commitment
periods,
as well as increasing competition.
</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We anticipate churn for 2003 to increase to a level of between 15% to 18%
driven by increasing churn in the pre-paid sector caused primarily by higher
turnover in the base of foreign workers in Israel, and increasing competition
affecting all sectors.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recognize that managing subscriber churn is an important factor in
maximizing revenue and cash flows. In order to control churn caused by
subscribers voluntarily terminating our service, we attempt to ensure that our
service is high quality and competitive. We use our advanced information
technology systems as a tool to understand, monitor and control voluntary
churn. We have a retention team within our customer services group that makes
follow-up phone-calls to subscribers who call us with complaints or problems in
order to resolve any problems and to retain the subscribers on the network. We
have developed several retention and churn prevention plans to retain our
subscribers. Some of these plans are based on a subscriber&#146;s ranking according
to financial and economic parameters. In addition, we have developed tools to
predict a subscriber&#146;s potential to churn from our network, thus enabling us to
proactively approach the subscriber with an attractive offering. We also host
exclusive subscriber events, such as shows and parties for subscribers, in
order to encourage subscriber loyalty.
</FONT>
<P align="left"><FONT size="2"><B>Critical accounting policies and estimates</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with US GAAP. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses during the reportitng
period. On an ongoing basis, we evaluate our estimates, including those related
to long-lived assets, bad debts, inventories, income taxes, and contingencies
and litigation. We base our estimates on historical experience and on various
other assumptions and information that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Please refer to Note 1 to our consolidated financial statements included
in this Annual Report on Form&nbsp;20-F for the year ended December&nbsp;31, 2002 for a
summary of all of Partner&#146;s significant accounting policies.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements:
</FONT>
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<P align="left"><FONT size="2"><B><I>Long-lived assets</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have substantial investments in tangible and intangible long-lived
assets, primarily our communications network and our license. Changes in
technology or changes in our intended use of these assets may cause the
estimated period of use or the value of these assets to change. We amortize our
communications network by the straight-line method over 6.7&nbsp;years (15% per
year). We amortize our license by the straight-line method over the utilization
period of the license, which is based upon the license period. Following the
extension of the license period the amortized balance of this license is
amortized as of 2002 over the period ending in 2022, subject to the changes in
utilization period. We review our communications network and license for
impairment annually, according to the economic environment and technological
developments in the cellular industry, and whenever events or changes in
circumstances indicate that the carrying amounts may not be recoverable. On
January&nbsp;1, 2002, we adopted FAS 144, &#147;Accounting for the Impairment or Disposal
of Long-Lived Assets.&#148; FAS 144 requires that long-lived assets, to be held and
used by an entity, be reviewed for impairment and, if necessary, written down
to the estimated fair values, whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable through
undiscounted future cash flows.
</FONT>
<P align="left"><FONT size="2"><B><I>Allowance for doubtful accounts</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We maintain allowance for doubtful accounts for estimated losses resulting
from the inability of our subscribers to make required payments. We base our
allowance on the likelihood of recoverability of accounts receivable based on
the aging of the balances, our historical write-off experience, net of
recoveries, changes in the credit worthiness of our customers, and taking into
account current collection trends that are expected to continue. These
estimated allowance are periodically reviewed, analyzing the subscribers&#146;
payment history. The allowance charged to expenses is determined in respect of
specific debts doubtful of collection, calculated as a specified percentage of
the outstanding balance in each debt age group, with the percentage of the
allowance increasing as the age of the debt increases. For example, a debt that
is between 1-1.5&nbsp;years overdue is reserved for at the rate of 94%. The debt
becomes fully reserved once it is 1.5&nbsp;years overdue. Actual customer
collections could differ from our estimates. For example, if the financial
condition or our customers were to deteriorate, additional allowances may be
required. Our bad debt expenses as a percentage of
revenues were 1.6%, 0.5% and 0.3% for the years ended December&nbsp;31, 2000,
2001 and 2002, respectively.
</FONT>
<P align="left"><FONT size="2"><B><I>Deferred income taxes</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred taxes are determined utilizing the asset and liability method,
based on the differences between the amounts presented in our financial
statements and those taken into account for tax
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<P align="left"><FONT size="2">purposes, in accordance with the related tax laws. Valuation allowances are
included in respect of deferred tax assets when it is more likely than not that
no such assets will be realized. We have considered future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the need for
the valuation allowance. Due to the uncertainty as to utilization of the tax
losses carryforward, full valuation allowance was provided to reduce our
deferred tax assets, because in the foreseeable future it is less likely than
not to be realized. Management evaluates the realizability of the deferred tax
assets on a current basis and assesses the need for valuation allowances. If it
were determined that we would be able to realize a deferred tax asset in excess
of its net recorded amount, an adjustment to deferred tax assets would increase
income.
</FONT>
<P align="left"><FONT size="2"><B><I>Contingencies and litigation</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As described in Note 8b to our consolidated financial statements, we are
party to various claims arising in the ordinary course of our operations. In
determining whether liabilities should be recorded for pending litigation
claims, we assess, based on the advice of our outside legal counsel, the
allegations made and the likelihood of our success.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When we believe that it is probable that we will not prevail in a
particular matter, we then estimate the amount of the liability. The evaluation
of the probability of success of such claims and the determination of whether
there is a necessity to include a provision in respect thereof requires
judgment by our outside legal counsel and management. Should the outcome of
such litigation be adversely determined, and if the amount of the claim is
substantial, it is possible that our results of operations or liquidity in a
particular period could be materially affected by these contingencies.
</FONT>
<P align="left"><FONT size="2"><B><I>Revenue recognition</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As described in Note 1j to our consolidated financial statements, we
recognize revenues as services are rendered. We recognize service revenues
based upon minutes of use processed, net of credits and adjustments for
services discounts. As a result of our billing cycle cut-off times, we are
required to make estimates for services revenue earned but not yet billed at
the end of each quarter. These estimates are based primarily upon historical
minutes of use processed.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Actual billing cycle results and related revenue may vary, depending on
subscriber usage and rate plan mix, from the results estimated at the end of
each period. Material differences may result between our estimates and the
actual amount and timing of our revenue for any period.
</FONT>
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<P align="left"><FONT size="2"><B><I>Inventories</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We write down our inventory for estimated obsolescence or unmarketable
inventory based on an analysis of inventory agings, assumptions about future
demand and market conditions. Changes in technology may require us to provide
additional reserves. If actual demand and/or market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required.
</FONT>
<P align="left"><FONT size="2"><B><I>Handset warranty obligation</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until 2002, a provision for warranties was not made, as our liability was
covered by the handset suppliers&#146; warranties. As of 2002, we have entered into
several agreements under which the suppliers do not provide any warranty but
rather provide additional handsets to satisfy their warranty obligation. In
these cases we provide for warranty costs at the same time as the revenues are
recognized. The costs associated with product warranties that we provide to our
customers require us to make estimates and assumptions regarding the extent of
future warranty issues and related costs. Should actual handset failure rates,
material usage or service costs differ from management&#146;s estimates, revisions
to the estimated warranty liability would be required.
</FONT>
<P align="left"><FONT size="2"><B>Information on Israel</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are incorporated under the laws of, and our offices and network
facilities are located in, the State of Israel. Accordingly, we are directly
affected by political, economic and military conditions in Israel. Our
operations would be materially adversely affected if major hostilities
involving Israel should occur or if trade between Israel and its present
trading partners should be curtailed.
</FONT>
<P align="left"><FONT size="2"><B><I>Political and economic conditions</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors and a state of
hostility, varying from time to time in intensity and degree, has led to
security and economic problems for Israel. However, a peace agreement between
Israel and Egypt was signed in 1979, a peace agreement between Israel and
Jordan was signed in 1994 and, since 1993, several agreements between Israel
and Palestinian representatives have been signed. In addition, Israel and
several other Arab States have announced their intention to establish trade and
other relations and are discussing certain projects. To date, Israel has not
entered into any peace agreement with Syria or Lebanon. There is substantial
uncertainty about how the &#147;peace process&#148; will develop or what effect it may
have upon us. Since October 2000, there has been a substantial deterioration in
the relationship between Israel and the Palestinians which has resulted in
increased violence, and the situation has recently worsened due to the
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<P align="left"><FONT size="2">possibility of an Iraqi attack against Israel in response to an attack by the
United States and its allies against Iraq. The future effect of this
deterioration and violence on the Israeli economy and our operations is
unclear. Ongoing violence between Israel and its Arab neighbors and
Palestinians may have a material adverse effect on our business, financial
condition or results of operations.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally, male adult citizens and permanent residents of Israel under the
age of 45, unless exempt, may be required to perform between 36-45&nbsp;days of
military reserve duty annually. Certain reserve soldiers may be required to
serve more.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some of our directors, officers and employees are currently obligated to
perform annual reserve duty. Additionally, all such reservists are subject to
being called to active duty at any time under emergency circumstances. We
cannot assess the full impact of these requirements on our workforce and
business if conditions should change, and we cannot predict the effect on us of
any expansion or reduction of these obligations. Under emergency circumstances,
the government also has the right to revoke temporarily some of the spectrum
granted to us, to protect the security of the State of Israel or to ensure the
provision of necessary services to the public. This may materially harm our
ability to provide services to our subscribers in such emergency circumstances.
</FONT>
<P align="left"><FONT size="2"><B>Results of operations for the year ended December 31, 2002 compared to the year
ended December 31, 2001</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had 1,837,000 subscribers as of December&nbsp;31, 2002 compared to 1,458,000
subscribers as of December&nbsp;31, 2001, an increase of 26%. For the year ended
December&nbsp;31, 2002 we had revenues of NIS 4,055&nbsp;million ($856&nbsp;million) compared
to NIS 3,249&nbsp;million for 2001. The increase was attributable mainly to the
increase in our subscriber base. We expect the rate of increase in our revenues
to go down, as the Israeli cellular market approaches saturation and
interconnect tariffs are reduced as mandated by the regulator.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Average monthly revenue per subscriber, or ARPU, for the year ended
December&nbsp;31, 2002 was NIS 183 ($39), compared to NIS 214 in 2001. The primary
cause of this reduction was the increasing percentage of prepaid subscribers in
our subscriber base, which have historically provided below-average ARPU. We
expect ARPU to decline moderately during 2003 mainly due to the reduction in
the interconnect tariffs, with a reduction to levels of approximately NIS
165-170 ($35-36), or NIS 8-13 ($1.7-2.7) lower than ARPU in the fourth quarter
of 2002.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our cost of revenues for the year ended December&nbsp;31, 2002 was NIS 3,069
million ($648&nbsp;million), compared to NIS 2,719&nbsp;million in 2001. This amounted to
76% of our revenues for the year ended December&nbsp;31, 2002, compared to 84% in
2001. The increase in our cost of revenues in 2002 over 2001 was driven
</FONT>
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<P align="left"><FONT size="2">primarily by interconnect and other network expenses related to higher
subscriber numbers and usage, offset by a decrease of NIS 113 million
($24 million) in our license amortization expenses as a result of the
extension of our license until 2022. Our cost of revenues as a percentage of our
revenues was lower in 2002 than in 2001, primarily due to the increasing
economies of scale that result from the fact that a portion of our costs are
not directly correlated to our revenues.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our selling and marketing expenses, which consist primarily of expenses
related to advertising and public relations, commissions paid to dealers,
distributors and salaries of personnel involved in these activities, were NIS
308&nbsp;million ($65&nbsp;million) for the year ended December&nbsp;31, 2002, compared to NIS
293&nbsp;million in 2001. This amounted to 8% of our revenues in 2002, compared to
9% in 2001. The stability in these expenses was driven primarily by efficient
cost management. The slight increase in selling and marketing expenses was due to
increased marketing efforts in response to increased competition. We expect
selling and marketing expenses to increase in 2003 as we continue to support
the Orange Brand in anticipation of increased competition.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses for the year ended December&nbsp;31, 2002
were NIS 144&nbsp;million ($30&nbsp;million) compared to NIS 134&nbsp;million in 2001. This
amounted to 4% of our revenues in 2002 compared to 4% in 2001. The increase in
these expenses was driven primarily by insurance costs and also resulted from
the fact that in 2001, we received a refund in the amount of approximately NIS
24&nbsp;million from Bezeq following the Ministry of Communications&#146; interim
settlement regarding our dispute on bad debt collection. We expect that general
and administrative expenses will remain relatively stable in 2003.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had an operating profit for the year ended December&nbsp;31, 2002 of NIS 533
million ($113&nbsp;million) compared to NIS 103&nbsp;million in 2001. The increase in
operating profit was achieved by our subscriber growth, accompanied by
increasing economies of scale.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had net financial expenses for the year ended December&nbsp;31, 2002 of NIS
445&nbsp;million ($94&nbsp;million) compared to NIS 401&nbsp;million in 2001, an increase of
NIS 44&nbsp;million. The increase in net financial expenses is attributed mainly to
an increase of NIS 222&nbsp;million in our average total debt outstanding, higher
interest rates set by the Central Bank of Israel and the effect of the shekel
devaluation on our US $175&nbsp;million senior subordinated notes.
</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our net income in 2002 was NIS 84&nbsp;million ($18&nbsp;million) compared to a net
loss of NIS 303&nbsp;million in 2001.
</FONT>
<P align="left"><FONT size="2"><B>Results of operations for the year ended December 31, 2001 compared to the year
ended December 31, 2000</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had 1,458,000 subscribers as of December&nbsp;31, 2001 compared to 834,000
subscribers as of December&nbsp;31, 2000. For the year ended December&nbsp;31, 2001 we
had revenues of NIS 3,249&nbsp;million compared to NIS 2,104&nbsp;million for 2000. The
increase was attributable mainly to a 75% increase in our subscriber base.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Average monthly revenue per subscriber, or ARPU, for the year ended
December&nbsp;31, 2001 was NIS 214, compared to NIS 306 in 2000. The primary cause
of this reduction was the increasing percentage of prepaid subscribes in our
subscriber base, which have historically provided below-average ARPU.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our cost of revenues for the year ended December&nbsp;31, 2001 was NIS 2,719
million compared to NIS 2,162&nbsp;million in 2000. This amounted to 84% of our
revenues for the year ended December&nbsp;31, 2001 compared to 103% in 2000. Our
cost of revenues as a percentage of our revenues was lower in 2001 than in
2000, primarily due to the increasing economies of scale that result from the
fact that a substantial portion of our costs are not directly correlated to our
revenues, combined with the decrease in the handset subsidies we provided to
the customers who joined the network during 2001. Consequently, we experienced
a gross profit during 2001, compared to a gross loss during 2000.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our selling and marketing expenses, which consist primarily of expenses
related to advertising and public relations, commissions paid to dealers,
distributors and salaries of personnel involved in these activities, were NIS
293&nbsp;million for the year ended December&nbsp;31, 2001 compared to NIS 328&nbsp;million in
2000. This amounted to 9% of our revenues in 2001, compared to 16% in 2000. The
decrease in these expenses as a percentage of revenue was driven primarily by
more efficient cost management.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses for the year ended December&nbsp;31, 2001
were NIS 134&nbsp;million compared to NIS 155&nbsp;million in 2000. This amounted to 4%
of our revenues in 2001 compared to 7% in 2000. The decrease in these expenses
was primarily due to a refund received from Bezeq following the Ministry of
Communications&#146; interim settlement regarding our dispute with Bezeq on bad
debts&#146; collection.
</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had an operating profit for the year ended December&nbsp;31, 2001 of NIS 103
million compared to an operating loss of NIS 540&nbsp;million in 2000. The increase
in operating profit was achieved by our subscriber growth, accompanied by
increasing economies of scale and lower total subscriber acquisition costs.
During 2001 total subscriber acquisition costs were NIS 316&nbsp;million compared to
NIS 424&nbsp;million in 2000.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had net financial expenses for the year ended December&nbsp;31, 2001 of NIS
401&nbsp;million compared to NIS 229&nbsp;million in 2000. Our net financial expenses
increased from 2000 to 2001 by NIS 172&nbsp;million, and our total debt increased by
NIS 265&nbsp;million. The increase in net financial expenses was attributed mainly
to an increase in our average total debt outstanding and the effects of
currency fluctuations on the outstanding principal of our senior subordinated
notes, which are denominated in US dollars.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our net loss in 2001 was NIS 303&nbsp;million compared to NIS 769&nbsp;million in
2000.
</FONT>
<P align="left"><FONT size="2"><B>Impact of inflation and exchange rate fluctuations</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of our revenues and a majority of our operating expenses
are denominated in shekels. However, through December&nbsp;31, 2002, a substantial
amount of our operating expenses were linked to non-shekel currencies. These
expenses related mainly to the acquisition of handsets where the price paid by
us is based on various foreign currencies. In addition, a substantial majority
of our capital expenditures are incurred in, or linked to, non-shekel
currencies, and our notes are denominated in US dollars and require US dollar
interest payments. Thus, any devaluation of the shekel against the non shekel
currencies will increase the shekel cost of our non-shekel denominated or
linked expenses. Such an increase may have an adverse impact on our results,
which may be material. We hedge some of our foreign currency commitments, but
we do not currently hedge the principal payable on our notes due 2010.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although we have the ability to borrow under our bank credit facility in
US dollars and Euros, our borrowings are primarily in shekels, and part of our
shekel bank borrowings are linked to the Israeli CPI. We may not be permitted
to raise our tariffs pursuant to our license in a manner that would fully
compensate for any increase in the Israeli CPI. Therefore, an increase in the
rate of inflation may also have a material adverse impact upon us by increasing
our financial expenses without an offsetting increase in revenue.
</FONT>
<P align="center"><FONT size="2">Page 92
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2"><B>Compensation charge related to grant of employee stock options</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2002, there were options to purchase 6,611,110 ordinary
shares outstanding at an average exercise price of NIS 18.001 per share. See
note 9 to the Financial Statements. We have recognized a non-cash charge equal
to the difference between the exercise price of the options and the market
value of the underlying shares at the time they were granted. The compensation
cost determined under APB 25 and charged against income in the years ended
December&nbsp;31, 2000, 2001 and 2002, was NIS 56,618,000, NIS 20,699,000 and
8,957,000 ($1,891,000), respectively.
</FONT>
<P align="left"><FONT size="2"><B>5B. Liquidity and Capital Resources</B>
</FONT>
<P align="left"><FONT size="2"><B>Liquidity</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The mobile telephone business is highly capital intensive, requiring
significant capital to acquire a license, construct mobile telecommunications
networks and fund operating losses. The capital requirements of our network are
determined by the coverage desired, the expected call traffic and the desired
quality and variety of services. Network construction costs are mainly related
to the number of cells in the service area, the number of radio channels in the
cell and the switching equipment required.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until August 1998, our principal sources of funds were loans and other
borrowings from principal shareholders and a bridge loan facility, all of which
have been repaid out of the proceeds from our initial public offering. In
August 1998, we entered into a credit facility to finance the development of
our network and business. In October 1999, we completed our initial public
offering of ordinary shares in the form of American Depositary Shares, and
received net proceeds of approximately NIS 2,092&nbsp;million. We used part of
these net proceeds to repay approximately NIS 1,494&nbsp;million in
indebtedness to our principal shareholders, and the remainder to finance the
continued development of our business. In July 2000, we entered into an
Amending and Rescheduling Agreement, which amended our credit facility,
increasing the amount available to $750&nbsp;million, subject to the meeting of
defined milestones. In August 2000, we completed an offering of $175&nbsp;million
aggregate principal amount of unsecured senior subordinated notes due 2010. The
net proceeds from this offering (approximately $170.5&nbsp;million after deducting
commissions and offering expenses) were used mainly to repay a portion of the
outstanding indebtedness under our credit facility.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currently, the main sources of our liquidity are:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">our operating cashflows;</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 93
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">our credit facility; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">factoring long-term trade receivables.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We generated positive cashflow from operations amounting to NIS 682
million ($144&nbsp;million) in 2002, compared to NIS 423&nbsp;million in 2001. The
difference was primarily due to increased operating profits in 2002 as compared
to 2001. Cashflow used in investing activities was NIS 816&nbsp;million ($172
million) in 2002, compared to NIS 629&nbsp;million in 2001. The increase was mainly
due to our paying for additional spectrum that we had acquired in 2001. Cash
provided by financing activities was NIS 130&nbsp;million ($27&nbsp;million) in 2002,
compared to NIS 211&nbsp;million for 2001. The decrease is primarily due to the
decrease of net borrowings under our long-term loans.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;31, 2002, we entered into an Amending Agreement to the Facility
Agreement, which amended our credit facility, decreasing the amount available
to $710&nbsp;million. Our credit facility is divided into three tranches: a $410
million multicurrency term loan facility (facility A), a $150&nbsp;million revolving
multicurrency loan facility (facility B), and a $150&nbsp;million shekel term loan
facility (facility C). All facilities are provided by Israeli banks and
Citibank N.A., with Bank Leumi Le-Israel B.M. as facility agent.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Facilities A and B of our credit facility may be drawn in shekels, US
dollars or euros, provided that not less than 60% of the outstanding
advances
under facilities A and B, at any time, must be in shekels and that not more
than 40% of the outstanding advances under facilities A and B may be drawn in US dollars or
euros. Facility C may be drawn only in shekels. It is our intention to draw
amounts under the credit facility primarily in shekels. Under the amended
credit facility, facility A is available for drawing until March&nbsp;31, 2003,
facility B is available for drawing until June&nbsp;30, 2008 and facility C is

available for drawing until December&nbsp;31, 2004. At December&nbsp;31, 2002, the
balances available for drawing were approximately $29&nbsp;million under facility A,
$12&nbsp;million under facility B, and $150&nbsp;million under facility C, and at
February&nbsp;28, 2003 the balances available for drawing were approximately $30
million under facility A, $6&nbsp;million under facility B, and $150&nbsp;million under
facility C.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repayment under facility A will begin on March&nbsp;31, 2003 and will continue
until June&nbsp;30, 2008, repayment under facility B will begin on June&nbsp;30, 2008,
and repayment under facility C will begin on March&nbsp;31, 2005 and will continue
until June&nbsp;30, 2009.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Another source of our liquidity results from our factoring on a
non-recourse basis most of our long-term trade receivables resulting from sales
of handsets. We record the transfer of accounts receivable as a sales
transaction under the provisions of Statement of Financial Accounting Standards
No.&nbsp;140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments
</FONT>
<P align="center"><FONT size="2">Page 94
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2">of Liabilities. During the years ended December&nbsp;31, 2001 and 2002, we
factored approximately NIS 180&nbsp;million and NIS 210&nbsp;million ($44
million), respectively, from long-term trade receivables. The resulting costs
amounted to approximately NIS 9&nbsp;million and NIS 10&nbsp;million for
the years ended December&nbsp;31, 2001 and 2002, respectively, and are charged
to &#147;Financial expenses-net&#148;, as incurred.
</FONT>
<P align="left"><FONT size="2"><B>Commitments and contractual obligations</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of obtaining GSM 1800 and UMTS third generation spectrum bands
in the December 2001 spectrum auction in Israel, we have payment obligations
with respect to each of those spectrum bands. We are committed to pay NIS 180
million (approximately $38&nbsp;million) for the GSM 1800 spectrum, in two
installments. The first installment, in the amount of NIS 108&nbsp;million
(approximately $23&nbsp;million) was paid in February 2002, and the second
installment in the amount of NIS 72&nbsp;million (plus interest at the rate set by
the Accountant General of the Israeli Ministry of Finance) is payable no later
than December&nbsp;31, 2003.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are also committed to pay NIS 220&nbsp;million (approximately $46&nbsp;million)
for the UMTS third generation spectrum, in six installments. The first two
installments, totaling NIS 100&nbsp;million (approximately $21&nbsp;million), were paid
in February and June 2002, and the remaining four installments (plus interest
at the rate set by the Accountant General of the Israeli Ministry of Finance)
are payable no later than June&nbsp;1, 2003, 2004, 2005 and 2006 in amounts equal to
NIS 31&nbsp;million, NIS 35&nbsp;million, NIS 33&nbsp;million and NIS 22&nbsp;million,
respectively.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since the additional spectrum has only been received in part, the assets
recorded on our balance sheet reflect only the cost of spectrum
actually received and advances paid
on account of spectrum still to be received, including interest costs (relating
to loans and credit which served to finance the license fee) which
were incurred until
the commencement of utilization of the license and which were
capitalized along with the
cost of the license.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From January&nbsp;1, 2000 to December&nbsp;31, 2002, we made cumulative net capital
expenditures of approximately NIS 1,701&nbsp;million, of which NIS 556&nbsp;million ($117
million) was incurred in 2002. We expect that capital expenditures for our
network will continue to represent the largest portion of our total capital
expenditures over the next few years. We expect to incur approximately NIS 700
million ($148&nbsp;million) of capital expenditures in 2003, primarily in order to
increase the capacity of our GSM network through the
installation of GSM 1800 antennas. We estimate that building out our UMTS
network will cost approximately $300&nbsp;million over the three to five years from
the beginning of the network build-out, with approximately $150&nbsp;million in
capital expenditures required in the first 12
</FONT>
<P align="center"><FONT size="2">Page 95
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2">months of the build-out. The UMTS third generation network build-out is
expected to begin towards the second half of 2003.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Set forth below are our contractual obligations and other commercial
commitments over the medium term.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="19"><FONT size="1"><B>Payments due by period (NIS in thousands)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="19"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Less than</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>After 5</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left" colspan="2"><FONT size="1"><B>Contractual Obligations</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1 year</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1-3 years</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>4-5 years</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>years</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-Term Debt</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,642,031</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">997,463</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">815,593</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">828,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capital Lease Obligations</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating Leases</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">247,086</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">101,192</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">113,425</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,917</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,552</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unconditional Purchase Obligations:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">GSM 1800 spectrum</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">70,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">70,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">UMTS third generation spectrum</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">132,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">34,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">98,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Handsets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">203,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">203,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed Assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">41,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">41,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other Long-Term Obligations</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total Contractual Cash Obligations</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,335,117</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">449,192</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,208,888</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">837,510</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">839,527</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="19"><FONT size="1"><B>Amount of commitment expiration per period</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="19"><FONT size="1"><B>(NIS in thousands)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="19"><FONT size="1"><B><HR size="1" noshade></B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>amounts</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Less than</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Over 5</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="1"><B>Other Commercial Commitments</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>committed</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1 year</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1-3 years</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>4-5 years</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>years</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Lines of Credit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">654,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">654,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Standby Letters of Credit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Guarantees</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">122,159</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">24,922</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97,108</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Standby Repurchase Obligations</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other Commercial Commitments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total Commercial Commitments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">776,659</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">24,922</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">654,603</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97,108</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that funds from our operations, together with funds available
under the credit facility, will provide us with enough liquidity and resources
to fund our expected capital expenditure needs, including our plans to increase
the capacity of our existing network and capital expenditures associated with
our UMTS third generation network build-out, as well as our obligations under
our financing agreements, our license payments and our other material
commitments. However, the
</FONT>
<P align="center"><FONT size="2">Page 96
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2">actual amount and timing of our future requirements may differ materially from
our estimate. In addition, we may be required to seek additional financing if:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Our assumptions regarding the costs associated with the offering of
our new products prove be inaccurate;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">We experience lower growth in our business or subscriber base than we
currently anticipate; or</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">We experience unanticipated costs or competitive pressures.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><B>5C. Research and Development, Patents and Licenses</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to compete in Israel&#146;s highly penetrated mobile telephone market
by attracting new subscribers and retaining existing subscribers, we must
introduce new services based on the latest available technology in the mobile
telephone industry and particularly in the GSM sector. We currently offer our
subscribers a range of value added services, some of which were developed by
outside companies. We have a strong relationship and are working with Hutchison
Whampoa Limited, one of our principal shareholders, in connection with the
development of products and services for UMTS third generation cellular
communications. Hutchison is a global leader in UMTS third technology and, in
particular, the deployment and development of UMTS third generation mobile
networks and products and services worldwide. In August 2002, we signed a
cost-sharing agreement with Hutchison Telecommunications Limited and its
subsidiaries for the joint acquisition and development of information
technology platforms and software solutions, hardware, content and other
services, as well as joint marketing, promotion and communications activities
in connection with UMTS third generation business. For more information, see
&#147;Item&nbsp;7B. Related Party Transactions&#151;Transactions with Affiliates.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We and our wholly-owned subsidiary, Partner Future Communications 2000
Ltd., or PFC, offer companies the opportunity to test their technologies on
engineering test laboratories and on our network systems and in return enjoy
the advantage of launching innovative services to our subscribers with a faster
time to market. PFC has also invested in some small, high technology companies.
PFC&#146;s carrying value of the investments in these companies decreased in 2002 to
NIS 3.5&nbsp;million ($0.7&nbsp;million).
</FONT>
<P align="left"><FONT size="2"><B>5D. Trend Information</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business and results of operations have been affected by a number of
trends, such as the significant growth in the Israeli mobile telephone market
and the rapid growth in the demand for
</FONT>
<P align="center"><FONT size="2">Page 97
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>

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<P align="left"><FONT size="2">mobile telephones and mobile services. Growth in the use of the SMS has also
contributed to the increase in demand for mobile data applications.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are several potential effects of these trends on our business. The
rapid growth in the demand for mobile services increases penetration levels in
the market. Historically, we have experienced rapid growth in the number of our
subscribers and in our market share since we launched our network. As the
Israeli market approaches saturation, we expect subscriber growth to decrease.
We further expect that this decrease in our subscriber growth, together with
Cellcom&#146;s launch of its GSM services, will lead to increased competition among
mobile operators and therefore increased churn. The increasing penetration has
also affected the average monthly number of minutes our subscribers used in our
network, which has been reduced over time, and which is expected to moderately
decline in 2003. We are also affected by the market trends in the growing
demand for value added services, and we are currently introducing to our
subscribers advanced value added services, accessible through various
interfaces and platforms including WAP, High Speed Circuit Switched Data, or
HSCSD, services, SMS services and General Packet Radio Services, or GPRS. We
forecast that the majority of any revenue growth in 2003 will be voice related,
although we expect that data revenues will grow at a faster rate in 2003 than
voice revenues.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to provide UMTS third generation broadband cellular services, we
will have to establish a UMTS third generation network and develop UMTS third
generation services. Building and rolling-out a UMTS third generation network
will require additional capital and operational expenditures. In addition, we
believe that the commercial introduction of a UMTS third generation network and
services is likely to significantly affect our business in further ways that we
cannot fully foresee at present.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For more information about other factors that may affect our results of
operations, see &#147;Item&nbsp;3D. Key Information&#151;Risk Factors.&#148;
</FONT>
<P align="center"><FONT size="2">Page 98
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<!-- link2 "ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES" -->
<DIV align="left"><A NAME="007"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES</B>
</FONT>

<P align="left"><FONT size="2"><B>6A. Directors and Senior Management</B>
</FONT>
<P align="left"><FONT size="2"><B>Directors</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="19%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="1"><B>Name of Director</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Age</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Position</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fok Kin-ning, Canning</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Chairman of the Board of Directors</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Khoo Chek Ngee(1)(4)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Tal Raz(1)(4)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Avraham Bigger(1)(2)(3)(4)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Ting Yu Chan(1)(4)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Chow Woo Mo Fong, Susan</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dori Dankner(1)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shmuel Dankner</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">72</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Robert Donald Fullerton(2)(3)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Uzia Galil</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">77</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Erez Gissin(1)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amir Kess</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Pesach Shachar(1)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">69</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Frank John Sixt</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Hans Roger Snook</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">54</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Carol Tsang</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Ben-Zion Zilberfarb(1)(2)(3)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Director</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Member of the Executive Committee of the Board of Directors</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Independent Director</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Member of the Audit Committee</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(4)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Member of the Compensation Committee</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 99
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FOK KIN-NING, CANNING has been a director of Partner since May 1998 and
the Chairman of its Board of Directors since that time. Mr.&nbsp;Fok has been an
Executive Director of Hutchison Whampoa Limited since 1984 and its Group
Managing Director since 1993. He also serves as Chairman of Hutchison
Telecommunications (Australia) Limited, Hutchison Harbour Ring Limited and
Hutchison Telecommunications Limited (the holding company of the
telecommunications interests of Hutchison Whampoa Limited). In addition, Mr.
Fok is the Co-Chairman of Husky Energy Inc., the Deputy Chairman of Cheung Kong
Infrastructure Holdings Limited and Hongkong Electric Holdings Limited. He is
also a Director of Cheung Kong (Holdings) Limited. Mr.&nbsp;Fok holds a Bachelor of
Arts degree from St. John&#146;s University in Minnesota, United States and a
diploma in financial administration from the University of New England in
Australia. He is a member of the Australian Institute of Chartered Accountants.
Mr.&nbsp;Fok was nominated as a director, and as the Chairman of the Board of
Directors, by Advent pursuant to the relationship agreement described in &#147;Item
7B. Major shareholders and Related Party Transactions&#151;Related Party
Transactions&#151;Relationship Agreement.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;KHOO CHEK NGEE has been a director of Partner since October 1997 and is
the Chairman of the Executive Committee and the Chairman of the Compensation
Committee. Since 1993, Mr.&nbsp;Khoo has been Group Managing Director of Hutchison
Telecommunications Limited. From 1966 to 1993, he was with Singapore
Telecommunications Pte. Ltd., rising to the position of Vice President of
Mobile Communications in 1991. Mr Khoo holds a Bachelor of Science degree in
Engineering from the London University Imperial College of Science and
Technology, and he participated in the Advanced Telecommunications Management
Program at the Center of Telecommunication Management, University of
Southern California. Mr.&nbsp;Khoo was nominated as a director, and as a member of
the Executive Committee, by Advent, pursuant to the relationship agreement
described in &#147;Item&nbsp;7B. Major shareholders and Related Party
Transactions&#151;Related Party Transactions&#151;Relationship Agreement.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TAL RAZ has been a director of Partner since November 2001 and is a member
of the Executive Committee and the Compensation Committee. Mr.&nbsp;Raz is serving
as Vice President Finance and Chief Financial Officer of Elron Electronic
Industries since May 2002. Mr.&nbsp;Raz is Acting President and Chief Executive
Officer since October 2001 as well as Chief Financial Officer of Elbit Ltd. The latter position he
has held since he joined Elbit Ltd. in April 1997. Mr.&nbsp;Raz is a certified
public accountant, and holds Bachelor of Arts and Master of Arts degrees in
accounting and business administration from Baruch Collage, New York. Mr.&nbsp;Raz
was nominated as a director, and as a member of the Executive committee, by
Elbit.COM, pursuant to the relationship agreement described in &#147;Item&nbsp;7B. Major
shareholders and Related Party Transactions&#151;Related Party
Transactions&#151;Relationship Agreement.&#148;
</FONT>
<P align="center"><FONT size="2">Page 100
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;AVRAHAM BIGGER has been a director of Partner since February 2000. Mr.
Bigger is a member of the Executive Committee, the Audit Committee and the
Compensation Committee of Partner. From 1998 to the present, he has been
director and owner of Bigger Investments Ltd. and chairman and owner of Caniel
Beverage Packaging Ltd. and Caniel Packaging Industries Ltd. Since February
2002, he has been the Chairman of Y.D. Vehicles and Transportation Ltd. He also
serves on the boards of directors of several companies. He was the Chief
Executive Officer of Menorah Insurance Company Ltd. and a member of the Board
of Directors of Menorah during 1997. He served on the Board of Directors of
Bank Leumi Le Israel B.M. and as a member of the Finance Committee and Credit
Committee of this Bank during 1995. From 1993 to 1996, he was the Chief
Executive Officer of Paz Oil Company Ltd. From 1986 to 1993, he was the Chief
Executive Officer of the Israel General Bank Ltd., and prior to that, held
various management positions in Clal Industries Ltd. He also served in various
positions in the Israeli Ministry of Finance, including Special Assistant to
the General Director of the Ministry of Finance. He received his Bachelor&#146;s
degree in Economics and Master of Arts degree in Business Management from the
Hebrew University of Jerusalem.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TING YU CHAN was a director of Partner from October 1997 to March 2000 and
became a director again in May 2001. He is a member of the Executive Committee
and the Compensation Committee. Mr.&nbsp;Chan is a director of Hutchison
Telecommunications (Australia) Ltd. and Deputy Group Managing Director of
Hutchison Telecommunications International Limited. Since joining the Hutchison
Whampoa group, he has been closely involved in the management and development
of Hutchison&#146;s telecommunications business internationally. Mr.&nbsp;Chan holds a
degree in Law and Arts (Maths), as well as a Postgraduate Certificate in Laws.
Mr.&nbsp;Chan was nominated as a director, and as a member of the Executive
Committee, by Advent, pursuant to the relationship agreement described in &#147;Item
7B. Major shareholders and Related Party Transactions&#151;Related Party
Transactions&#151;Relationship Agreement.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CHOW WOO MO FONG, SUSAN has been a director of Partner since August 1998.
Mrs.&nbsp;Chow has been an Executive Director of Hutchison Whampoa Limited since
1993 and its Deputy Group Managing Director since 1998. She is a solicitor and
holds a Bachelor&#146;s degree in Business Administration. Mrs.&nbsp;Chow is also an
Executive Director of Cheung Kong Infrastructure Holdings Limited and a
Director of Hongkong Electric Holdings Limited, TOM.COM LIMITED, Hutchison
Harbour Ring Limited and Hutchison Telecommunications Limited. Mrs.&nbsp;Chow was
nominated as a director by Advent, pursuant to the relationship agreement
described in &#147;Item&nbsp;7B. Major shareholders and Related Party
Transactions&#151;Related Party Transactions&#151;Relationship Agreement.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;DORI DANKNER has been a director of Partner since October 1997 and is a
member of the Executive Committee. He is the chairman of Elleren (D.D.)
Investments, a company whose shares are
</FONT>
<P align="center"><FONT size="2">Page 101
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<P align="left"><FONT size="2">traded on the Tel Aviv Stock Exchange, and the Chief Executive Officer of
D.S.D. Investments Ltd. Mr.&nbsp;Dankner is also a director of Matav, Dankner
Investments Ltd., Israel Salt Industries Ltd., Dankner Infrastructure (D.D.)
Ltd., Omega D.S. Investments Ltd. and Bareket D.S. Investments Ltd. He holds a
Bachelor of Science degree in Industrial Engineering from Tel Aviv University
and a Master of Business Administration degree in Finance and International
Business from New York University. Dori Dankner is the son of Shmuel Dankner.
Mr.&nbsp;Dankner was nominated as a director, and as a member of the Executive
Committee, by Matav, pursuant to the relationship agreement described in &#147;Item
7B. Major shareholders and Related Party Transactions&#151;Related Party
Transactions&#151;Relationship Agreement.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SHMUEL DANKNER has been a director of Partner since October 1997. Mr.
Dankner has been Chairman of the Board of Directors of Matav since 1988. He is
the Chairman of the Board of Dankner Investments Ltd. The Dankner Group, which
he co-founded in 1957, includes enterprises involved in banking;
telecommunications; cable television; salt production and export; petrochemical
and plastic production; and real estate development. Mr.&nbsp;Dankner holds a
Bachelor of Science degree with highest honors in Chemical Engineering from the
University of California&#151;Berkeley and a Master of Science in Chemical
Engineering from Columbia University, New York. In 1977, he received the
Industry Prize from the Israel Association of Manufacturers for managerial
achievements and initiative in developing the private industry. Shmuel Dankner
is the father of Dori Dankner. Mr.&nbsp;Dankner was nominated as a director by
Matav, pursuant to the relationship agreement described in &#147;Item&nbsp;7B. Major
shareholders and Related Party Transactions&#151;Related Party
Transactions&#151;Relationship Agreement.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ROBERT DONALD FULLERTON has been a director of Partner since February
2003. He became director of Canadian Imperial Bank of Commerce (CIBC) (formerly
The Canadian Bank Of Commerce) in 1974. He joined the Bank in 1953 and served
in a variety of positions in the branch system and the International Division
including New York. He served in the following senior executive positions prior
to becoming Chairman, President and Chief Executive Officer in 1985, Regional
General Manager International, Regional General Manager Saskatchewan, Chief
General Manager and President. During this period, he chaired many of the board
committees including the Executive Committee and the Audit Committee. Mr.
Fullerton retired as an Executive Officer in 1992 but remained on the board and
continued to chair the Executive Committee until 1999. He continues to serve as
a director. Mr.&nbsp;Fullerton Chairs the Audit Committee of George Weston Limited
and is a member of the Audit Committees of CIBC, Hollinger Inc. and Asia
Satellite Telecommunications Holdings Ltd. During his career he has served on
the board of directors of a large number of both Canadian and international
companies including I.B.M. Canada, Honeywell Inc., Amoco Petroleum
</FONT>
<P align="center"><FONT size="2">Page 102
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<P align="left"><FONT size="2">Canada, Orange plc, Ontario Hydro, Westcoast Energy, as well as many cultural
and educational entities. He received a Bachelor&#146;s degree in Arts from the
University of Toronto in 1953.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;UZIA GALIL has been a director of Partner since August 1999. Mr.&nbsp;Galil
currently serves as President and Chief Executive Officer of Uzia Initiatives
and Management Ltd., a company specializing in the promotion and nurturing of
new businesses associated with mobile communication, electronic commerce and
medical information media, which he founded in November 1999. From 1962 until
November 1999, Mr.&nbsp;Galil served as President and Chief Executive Officer of
Elron Electronics Industries Ltd., an Israeli high technology holding company,
which he founded and of which he also served as Chairman of the Board. From
January 1981 until leaving Elron, Mr.&nbsp;Galil also served as Chairman of the
Board of Directors of Elbit Ltd., an electronic communication affiliate of
Elron, and as a member of the Boards of Directors of Elbit Systems Ltd., a
defense electronics affiliate of Elron, and all other private companies held in
the Elron portfolio. Mr.&nbsp;Galil currently serves as a member of the Boards of
Directors of Orbotech Ltd., NetManage Inc., and as Chairman of Zoran
Corporation. From 1980 to 1990, Mr.&nbsp;Galil served as Chairman of the
International Board of Governors of the Technion. Mr.&nbsp;Galil holds a M.S. in
Electrical Engineering from Purdue University and a B.S. from the Technion. Mr.
Galil has also been awarded an honorary doctorate in technical sciences by the
Technion in recognition of his contribution to the development of science-based
industries in Israel, an honorary doctorate in philosophy by the Weizman
Institute of Science, an honorary doctorate in engineering by Polytechnic
University, New York, and an honorary doctorate from the Ben-Gurion University
of the Negev in Israel. Mr.&nbsp;Galil is also a recipient of the Israel Prize. Mr.
Galil was nominated as a director by Elbit.COM, pursuant to the relationship
agreement described in &#147;Item&nbsp;7B. Major shareholders and Related Party
Transactions&#151;Related Party Transactions&#151;Relationship Agreement.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EREZ GISSIN has been a director of Partner since August 1998 and is a
member of the Executive Committee. For the last two years, Mr.&nbsp;Gissin has been
the CEO of IP Planet Network Ltd., an Israeli telecommunication company
providing satellite broadband services. Previously, he was the Vice President
of Business Development of the Eurocom Group, an Israeli leader in telecom and
internet products and services. Mr.&nbsp;Gissin holds a Bachelor of Science in
Industrial Engineering from Tel Aviv University and an MBA degree from Stanford
University, California. Mr.&nbsp;Gissin was nominated as a director, and as a member
of the Executive Committee, by Eurocom, pursuant to the relationship agreement
described in &#147;Item&nbsp;7B. Major shareholders and Related Party
Transactions&#151;Related Party Transactions&#151;Relationship Agreement.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;AMIR KESS has been a director of Partner since August 1998, and has been
an Executive Vice President of Arison Investments since 1996. He also serves as
a director of other companies in which
</FONT>
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<P align="left"><FONT size="2">Arison or its affiliates is a shareholder, including Eurocom Communications,
Internet Gold, a large Israeli internet service provider, DBS Satellite
Services, a direct broadcast satellite licensee in Israel, and Shikun V&#146;Binui
Holdings, a company which is active in the building and construction market.
From 1990 to 1995, Mr.&nbsp;Kess was an attorney in the Israeli law office of S.
Horowitz and Co. Mr.&nbsp;Kess was nominated as a director by Eurocom, pursuant to
the relationship agreement described in &#147;Item&nbsp;7B. Major shareholders and
Related Party Transactions&#151;Related Party Transactions&#151;Relationship
Agreement.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PESACH SHACHAR has been a director of Partner since May 1998 and is a
member of the Executive Committee. For 21&nbsp;years he was the General Manager,
founder, and a shareholder in Nogay Ltd., a telecommunications consulting firm
active in numerous high-tech projects in Israel and overseas. In that capacity,
he advised Hutchison on the prospects in the cellular market in Israel,
established the Partner shareholder consortium and advised Hutchinson on the
bidding for the license and launch of operations. Mr.&nbsp;Shachar served 28&nbsp;years
in the Israel Defense Forces Signal Corps and Air Force/Telecommunications,
reaching the rank of Colonel. Mr.&nbsp;Shachar was nominated as a director, and as a
member of the Executive Committee, by Advent, pursuant to the relationship
agreement described in &#147;Item&nbsp;7B. Major shareholders and Related Party
Transactions&#151;Related Party Transactions&#151;Relationship Agreement.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FRANK JOHN SIXT has been a director of Partner since May 1998. Mr.&nbsp;Sixt
has been an Executive Director of Hutchison Whampoa Limited since 1991 and its
Group Finance Director since 1998. He is the Chairman of TOM.COM LIMITED. He is
also an Executive Director of Cheung Kong Infrastructure Holdings Limited and
Hongkong Electric Holdings Limited and a Director of Cheung Kong (Holdings)
Limited, Hutchison Telecommunications (Australia) Limited, Husky Energy Inc.,
and Hutchison Telecommunications Limited. He holds a Bachelor of Arts degree
and a Master of Arts degree from McGill University and a Bachelor&#146;s degree in
Civil Law from the University of Montreal, and is a member of the Bar and of
the Law Society of the Provinces of Quebec and Ontario, Canada. Mr.&nbsp;Sixt was
nominated as director by Advent, pursuant to the relationship agreement
described in &#147;Item&nbsp;7B. Major shareholders and Related Party
Transactions&#151;Related Party Transactions&#151;Relationship Agreement.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;HANS ROGER SNOOK has been a director of Partner since August 1998. Mr.
Snook was the founder and CEO of Orange plc., which was acquired by France
Telecom and merged with France Telecom&#146;s mobile assets in 2000. After leading
the company to a second successful flotation in 2001, Mr.&nbsp;Snook stepped down as
CEO to pursue other interests in health and integrated medicine. He previously
served as a Director of Hutchison Telecommunications Limited and as a member of
the Board of Directors of a number of telecommunications companies within the
Hutchison Whampoa
</FONT>
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<P align="left"><FONT size="2">Limited group. Mr.&nbsp;Snook was nominated as a director by Advent, pursuant to the
relationship agreement described in &#147;Item&nbsp;7B. Major shareholders and Related
Party Transactions&#151;Related Party Transactions&#151;Relationship Agreement.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CAROL TSANG has been a director of Partner since April 2002. Ms.&nbsp;Tsang
joined Hutchison Telecommunications International Limited in September 1997 as
Director of Business Development-Finance and was closely involved in the
financial aspects of Hutchison&#146;s new telecommunication projects
internationally. She has been Group Finance Director of Hutchison
Telecommunications International Limited since January 1999. Ms.&nbsp;Tsang holds a
Masters Degree in Business Administration from the Chinese University of Hong
Kong. Ms.&nbsp;Tsang was nominated as director by Hutchison Telecommunications
(Amsterdam) BV, pursuant to the relationship agreement described in &#147;Item&nbsp;7B.
Major Shareholders and Related Party Transactions&#151;Related Party Transactions&#151;
Relationship Agreement.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BEN-ZION ZILBERFARB has been a director of Partner since February 2000.
Professor Zilberfarb is currently a professor of economics and chairman of the
A. Meir Center for Banking at Bar-Ilan University. He is a member of the board
of directors of Fundtech Ltd. He was the chairman of the board of directors of
Euro-Trade Bank during 2000-2001 and of Karnit Insurance Company during
1998-2002. He also served as the Director General of the Israeli Ministry of
Finance from 1998 to 1999. For many years, he served as a member of several
governmental committees. He also served as the Chairman of the Investment
Committee, of Bank Leumi Provident Funds and consultant to several financial
institutions and several governmental and regulatory authorities including the
Israel Securities Authority and the Bank of Israel. He received a Ph.D. in
Economics from the University of Pennsylvania and a Bachelor&#146;s degree and
Master of Arts degree, both in Economics, from Bar-Ilan University.
</FONT>
<P align="left"><FONT size="2"><B>Senior Management</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="59%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="1"><B>Name of officer</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Age</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Position</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">Amikam Cohen</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
54</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Chief Executive Officer</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Iris Beck</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
36</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Vice President, Marketing</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Adi Biran</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
59</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Vice President, Regulation and New Business
Development</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Dan Eldar</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
49</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Vice President, Carrier, International and
Investor Relations</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Alan Gelman</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
47</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Chief Financial Officer</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Amnon Gideon</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
50</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Vice President, Human Resources and Operations</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Neomi Goldgevicht*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
44</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Vice President, Finance</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">Page 105
</FONT>
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<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="59%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="1"><B>Name of officer</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Age</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Position</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">Yacov Kedmi</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
51</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Vice President, Content and Multimedia</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Roly Klinger</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
43</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">General Counsel and Joint Company Secretary</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Haim Romano</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
48</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Vice President, Customers</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Effie Rosenhause**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
51</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Vice President, Marketing and Sales</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Edith Shih</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
50</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Joint Company Secretary</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Menahem Tirosh</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
51</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Vice President, Network Engineering and
Operation</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">*</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Ms.&nbsp;Goldgevicht resigned from the Company, effective January&nbsp;31, 2003.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">**</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Mr.&nbsp;Rosenhause resigned from the Company, effective December&nbsp;31, 2002.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;AMIKAM COHEN joined Partner in April 1998 as Chief Executive Officer. From
1996 to 1998, he was Chief Executive Officer of Elite Industries Ltd., one of
Israel&#146;s largest confectionery and coffee producers and marketers. From 1991 to
1996, Mr.&nbsp;Cohen was Managing Director of Strauss Dairies Ltd. From 1987 to
1990, he was General Manager of the Refrigerator and Air Conditioner Division
of Tadiran Home Appliances Ltd. From 1978 to 1986, Mr.&nbsp;Cohen served in numerous
capacities at the Tadiran Telecommunications Group, including General Manager
of the Public Switching Division, General Manager of the Microelectronics
Section, and Director of the entire group&#146;s purchasing department. He holds a
Bachelor of Science degree in Industrial Management Engineering from Ben Gurion
University, Beersheva, Israel.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IRIS BECK was appointed Vice President, Marketing in December, 2002. Prior
to joining the Company, she served as General Manager of Lever Israel (local
subsidiary of Unilever). Ms.&nbsp;Beck worked at Lever Israel since 1996 and held
senior positions such as Marketing Manager and Technical Director before her
appointment as General Manager. Ms.&nbsp;Beck worked as Brand Manager at Strauss Ice
Cream from 1993 to 1996, and as Project Controller at Kulick &#038; Soffa from 1991
to 1993. Ms.&nbsp;Beck holds a Bachelor&#146;s degree in Economic Science (with
distinction) from Haifa University, and Master of Arts Degree in Marketing
(with distinction) from Bar-Ilan University.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ADI BIRAN joined Partner in October 1997 and in April 1998 became Vice
President, Regulation and New Business Development. Mr.&nbsp;Biran came to Partner
from Elbit Ltd., where, since 1992, he headed their effort to enter the
telecommunications market and in that capacity, guided their participation and
managed the bid preparation process that resulted in Partner&#146;s mobile radio
telephone license. Prior to joining Elbit, he was Managing Director of Efrat
Future Technology Ltd., a subsidiary of Comverse Technology Inc. Mr.&nbsp;Biran
continues to be an employee of Elbit in connection with matters unrelated to
Partner on which he worked prior to joining Partner. He completed his 20-year
career in the Israel Air Force as a colonel and as chief of research and
development. Mr.&nbsp;Biran
</FONT>
<P align="center"><FONT size="2">Page 106
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<P align="left"><FONT size="2">holds a Bachelor&#146;s degree in Aeronautical Engineering with distinction from the
Israel Institute of Technology (Technion), Haifa, Israel.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;DAN ELDAR serves as Vice President, Carrier, International and Investor
Relations for Partner. Dr.&nbsp;Eldar joined Partner in April 1998 and was
responsible for strategic planning and relations with carriers in Israel and
abroad. Since 1989, Dr.&nbsp;Eldar has served as the managing director of an Israeli
consulting firm specializing in strategic planning, negotiation and project
management. Dr.&nbsp;Eldar has managed many large-scale projects in the
telecommunications and semiconductor industries, as well as in other areas. He
holds Ph.D and Master of Arts degrees from Harvard University and Master of
Arts and Bachelor of Arts degrees from Hebrew University, Jerusalem.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ALAN GELMAN was appointed Chief Financial Officer of Partner in January
2001. For the three years prior to joining Partner, Mr.&nbsp;Gelman served as Chief
Financial Officer and Vice President of Barak ITC, one of Israel&#146;s providers of
international voice, data and internet services. From 1994 to 1997, Mr.&nbsp;Gelman
served as the Controller for Cellcom Israel Ltd. Mr Gelman holds a Bachelor&#146;s
degree in Accounting from Queens College in New York and an MBA from
Hofstra University in New York. Mr.&nbsp;Gelman is licensed as a Certified Public
Accountant in the USA (New York) and in Israel. Mr.&nbsp;Gelman was nominated as
Chief Financial officer by Advent, with the approval of our Board, pursuant to
the relationship agreement described in &#147;Item&nbsp;7B. Major shareholders and
Related Party Transactions&#151;Related Party Transactions&#151;Relationship
Agreement.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;AMNON GIDEON was appointed Vice President, Human Resources in January
2001. Prior to joining the Company, Mr.&nbsp;Gideon served as Manager of Human
Resources at Motorola Israel Ltd. From 1991 until 1994, Mr.&nbsp;Gideon served as
the Executive Director of the Association for Civil Rights in Israel. Mr.
Gideon holds a Bachelor&#146;s degree in Political Science and Psychology from
Bar-Ilan University and a Master&#146;s degree in Human Resource Management from the
University of Derby.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEOMI GOLDGEVICHT joined Partner in August 1998 as Vice President, Finance
and resigned from the company on January&nbsp;31, 2003. Prior to then, she was Chief
Financial Officer at Mul-T-Lock Ltd., an international manufacturer of high
security locks, doors, and related components and devices. In that capacity,
she was responsible for financial matters at that company which is listed on
the Tel Aviv Stock Exchange, and for establishing eight subsidiaries in Europe
and the United States and implementation of their enterprise resource
processing system. She holds a Bachelor of Arts degree in Economics and
Accounting from Tel Aviv University, and an MBA degree from the University of
Bradford. Mrs.&nbsp;Goldgevicht has held her Certified Public Account credentials in
Israel since 1982, and serves as a member of the Bank of Israel&#146;s Advisory
Council and Committee.
</FONT>
<P align="center"><FONT size="2">Page 107
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;YACOV KEDMI joined Partner in May 1998 and served as Vice President,
Marketing and in October 2001 was appointed as Vice President, Content and
Multimedia. From 1992 to 1994, he had been Deputy Managing Director and
Marketing Director of the Ma&#146;ariv daily newspaper, and before that, Managing
Director of Mei Eden, a bottled water producer. He also served for eleven years
as Marketing Director of Tabori Corporation, a producer of soft drinks,
disposable diapers, and paper products. In the four years immediately prior to
joining us, Mr.&nbsp;Kedmi was the principal in MPV Communications, providing
marketing consulting services to numerous Israeli companies, and was a partner
in the launch of two businesses, one with a direct marketing catalogue in which
customers bid for the products, and another producing premium gifts and
promotional products. He studied management at Bar Ilan University, Israel.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ROLY KLINGER joined Partner in August 1998 as General Counsel and Joint
Company Secretary. From 1993, she served as Legal Advisor and Corporate General
Secretary of Keshet Broadcasting Ltd., which holds an operating franchise for
Israel&#146;s first commercial television channel. Previously, while practicing in
the private sector, she lectured on communications law at the College of
Management&#151;Academic Studies, Tel-Aviv. Ms.&nbsp;Klinger received an LL.B degree
from Tel Aviv University and is admitted to the Israel Bar.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;HAIM ROMANO joined Partner in June 1998 as Vice President, Human Resources
and Administration, in December 2000 was appointed Vice President, Customer
Services and in January 2003 was appointed Vice President, Customers&#146; Division.
In that capacity he is responsible for personnel policy and management,
physical facilities, and site acquisition. From 1996 to 1998, Mr.&nbsp;Romano headed
the Human Resources Division in the Israel General Security Service.
Immediately prior, he had served in the Israel Defense Forces for 24&nbsp;years, the
last two as head of their Civil Personnel Department. Mr.&nbsp;Romano holds Masters
degrees from Haifa University and Tel Aviv University.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EFFIE ROSENHAUSE joined Partner in June 1998 as Vice President, Sales and
in October 2001 was appointed as Vice President, Marketing and Sales, although
he resigned from the company on December&nbsp;31, 2002. For the seven previous
years, Mr.&nbsp;Rosenhause was Vice President Marketing and Sales for Super-Pharm,
the leading drugstore chain in Israel. Eleven years earlier he had been
Marketing Manager and was one of the founders of that chain. In the interim, he
served in New York as Executive Vice President of the largest Benetton licensee
in New York, and as a partner in a patented products firm in the United States
and Switzerland. He holds a Bachelor degree in Business Administration from the
Polytechnic of Central London.
</FONT>
<P align="center"><FONT size="2">Page 108
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EDITH SHIH has been the Joint Company Secretary of Partner since July
1998. Ms.&nbsp;Shih has been a senior manager of Hutchison Whampoa Limited since
1991, its Head Group General Counsel since 1993 and its Company Secretary since
1998. She is currently an executive director of Hutchison International Limited
and director of various Hutchison group companies. She is also the Company
Secretary of Hutchison Telecommunications Limited and the Joint Company
Secretary of Hutchison Telecommunications (Australia) Limited. She holds a
Bachelor of Science and a Master of Arts degree from the University of the
Philippines, a Master of Arts and a Master of Education degree from Columbia
University, New York. She is qualified to practice law in Hong Kong, England
and Wales and Victoria, Australia.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;MENAHEM TIROSH has served Partner since May 1998 as a consultant and as
Vice President, Network Engineering and Operation. From 1996 to 1998, Mr.
Tirosh was Deputy Director of the Cellular Infrastructure Division of Motorola
(Israel) Ltd. From 1969 to 1996, Mr.&nbsp;Tirosh served in the Israeli Defense
Forces, rising to the position of Department Head, Communication Systems. He
holds a Bachelor of Science degree in Electrical Engineering from the Israel
Institute of Technology (Technion), Haifa, Israel and a Master of Science in
Advanced Communication Engineering degree from Ben Gurian University. Mr.
Tirosh served as a full colonel in the Israeli Defense Forces Signal Corps.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as disclosed above, none of the above directors or members of
senior management has any family relationship with any other director or senior
manager of the Company. Senior managers, except for the Chief Financial
Officer, as disclosed above, are selected by the CEO with the approval of the
Board for an indefinite term of office and may be removed by the Board at any
time.
</FONT>
<P align="left"><FONT size="2"><B>6B. Compensation</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aggregate compensation paid, and benefits in kind granted to or
accrued on behalf of all our directors and senior managers for their services
in all capacities during the year ended December&nbsp;31, 2002 was approximately NIS
32&nbsp;million ($7&nbsp;million). In 2002 options were granted to our senior management
under the 2000 Employee Stock Option Plan to purchase up to 175,000 of our
ordinary shares at an exercise price of NIS 22.45 per share. These options
will expire in December 2011, subject to earlier expiration upon the
termination of employment under certain circumstances. For more information,
see &#147;Item&nbsp;6E. Directors, Senior Management and Employees&#151;Share Ownership&#151;2000
Employee Stock Option Plan&#148;. Included in the above, the total amount set aside
or accrued to provide pension, retirement or similar benefits on behalf of all
our directors and
</FONT>
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<P align="left"><FONT size="2">senior managers during the year ended December&nbsp;31, 2002 was approximately NIS
10&nbsp;million ($2&nbsp;million).
</FONT>
<P align="left"><FONT size="2"><B>6C. Board Practices</B>
</FONT>
<P align="left"><FONT size="2"><B>Terms of directors</B>

</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Directors are elected at the annual shareholders meeting to serve for
three years, in the case of independent directors, or until the next annual
meeting of the shareholders, in the case of other directors; or until their
respective successors are elected and qualified, whichever occurs first. An
extraordinary meeting of the Company may elect any person as a director to fill
an office which became vacant, or to serve as an external director or an
independent director, or if the number of the members of the Board of Directors
is less than the minimum set in the Articles of Association. Any director
elected in such manner (excluding an external director) shall serve in office
until the coming annual meeting. The Articles of Association also provide that
the Board, with the approval of 75% of the directors, may appoint an additional
director to fill a vacancy. The Company&#146;s Articles of Association provide that
the Board may delegate all of its powers to committees of the Board as it deems
appropriate, subject to the provisions of the Companies Law. No director has a
service contract with the company or its wholly owned subsidiary providing for
benefits upon termination of employment. Officers of Partner serve at the
discretion of the Board or until their successors are appointed.
</FONT>
<P align="left"><FONT size="2"><B>Alternate directors</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Articles of Association provide that a director may appoint any
individual to serve as an alternate director. An alternate director may not
serve as such unless such person is qualified to serve as a director. In
addition, no person who already serves as a director or alternate director of
Partner may serve as the alternate director of another director of Partner.
Under the Companies Law, an alternate director shall have all of the rights and
obligations of the director appointing him or her, except the power to appoint
an alternate. The alternate director may not act at any meeting at which the
director appointing him or her is present. Unless the time period or scope of
any such appointment is limited by the appointing director, such appointment is
effective for all purposes and for an indefinite time, but will expire upon the
expiration of the appointing director&#146;s term.
</FONT>
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<P align="left"><Font size="2"><B>Independent directors</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Companies Law requires that Partner have at least two external
directors on its Board of Directors. In the interests of good corporate
governance, our Board of Directors decided that our Audit Committee should
consist of three members, each qualified as an independent director, pursuant
to applicable U.S. and other requirements, including, inter alia, the
requirements of Nasdaq. These independent directors are also qualified as
external directors, according to the Companies Law. The election of an external
director under the Companies Law must be approved by a general meeting of
shareholders provided that either: (a)&nbsp;the majority of shares voted at the
meeting, including at least one third of the shares of non-controlling
shareholders voted at the meeting, vote in favor of such arrangement or (b)&nbsp;the
total number of shares voted against such arrangement does not exceed one
percent of the aggregate voting rights in the company.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Avraham Bigger, Mr.&nbsp;Ben-Zion Zilberfarb and Mr.&nbsp;Robert Donald
Fullerton are currently the external, independent directors who satisfy the
requirements for independent directors under the Nasdaq National
Market and for
external directors under the Companies Law.
</FONT>
<P align="left"><FONT size="2"><B>Executive committee</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Executive Committee was nominated by the Board of Directors on July
15, 1998. Our principal shareholders have agreed that the Executive Committee
initially will consist of three nominees of Advent and one nominee of each of
Elbit.COM, Matav Investments and Eurocom, the other principal shareholders of
Partner. Two of our independent directors currently serve on our Executive
Committee.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the provisions of the Companies Law, the Executive Committee is
authorized to make all major decisions relating to the business affairs of
Partner. The Executive Committee is authorized by the Board of Directors to
approve contracts, commitments and other transactions up to a value determined
by the Board of Directors from time to time.
</FONT>
<P align="left"><FONT size="2"><B>Audit committee</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Companies Law requires public companies, including Partner, to appoint
an audit committee. The responsibilities of the audit committee that we have
appointed include reviewing our financial statements, identifying
irregularities in the management of the company&#146;s business and approving
related party transactions as required by law. According to the Companies Law,
an audit committee must consist of at least three board members, and include
all the company&#146;s external&nbsp;directors. However, the chairman of the board, any
director employed by the company or granting
</FONT>
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<P align="left"><FONT size="2">services to the company on a permanent basis, any controlling shareholder or
any relative of a controlling shareholder may not be a member of the audit
committee. Our audit committee consists of three board members, all of which
meet both Nasdaq&#146;s definition of independent directors, and the Companies Law&#146;s
definition of external directors. None of them is an affiliated person of
Partner or has received any consulting, advisory or other compensatory fee from Partner, other
than in their capacity as directors of Partner.
</FONT>

<P align="left"><FONT size="2"><B>Compensation committee</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The compensation committee was nominated by the Board of Directors on
November&nbsp;14, 2002. Our compensation committee consists of four Board members,
of which one is an external, independent director. The compensation committee
is responsible for evaluating and recommending to the Board (and to the Audit
Committee, if so required under any applicable law) the total compensation
package for the Company&#146;s Chief Executive Officer and all other officers;
reviewing the results and procedures for the evaluation of the performance of
other officers by the Company&#146;s Chief Executive Officer; making recommendations to the
Board regarding any long-term incentive compensation or equity plans; and
supervising the administration of the plans and periodically reviewing a
comprehensive statement of executive compensation policy.
</FONT>
<P align="left"><FONT size="2"><B>Internal auditor</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Companies Law requires the board of a public company to appoint an
internal auditor nominated by the audit committee. A person who does not
satisfy certain independence requirements may not be appointed as an internal
auditor. The role of the internal auditor is to examine, among other things,
the compliance of the company&#146;s conduct with applicable law and orderly
business procedures. Mr.&nbsp;Yehuda Motro has been appointed as our first internal
auditor. Mr.&nbsp;Motro was formerly the internal auditor of the Tel Aviv Stock
Exchange.
</FONT>
<P align="left"><FONT size="2"><B>Fiduciary duties of an office holder</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Companies Law governs the duty of care and duty of loyalty which an
Office Holder has to the company. An &#147;Office Holder&#148; is defined in the
Companies Law as a director, general manager, chief executive officer,
executive vice president, vice president, any other person assuming the
responsibilities of any of the foregoing positions without regard to such
person&#146;s title and other managers directly subordinate to the general manager.
</FONT>
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</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The duty of loyalty requires the office holder to avoid any conflict of
interest between the office holder&#146;s position in the company and personal
affairs, and proscribes any competition with the company or the exploitation of
any business opportunity of the company in order to receive personal advantages
for him or herself or others. This duty also requires him or her to reveal to
the company any information or documents relating to the company&#146;s affairs that
the office holder has received due to his or her position as an office holder.
The duty of care requires an office holder to act in a way that a reasonable
office holder would act in the same position and under the same circumstances.
This includes the duty to utilize reasonable means to obtain information
regarding the advisability of a given action submitted for his or her approval
or performed by virtue of his or her position and all other relevant
information.
</FONT>
<P align="left"><FONT size="2"><B>Approval of related party transactions</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally, under the Companies Law the compensation of an Office Holder
who is a director, or the compensation of an Office Holder who holds a
controlling interest in the company, requires the approval of the audit
committee, the Board of Directors and the general meeting of the shareholders
of the company. The Companies Law also requires that an arrangement between the
company and its Office Holder and also a transaction between the company and
another person in which an Office Holder has a personal interest,
requires the
approval of the Board of Directors. If such transactions are extraordinary
transactions, in addition to the Board approval and any approval required by
the Articles of Association, the transaction also must be approved by the
company&#146;s audit committee, and, in certain circumstances, the shareholders of
the company at a general meeting. Under the Companies Law, an extraordinary
transaction between a public company and a person having control of the company
or an extraordinary transaction between a public company and another person, in
which a controlling member has a personal interest, must be approved by the
audit committee, the Board of Directors and a meeting of the shareholders,
provided that either: (a)&nbsp;the majority of shares voted in favor
of the arrangement at the meeting,
including at least one third of the shares voted by shareholders who do not
have a personal interest in the matter and who are present at the
meeting are voted in favour of such arrangement (abstentions shall not be included in the total of the votes)&nbsp;or (b)&nbsp;the total
number of shares of the shareholders referred to in clause (a)&nbsp;voting against
such arrangement does not exceed one percent of the aggregate voting rights of
the company.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Companies Law requires that an Office Holder promptly disclose any
direct or indirect personal interest that he or his affiliates may have, and
all related material information known to him, in connection with any existing
or proposed transaction by the company. If the Office Holder complies with such
disclosure requirements, the company may approve the transaction in accordance
with the provisions of its articles of association and the Companies Law. Under
the Companies Law, if the
</FONT>
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<P align="left"><FONT size="2">Office Holder has a personal interest in the transaction, the approval must
confirm that the transaction is not adverse to the company&#146;s interest.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In most circumstances, the Companies Law restricts Office Holders who have
a personal interest in a matter which is considered at a meeting of the board
or the audit committee from being present at such meeting, participating in the
discussions or voting on any such matter.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For information concerning the direct and indirect personal interests of
certain of our Office Holders and principal shareholders in certain
transactions, see &#147;Item&nbsp;7. Major Shareholders and Related Party Transactions.&#148;
</FONT>
<P align="left"><FONT size="2"><B>Duty of a shareholder</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Companies Law, a shareholder has a general duty to act in good
faith towards the company and other shareholders and refrain from improperly
exploiting his power in the company, particularly when voting in the general
meeting of shareholders on (a)&nbsp;any amendment to the articles of association,
(b)&nbsp;an increase of the company&#146;s authorized share capital, (c)&nbsp;a merger or (d)
approval of transactions with affiliates which require shareholder approval. In
addition, any controlling shareholder, any shareholder who knows that it
possesses power to determine the outcome of a shareholder vote and any
shareholder that, pursuant to the provisions of the articles of association,
has the power to appoint an office holder in the company, is under a duty to
act in fairness towards the company.
</FONT>
<P align="left"><FONT size="2"><B>Indemnification</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Articles of Association provide that Partner shall be entitled to
undertake in advance to indemnify an officer or director of Partner, provided
that the undertaking is restricted to the events of a kind which the Board of
Directors may anticipate at the time it makes such undertaking at an amount
which the Board of Directors determines is reasonable under the circumstances.
In addition, Partner can indemnify an officer or director for specific
occurrences retroactively.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Articles of Association also provide that Partner may indemnify an
officer or director of Partner for liability or expense he incurs as a result
of an action taken by him in his capacity as an officer or director of Partner
as follows:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">any financial liability imposed on the officer or director in favor of a
third party in accordance with a judgment, including a judgment given in a
settlement or a judgment of an arbitrator, approved by the court; or</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 114
</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">reasonable litigation expenses, including legal fees, incurred by the
officer or director or which he was ordered to pay by the court:</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">(a)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">within the framework of proceedings filed against him by Partner or
on Partner&#146;s behalf or by a third party,</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">(b)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">in a criminal proceeding in which he was acquitted, or</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">(c)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">in a criminal proceeding in which he was convicted of a felony which
does not require a finding of criminal intent.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">In no event may Partner indemnify an officer or director for:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">a breach of the duty of loyalty toward Partner, unless the officer or
director acted in good faith and had reasonable grounds to assume that the
action would not harm Partner;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">a breach of the duty of care if it was made intentionally or recklessly;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">an intentional act which was done to unlawfully yield a personal profit;
or</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(4)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">fine or penalty imposed on him.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have undertaken to indemnify our directors and officers, subject to
certain conditions for (a)&nbsp;any financial obligation that is imposed on such
person for the benefit of a third person by a judgment, including a settlement
or arbitration decision certified by the court for an action done in the scope
of such person&#146;s duties as our director or officer, and (b)&nbsp;reasonable
litigation expenses, including legal fees, that were incurred by such person or
which the court obligates such person to pay in a proceeding against such
person that has been filed by us, on our behalf or by a third party, or in a
criminal proceeding in which such person is acquitted or convicted, provided
that the crime for which such person was convicted does not require a finding
of criminal intent, and in each case for an act committed in the capacity as
our director or officer.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have effected a directors&#146; and officers&#146; liability insurance policy
insuring our directors&#146; and officers&#146; liability and our undertaking to
indemnify them, in respect of certain matters permitted by the Companies Law.
The policy includes coverage in respect of our and our directors&#146; and officers&#146;
liability in respect of our initial public offering and our offering of 13%
senior subordinated notes due 2010.
</FONT>
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<P align="left"><FONT size="2"><B>6D. Employees</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2002, we had 2,688 employees on a full-time or full-time
equivalent basis (2,523 at December&nbsp;31, 2001 and 2,131 at December&nbsp;31, 2000),
of whom 1,421 (including face-to-face customer service employees who were
transferred to customer service in 2001) (1,382 at December&nbsp;31, 2001 and 834 at
December&nbsp;31, 2000) were in customer service, 325 (274 at December&nbsp;31, 2001 and
286 at December&nbsp;31, 2000) were in engineering, 281 (232 at December&nbsp;31, 2001
and 349 at December&nbsp;31, 2000) were in sales and sales support, 160 (129 at
December&nbsp;31, 2001 and 154 at December&nbsp;31, 2000) were in information technology,
75 (55 at December&nbsp;31, 2001 and 57 at December&nbsp;31, 2000) were in marketing, 72
(70 at December&nbsp;31, 2001 and 69 at December&nbsp;31, 2000) were in finance, 68 (43
at December&nbsp;31, 2001 and 37 at December&nbsp;31, 2000) were in human resources and
security and fraud management and administration and 286 (467 at December&nbsp;31,
2001 and 345 at December&nbsp;31, 2000) were in our remaining operations. Substantially all of our employees have entered into employment
contracts with us, terminable at will by either party.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our employees are not covered by any company-specific collective
bargaining agreement. However, we are subject to various Israeli labor laws and
practices, as well as orders extending certain provisions of collective
bargaining agreements between the Histadrut, currently the largest labor
organization in Israel, and the Coordinating Bureau of Economic Organizations,
the federation of employers&#146; organizations. Such laws, agreements and orders
cover a wide range of areas and impose minimum employment standards including,
working hours, minimum wages, vacation and severance pay, and special issues,
such as equal pay for equal work, equal opportunity in employment, and
employment of women, youth, disabled persons and army veterans.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We generally contribute funds on behalf of our employees to a fund known
as &#147;Managers&#146; Insurance&#148;. This fund provides a combination of provident fund, insurance and severance pay benefits to the
employees, giving the employees a lump sum payment upon retirement and securing
most of the severance pay, if legally entitled, upon termination of employment.
Most employees are entitled to participate in the plan upon the start of
employment or after an initial period. Each of the participating employees
contributes an amount equal to 5% of his salary and we contribute between 13.3%
and 15.8% of such employee&#146;s salary.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also offer to most of our employees the opportunity to participate in a
&#147;Continuing Education Fund,&#148; which functions also as a savings plan. Each of
the participating employees contributes an amount equal to 2.5% of his salary
and we contribute between 5% and 7.5% of such employee&#146;s salary.
</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to the National Insurance Law, Israeli employers and employees
are required to pay predetermined sums to the National Insurance Institute.
These contributions entitle the employees to health insurance and benefits in
periods of unemployment, work injury, maternity leave, disability, reserve
military service, and bankruptcy or winding-up of the employer. We have never
experienced a strike or work stoppage and no material labor-related claims are
pending. We believe that our relations with our employees are good.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since October 2001, most of our employees participate in a Health
Insurance Program which provides additional benefits and coverage which the
public health system does not provide. Eligibility to participate in the policy
depends on seniority and position. Non eligible employees can participate by
their own means and receive the same prices and coverage as eligible employees.
</FONT>
<P align="left"><FONT size="2"><B>6E. Share Ownership</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, our directors and senior managers beneficially
owned an aggregate of 2,326,991 or 1.28%, of our outstanding ordinary shares.
No individual director or senior manager beneficially owns 1% or more of our
outstanding ordinary shares.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, our senior managers, in the aggregate, held
options under the 1998 and 2000 Employee Stock Option Plans to purchase up to
1,533,578 of our ordinary shares. No individual senior manager holds options to
purchase 1% or more of our outstanding ordinary shares. 957,870 of these
options have an exercise price of $0.343 and will expire after the eighth
anniversary date of the commencement of the vesting schedule with respect to
the options, subject to earlier expiration upon the termination of the
option-holder&#146;s employment under certain circumstances. The remaining 575,708
of these options have an exercise price of the fair market value of our
ordinary shares on the date preceding the date on which the option was granted
and will expire nine years from the date of the option grant, subject to an
earlier expiration upon the termination of the option-holder&#146;s employment under
certain circumstances. The exercise price for the remaining options ranges
between NIS 20.45 and NIS 22.23. The fair market value, with respect to such
remaining options, was determined on the basis of the average of the closing
sale price of ordinary shares during the 30 trading days preceding the granting
date.
</FONT>
<P align="left"><FONT size="2"><B>1998 Employee Stock Option Plan</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors adopted the 1998 Employee Stock Option Plan, or the
Plan, to promote the interests of Partner and its shareholders by providing our
senior management and other
</FONT>
<P align="center"><FONT size="2">Page 117
</FONT>
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<P align="left"><FONT size="2">employees with appropriate incentives and rewards to encourage them to enter
into and continue in the employ of Partner and to acquire a proprietary
interest in our long-term success.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Plan currently authorizes the issuance of options to purchase up to
5,104,168 ordinary shares. As of December&nbsp;31, 2002, we had granted (excluding
options granted but subsequently cancelled) options to purchase 2,225,388
ordinary shares at an exercise price of $0.343 per share or at fair market
value, as described above. In addition, options to purchase 2,706,334 ordinary
shares had been exercised under the Plan. In April 2002, the Board of Directors
resolved that options to be allocated under the Plan may be issued under the
same terms and conditions of the 2000 Plan, including their exercise price,
vesting schedule and expiration period, as shall be determined by the Board of
Directors from time to time.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the occurrence of any merger, consolidation, reorganization,
recapitalization or similar event, or other substantially similar corporate
transaction or event, we are required to make such equitable changes or
adjustments necessary to the number of shares subject to each outstanding
option in order to prevent dilution or enlargement of the option holders&#146;
rights.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Plan is administered by an Employee Stock Option Committee of the
Board of Directors. Subject to the restrictions of the Companies Law, the
Employee Stock Option Committee is authorized, among other things, to exercise
all the powers and authorities either specifically granted to it under the Plan
or necessary or advisable in the administration of the Plan including the
authority in its discretion to determine the persons to whom options are
granted, the number of shares covered by each option, the time or times at
which options are granted, the exercise price for options, and any other terms
to be included as part of the option grant. The Employee Stock Option Committee
also has the power and authority to determine whether, to what extent, and
under what circumstances an option may be settled, canceled, forfeited,
exchanged, or surrendered; to construe and interpret the Plan and any agreement
granting an option; and to make all other determinations deemed necessary or
advisable for the administration of the Plan.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with Section&nbsp;102 of the Israeli Income Tax Ordinance (New
Version), 1961 and regulations promulgated thereunder, the options and the
shares to be issued upon the exercise of options, which were granted prior to
December&nbsp;31, 2002, will be held for the benefit of the option holders by a
trustee who will hold the outstanding options and any shares issued upon
exercise of the options in trust on behalf of each participant for a period of
not less than two years from the date an option is issued to the Trustee on
behalf of such employee.
</FONT>
<P align="center"><FONT size="2">Page 118
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2002, we entered into an agreement with the Israeli tax
authorities concerning the tax liabilities of our employees resulting from the
benefit arising from the options granted to them under the Plan. According to
the agreement, the individual tax rate on the taxable income received by the
employees in connection with the benefit arising from the options will be
reduced. In exchange, the Company will defer the deduction of such taxable
income as an expense, for a period of four years from the date it commences
paying income taxes.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
agreement applies only to employees who have joined the agreement and
relates to (1)
options that are exercised by December&nbsp;31, 2002 and/or (2)&nbsp;options that vest
by December&nbsp;31, 2003 and are exercised by March&nbsp;31, 2004.
In each case, the trustee must have held the options for a period of 24 months
from the date on which they
were granted. See Note 9(d) to our consolidated financial statements.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An option shall be exercised upon the instruction of an option holder to
the Trustee. Twenty percent of each option shall become vested on each of the
first, second, third, fourth and fifth anniversaries of the date the holder of
that option has commenced his or her employment with Partner, unless another
date for the commencement of the vesting schedule with respect to such option
has been set by the Employee Stock Option Committee. The option holder may
exercise all or part of his options at any time after the date of vesting but
not later than the eighth anniversary date of commencement of the vesting
schedule with respect to the option.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If an option holder&#146;s employment with Partner is terminated because of his
willful and continued failure to perform his duties and obligations to Partner
or his willful engaging in misconduct injurious to Partner such that, in each
case, the actions or omissions of the participant are sufficient to deny the
participant severance payment under the Israeli Severance Payment Law, 1963,
his options will expire upon termination of employment. If an option holder&#146;s
employment with Partner is terminated by Partner for any other reason, he may
exercise his vested options during the remainder of their exercise period. If
an option holder&#146;s employment is voluntarily terminated by the option holder,
he may exercise his vested options during the 90&nbsp;day period following the later
of the date of termination and the date upon which the resulting shares may be
freely sold. If an option holder&#146;s employment with Partner is terminated as a
result of the retirement, death or disability of the option holder, he may
exercise his vested options and the pro rata portion of options scheduled to
vest in the year of termination during the remainder of their exercise period.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors may, at any time and from time to time, terminate
or amend the Plan in any respect, subject to any applicable approvals or
consents that may be otherwise required by law, regulation or agreement, and
provided that no termination or amendment of the Plan shall adversely affect
the terms of any option which has already been granted.
</FONT>
<P align="center"><FONT size="2">Page 119
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2"><B>2000 Employee Stock Option Plan</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors adopted a second employee stock option plan, the
2000 Employee Stock Option Plan, or the 2000 Plan, to promote our interests and
those of our shareholders by providing our employees with appropriate
incentives and rewards to encourage them to enter into and continue in our
employ and to acquire a proprietary interest in our long-term success.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 2000 Plan authorizes the issuance of options to purchase up to
4,472,222 ordinary shares. As of December&nbsp;31, 2002, we had granted (excluding
options granted but subsequently cancelled) options to purchase 4,385,722
ordinary shares at an exercise price of the fair market value of our ordinary
shares on the date preceding the date on which the option is granted. The fair
market value is determined on the basis of the average of the closing sale
price of ordinary shares during the 30 trading days preceding the granting
date. As of December&nbsp;31, 2002, no options to purchase ordinary shares had been
exercised under the 2000 Plan.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the occurrence of any merger, consolidation, reorganization or
similar event, or other substantially similar corporate transaction or event,
we are required to make such equitable changes or adjustments necessary to the
number of shares subject to each outstanding option in order to prevent
dilution or enlargement of the option holders&#146; rights.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 2000 Plan is administered by an Employee Stock Option Committee of the
Board of Directors. Subject to the restrictions of the Companies Law, the
Employee Stock Option Committee is authorized, among other things, to exercise
all the powers and authorities either specifically granted to it under the 2000
Plan or necessary or advisable in the administration of the 2000 Plan including
the authority in its discretion to determine the persons to whom options are
granted, the number of shares covered by each option, the time or times at
which options are granted, the options exercise price and any other terms to be
included as part of the option grant. The Employee Stock Option Committee also
has the power and authority to determine whether, to what extent, and under
what circumstances an option may be settled, canceled, forfeited, exchanged, or
surrendered; to construe and interpret the 2000 Plan and any agreement granting
an option; and to make all other determinations deemed necessary or advisable
for the administration of the 2000 Plan.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with Section&nbsp;102 of the Israeli Income Tax Ordinance (New
Version), 1961 and the regulations promulgated thereunder, the options and the
shares to be issued upon the exercise of options, which were granted prior to
December&nbsp;31, 2002, will be held for the benefit of the option holders by a
trustee who will hold the outstanding options and any shares issued upon
exercise of the options in trust on behalf of each participant for a period of
not less than two years from the date an option is issued to the Trustee on
behalf of such employee.
</FONT>
<P align="center"><FONT size="2">Page 120
</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An option shall be exercised upon the instruction of an option holder to
the Trustee. Twenty five percent of each option shall become vested on each of
the first, second, third and fourth anniversaries of the date the holder of
that option commenced his or her employment with us, unless another date for
the commencement of the vesting schedule with respect to such option has been
set by the Employee Stock Option Committee. The option holder may exercise all
or part of his options at any time after the date of vesting but no later than
the expiration of the exercise period, which will be fixed by the Employee
Stock Option Committee and will not exceed ten years from the date of option
grant.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If an option holder&#146;s employment with us is terminated because of his
willful and continued failure to perform his duties and obligations to us or
his willful engaging in misconduct injurious to us such that, in each case, the
actions or omissions of the participant are sufficient to deny the participant a severance payment
under the Israeli Severance Payment Law, 1963, his options will expire upon
termination of employment. If an option holder&#146;s employment with us is
terminated by us for any other reason, he may exercise his vested options
during the remainder of their exercise period. If an option holder&#146;s employment
is voluntarily terminated by the option holder, he may exercise his vested
options during the 90&nbsp;day period following the later of the date of termination
and the date upon which the resulting shares may be freely sold. If an option
holder&#146;s employment with us is terminated as a result of the retirement, death
or disability of the option holder, he may exercise his vested options and the
pro rata portion of options scheduled to vest in the year of termination during
the remainder of their exercise period.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors may, at any time and from time to time, terminate
or amend the 2000 Plan in any respect, subject to any applicable approvals or
consents that may be otherwise required by law, regulation or agreement, and
provided that no termination or amendment of the 2000 Plan shall adversely
affect the terms of any option which has already been granted.
</FONT>
<P align="center"><FONT size="2">Page 121
</FONT>
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<!-- link2 "ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS" -->
<DIV align="left"><A NAME="008"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS</B>
</FONT>

<P align="left"><FONT size="2"><B>7A. Major Shareholders</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information with respect to the
beneficial ownership of our ordinary shares as of December&nbsp;31, 2002 with
respect to each person who we believe to be the beneficial owner of 5% or more
of our ordinary shares. Except where otherwise indicated, we believe, based on
information furnished to us by the principal shareholders, that the beneficial
owners of the ordinary shares listed below have sole investment and voting
power with respect to such ordinary shares. None of our major shareholders has
any different voting rights than any other shareholder.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="67%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Number of</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Percent of</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>ordinary shares</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>outstanding</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>beneficially</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>ordinary shares</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="1"><B>Name and address</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>owned</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>owned</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">Hutchison Whampoa Limited(1)<BR>
22/F Hutchison House<BR>
10 Harcourt Road<BR>
Central, Hong Kong</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
77,377,051</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">42.61</FONT></TD>
    <TD nowrap valign="top"><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Elbit Ltd.(2)<BR>
3 Azrieli Center<BR>
42nd floor, Tel Aviv 67023</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
22,134,777</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">12.19</FONT></TD>
    <TD nowrap valign="top"><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Eurocom Communications Ltd.(3)<BR>
2 Dov Friedman Street<BR>
Ramat Gan 52141<BR>
Israel</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
17,793,548</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">9.80</FONT></TD>
    <TD nowrap valign="top"><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Matav-Cable Systems Media Ltd.(4)<BR>
42 Pinkas Street<BR>
Netanya 42134 Israel</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
13,494,539</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">7.43</FONT></TD>
    <TD nowrap valign="top"><FONT size="2">%</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Hutchison Whampoa Limited, a company listed on the Hong Kong Stock
Exchange and traded on the London Stock Exchange, owns Partner shares through
two indirect subsidiaries, Advent Investments Pte Ltd (&#147;Advent&#148;) and Hutchison
Telecommunications (Amsterdam) B.V. (&#147;HTA&#148;) which own 34.48% and 8.13%,
respectively, of the ordinary shares of Partner. Advent, incorporated in
Singapore, is an indirect wholly owned subsidiary of Hutchison Whampoa Limited,
through a chain of wholly owned subsidiaries as</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 122
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">follows: Advent is owned by Amber International Holdings Inc., which is owned
by Hutchison Telecommunications Limited, which is owned by Hutchison
International Limited, which is owned by Hutchison Whampoa Limited. HTA,
incorporated in the Netherlands, is a wholly-owned subsidiary of Hutchison
Whampoa Limited through a chain of wholly-owned subsidiaries (unless specified
otherwise) as follows: HTA is owned by Hutchison 3G Europe Investments
S.a.r.l., which is owned by Hutchison Whampoa Europe Investments S.a.r.l.,
which is 98.98%, 0.51% and 0.51% owned by Auditorium Investments 1 S.a.r.l.,
Auditorium Investments 2 S.a.r.l. and Auditorium Investments 3 S.a.r.l.
respectively, all of which are owned by New Millennium Corp., which is owned
by Ommaney Limited, which is owned by Hutchison Whampoa International (00/03)
Limited, which is owned by Hutchison Telecommunications Limited, which is
owned by Hutchison International Limited, which is owned by Hutchison Whampoa
Limited. By virtue of interests in relation to Hutchison Whampoa Limited,
Cheung Kong (Holdings) Limited, Li Ka-Shing Unity Holdings Limited, Li
Ka-Shing Unity Trustee Company Limited as trustee of The Li Ka-Shing Unity
Trust, Li Ka-Shing Unity Trustee Corporation Limited as trustee of The Li
Ka-Shing Unity Discretionary Trust and Li Ka-Shing as owner of more than one
third of the issued share capital of Li Ka-Shing Unity Holdings Limited are
each taken as interested in the Partner shares held by Hutchison Whampoa
Limited by virtue of the provisions of the Securities (Disclosure of
Interests) Ordinance, Cap. 396 of the laws of Hong Kong.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Elbit Limited owns Partner shares through its wholly owned subsidiary,
Elbit.COM Limited. Elbit Limited is wholly owned by Elron Electronic
Industries Ltd. The principal shareholders of Elron are Discount
Investment Corporation Ltd. (&#147;DIC&#148;), mutual and/or provident funds managed
by Bank Leumi (&#147;Bank Leumi Group&#148;) and the Clal Insurance Group. DIC held
approximately 38.52% of the voting power of Elron. Bank Leumi Group and
the Clal Insurance Group, held approximately 8.39% and 2.69%,
respectively, of the voting power of Elron.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>

    <TD width="96%"><FONT size="2">IDB Holding Corporation Ltd. (&#147;IDBH&#148;) is the parent of IDB Development
Corporation Ltd. (&#147;IDBD&#148;), which in turn is the parent of DIC, which in turn
is the parent of PEC Israel Economic Corporation (&#147;PEC&#148;). The Recanati family
holds, through three private companies (the &#147;Private Companies&#148;)
approximately 51.7% of the outstanding share capital and voting rights of
IDBH. The Private Companies may be deemed to be controlled by Oudi Recanati,
Leon Y. Recanati, Judith Yovel Recanati and Elaine Recanati. Elaine Recanati
is the aunt of each of Oudi Recanati, Leon Y. Recanati, and Judith Yovel
Recanati. Leon Y. Recanati and Judith Yovel Recanati are siblings and Oudi
Recanati is their cousin. Leon Y. Recanati is Chairperson of IDBH, IDBD and
DIC. These persons may be deemed to share the power to vote and dispose of
Elron&#146;s shares owned by DIC. On or about May&nbsp;23, 2002, the Private Companies
signed an agreement to sell their approximately 51.7% of the share capital of
IDBH Ltd. to a group comprising Ganden Holdings Ltd., Ganden Investments IDB
Ltd., Maskit-Man Ltd. (a company owned by the Yitzhak and Ruth Manor family)
and Avraham Livnat Investments (2002)&nbsp;Ltd. The agreement is subject to the
fulfillment of conditions precedent and to the receipt of various approvals,
including approvals at the</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 123
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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">general meetings of the shareholders of the Private Companies, and to
approvals required by law. The agreement also contains various provisions
that make it possible for the Private Companies and the purchasers to cancel
the agreement.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Eurocom Communications Ltd. owns 9.92% of the ordinary shares of Partner.
Of these, it owns 9.80% directly, and an additional 0.12% indirectly
through its wholly owned subsidiary Tapuz Cellular Systems Ltd. Eurocom
Communications Ltd. is owned by Eurocom Holdings (1979)&nbsp;Ltd. (50.33%),
Shaul Elovitch (0.66%) and Arison Investments Ltd. (49%). Eurocom Holdings
(1979)&nbsp;Ltd. is owned by Shaul Elovitch (80% of the ordinary shares and 75%
of the management shares) and Joseph Elovitch (20% of the ordinary shares
and 25% of the management shares). Arison Investments Ltd. is a wholly
owned subsidiary of Arison Holdings (1998)&nbsp;Ltd. Arison Holding (1998)&nbsp;Ltd.
is owned by the late Ted Arison Trust for Shari Arison (33.74%), the late
Ted Arison Trust for Mickey Arison (25.3%), the late Ted Arison Trust for
Lin Arison (25.3%), Shlomo Nehama (14.88%), and by Arison Investments Ltd.
(0.77%).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(4)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Matav-Cable Systems Media Ltd. (&#147;Matav&#148;), a company quoted on Nasdaq and
listed in the Tel Aviv Stock Exchange, owns Partner&#146;s shares through its
wholly owned subsidiary, Matav Investments Ltd. Matav is owned by Dankner
Investments Ltd. (47.74% equity, 49.96% voting), Ma&#146;ariv Electronic
Communications (15.09% equity, 15.79% voting) and by its directors and
officers (as a group, 12.65% equity, 13.67% voting). The remaining 20.07%
of the shares in Matav are held by the public. Dankner Investments is a
publicly held company, whose securities are traded on the Tel Aviv Stock
Exchange, controlled by members of the Dankner and Gineo families (who
collectively hold approximately 88.08% of Dankner Investments&#146; issued
share capital). Members of the Dankner and Gineo families are parties to
the shareholders agreement in Dankner Investments, concerning the voting
of their respective shares in coordination with the parties to the
agreements. Each member of the Dankner and Gineo families who is a party
to the Dankner Investments shareholders&#146; agreement could be deemed to be
beneficial owners of all of the shares of Matav owned by Dankner
Investments, but they disclaim beneficial ownership of such shares. On
July&nbsp;30, 1998, Dankner Investments reached an agreement with Mr.&nbsp;Hanania
Gibstein, Mr.&nbsp;Shimon Cheifetz and Mr.&nbsp;Eli Cheifetz all shareholders of
Matav, according to which Mr.&nbsp;Gibstein and Messrs.&nbsp;Cheifetz agreed not to
sell their shares in Matav without the consent of Dankner Investments.
Dankner Investments agreed not to sell its shares in Matav without
allowing Mr.&nbsp;Gibstein and Messrs.&nbsp;Cheifetz to take part in the sale and
Mr.&nbsp;Gibstein and Messrs.&nbsp;Cheifetz agreed to join the sale of all or most
of Dankner Investment&#146;s shares of Matav. This agreement is subject to the
Matav Shareholders&#146; Agreement. In July 2002, the parties to the Matav
Shareholders Agreement entered into an agreement amending the Matav
Shareholders Agreement (the &#147;Amendment&#148;). Under the Amendment, Ma&#146;ariv
ceased to be a party to the Matav Shareholders Agreement and has no right
or obligation in connection with the Matav Shareholders Agreement or the
Amendment. In Addition, pursuant to the Amendment, if Messrs.&nbsp;Cheifetz
shall not have a right to nominate a director to the Board of Directors of
Matav, on account of the number of original shares held by him, the
parties shall act to nominate a director to the Board of Directors</FONT></TD>
</TR>
</TABLE>
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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">of Matav designated by Messrs.&nbsp;Cheifetz, provided that the number of original
shares held by Messrs.&nbsp;Cheifetz shall be at least 60% of the number of
original shares required in order to have a right to nominate one director of
Matav. Dankner Investments shall not be obligated to act according to the
above, if as a result the number of directors of Matav nominated by Dankner
Investments shall not constitute the majority of directors of Matav (the
director designated by Messrs.&nbsp;Cheifetz shall not be considered a director
nominated by Dankner Investments).</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Before our October 1999 initial public offering, the ownership of our
outstanding ordinary shares by our founding shareholders, on a percentage
basis, was as follows: Matbit Telecommunication Systems Ltd. owned 33.066%;
Matav Investments Ltd. owned 3.76%; Advent Investments Pte Ltd. owned 46.674%;
and Tapuz Cellular Systems Limited Partnership owned 16.5%. In January 2002,
Tapuz Cellular Systems Limited Partnership was dissolved and its holdings in
Partner were transferred to its limited partners, Eurocom Communications Ltd.,
Polar Communications Ltd. and Tapuz Cellular Systems Ltd., a wholly owned
subsidiary of Eurocom, pro rata their previous interests in the partnership. On
April&nbsp;24, 2002 Matav Investments Ltd. sold to Hutchison Telecommunications
(Amsterdam) BV, an indirect wholly owned subsidiary of Hutchison Whampoa
Limited, 5,044,667 ordinary shares of Partner and Matbit Telecommunication
Systems Ltd. sold to Hutchison Telecommunications (Amsterdam) BV 8,734,001
ordinary shares of Partner, which aggregate number of 13,778,668 ordinary
shares comprise approximately 7.7% of Partner&#146;s issued share capital. On
December&nbsp;2, 2002, the holdings of Matbit Telecommunication Systems Ltd. in
Partner were transferred to its shareholders, Elbit.COM Ltd. and Matav
Investments Ltd., pro rata to their previous interest in Matbit
Telecommunication Systems Ltd. During 2002, two of our shareholders, MFS
Investments Management and T. Rowe Price Associates, Inc., who had previously
held 7.22% and 5.70% of our ordinary shares, reduced their holdings to less
than 5% each. There have been no other significant changes in the ownership of
our outstanding ordinary shares, on a percentage basis, by our major
shareholders since our inception.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;31, 2002, 16,782,299 ADSs (equivalent to 16,782,299 ordinary
shares or approximately 9.24% of the total outstanding ordinary shares) were
outstanding and held of record by 21 registered holders in the United States.
Additionally, at December&nbsp;31, 2002, there were approximately nine holders of
record of our ordinary shares. Of these holders, none had a registered address
in the United States, although certain accounts of record with registered
addresses other than in the United States may hold our ordinary shares, in
whole or in part, beneficially for United States persons. We are aware that
many ADSs and ordinary shares are held of record by brokers and other nominees
and accordingly the above numbers are not necessarily representative of the
actual
</FONT>
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<P align="left"><FONT size="2">number of persons who are beneficial holders of ADSs and ordinary shares, or
the number of ADSs and ordinary shares beneficially held by such persons.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As far as we know, we are not directly or indirectly owned or controlled
by another corporation or by any government, and there are no arrangements that
might result in a change in our control.
</FONT>
<P align="left"><FONT size="2"><B>7B. Related Party Transactions</B>
</FONT>
<P align="left"><FONT size="2"><B>Relationship Agreement</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our founding shareholders and Elbit.COM Limited entered into a
Relationship Agreement in relation to their direct and indirect holdings of our
shares and the rights associated with such holdings. The Relationship Agreement
replaced all existing agreements between our founding shareholders and
Elbit.COM Limited. When one of our founding shareholders, Tapuz, was dissolved
in January 2002 and its holdings in Partner were distributed to its limited
partners, who are Eurocom Communications Ltd., Polar Communications Ltd. and
Tapuz Cellular Systems Ltd., these limited partners became parties to, and
assumed Tapuz&#146;s rights and obligations under, the Relationship Agreement. The
Relationship Agreement was amended on April&nbsp;23, 2002, concurrently with the
sale of shares in Partner indirectly owned by Matav-Cable Systems Media Ltd. to
Hutchison Telecommunications (Amsterdam) BV.
</FONT>
<P align="left"><FONT size="2"><B><I>Foreign mobile radio telephone operator</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The parties to the Relationship Agreement have agreed that a parent of
Advent will continue to be a controlling corporation of a foreign mobile radio
telephone operator as required by our license, for so long as this is required
by our license. See also &#147;Item&nbsp;4B. Information on the Company&#151;Business
Overview&#151;Regulation&#151;Our License.&#148;
</FONT>
<P align="left"><FONT size="2"><B><I>Board composition</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the Relationship Agreement, our Board shall comprise a minimum
of seven and a maximum of sixteen directors, including at least two independent
directors. If more independent directors are required by law or by any of the
stock exchanges on which our shares are to become listed, the number of
independent directors and size of the board will be increased accordingly.
Currently our board consists of 17 directors of whom seven were nominated by
Advent, one by Hutchison Telecommunications (Amsterdam) BV, two by each of
Matav Investments Limited, Elbit.COM Limited and Eurocom Communications, plus
three independent directors.
</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Relationship Agreement contains detailed provisions whereby the number
of directors that each of the &#147;nominating parties,&#148; who are Advent, Hutchinson
Telecommunications (Amsterdam) BV, Matav Investments Ltd., Elbit.COM Limited,
Eurocom Communications Ltd. and Polar Communications Ltd., may nominate, may be
reduced if a nominating party disposes of some or all of its shares, depending
on the remaining percentage of shares held by the nominating party. In addition
the nominating parties may transfer some or all of their rights to nominate
directors to a &#147;strategic investor,&#148; i.e. a person, including a nominating
party, who already has, or will have as a result of a simultaneous transfer of
our shares, at least 4.99% of our shares acquired from one of the nominating
parties in a single transaction.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Two of our founding shareholders, Matav Investments Ltd. and Eurocom
Communications Ltd., are not currently required by the Relationship Agreement
to vote for the board nominations of the nominating parties under the
Relationship Agreement. Matav Investments Ltd. and Eurocom Communications Ltd.
will be required to vote for these nominations if and when an undertaking to do
so will not, under Bank of Israel rules, limit our ability to borrow from any
bank participating in our credit facility. In addition, if Matav Investments
Ltd. or Eurocom Communications Ltd. sells Partner shares together with the
right to nominate a director, the acquirer will be required under the
Relationship Agreement to undertake to vote for the board nominations provided
this undertaking would not subject Partner to the borrowing limitations
described above. See also &#147;&#151;Term and Termination.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To the extent the operation of the above provisions results in our Board
size decreasing below 16 but not below seven, no additional directors will be
appointed. If the Board falls below seven directors then additional directors
are to be appointed to make it up to seven and none of our principal
shareholders will have any special rights to nominate such extra directors. In
addition, to the extent the right to nominate directors is assigned from one
person to another, the assignment may only take place if the assignor can
produce evidence that the assignment will not breach our license or the terms
of our credit facility and that all necessary approvals have been obtained, and
if the assignee agrees to be bound by the Relationship Agreement and other
applicable agreements between the shareholders and, where appropriate, produces
a guarantee from a suitable parent company.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are special provisions which enable Hutchison Telecommunications
(Amsterdam) BV to assign its right to nominate one director to a person who
purchases all of the Partner shares it acquired directly from Matav Investments
Ltd. In addition, if Advent disposes of shares such that its holding differs
from the aggregate holding of the Israeli nominating parties by less than 4.99%
then Advent, if required by the Relationship Agreement, will reduce its
nominees to the board so that the
</FONT>
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<P align="left"><FONT size="2">number of Advent nominees is the same as the number of nominees of the Israeli
nominating parties taken together.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The agreement also provides that if a party or certain affiliates of a
party become involved in a tender for, or for an interest in, a mobile cellular
telecommunications license in Israel other than the licenses held by Cellcom or
Pelephone, the rights of any directors nominated by such party to attend and
vote at Board meetings may be suspended and, if necessary, they may be removed
from our Board. These provisions do not restrict the activities of Polar
Investment Limited or Polar Communications Limited so long as these entities do
not have nominees on our Board, and the existing interests of the IDB Group in
Cellcom, as these may change in the future with Ministry of Communications&#146;
approval, are also exempted.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of the above provisions are subject to compliance by our principal
shareholders with the provision of our license which conditions the agreement
of the Ministry of Communications not to cancel our license for certain
breaches upon the principal shareholders retaining at least 51% of each means of control for so long
as this condition of the Ministry of Communications remains in effect.
</FONT>
<P align="left"><FONT size="2"><B><I>Chairman</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For so long as Advent holds at least 25% of our shares and no other party
to the Relationship Agreement holds more of our shares, Advent is entitled to
nominate the chairman of the Board, who will be one of Advent&#146;s nominated
directors.
</FONT>
<P align="left"><FONT size="2"><B><I>Executive Committee</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In view of the size of our Board, day-to-day management is delegated to an
Executive Committee of the Directors initially comprising three representatives
of Advent and one representative of each of Matav Investments Limited,
Elbit.COM Limited and Eurocom, plus two independent directors. However, a
shareholder is not entitled to a greater number of representatives on the
Executive Committee than it has on the Board. The first chairman of the
Executive Committee is Khoo Chek Ngee.
</FONT>
<P align="left"><FONT size="2"><B><I>Chief Financial Officer</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For so long as Advent holds at least 25% of our shares, it is entitled to
nominate the Chief Financial Officer who will be appointed, subject only to the
approval of a majority of the directors, other than those appointed by Advent,
including at least one director representing each of the other nominating
parties. This approval will not be unreasonably withheld or delayed by the
directors
</FONT>
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<P align="left"><FONT size="2">nominated by nominating parties. While Advent holds at least 25% of our shares
it is also entitled to remove the CFO from office, as may the directors, other
than Advent&#146;s nominees, so long as they act unanimously, on reasonable grounds
and in consultation with Advent and the Chief Executive Officer.
</FONT>
<P align="left"><FONT size="2"><B><I>Restrictions on Directors</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Relationship Agreement contains restrictions on any shareholder that
is an &#147;interested party,&#148; as defined in our license, which has holdings in
Cellcom (Israel) Limited, nominating or acting as one of our directors. These
restrictions are intended to ensure compliance with our license and our permit
regarding cross ownership issued to us by the Ministry of Communications.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Those principal shareholders which are Israeli entities may only nominate
citizens and residents of Israel to act as their representative directors. The
representatives nominated by Advent or other non-Israeli shareholders must
include a sufficient number of citizens and residents of Israel so as to ensure
that the majority of members of the Board are citizens and residents of Israel,
for so long as this is required by our license.
</FONT>
<P align="left"><FONT size="2"><B><I>Transfer of shares</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other than a requirement to comply with our license and permit and the
terms of our credit facility and to obtain all necessary consents, our
principal shareholders&#146; freedom to transfer their shares is not restricted by
the Relationship Agreement. This is subject to (a)&nbsp;our principal shareholders&#146;
minimum 51% holding (or such other percentage as is specified in our License);
(b)&nbsp;special provisions in relation to transfers by Tapuz to its partners, as
occurred in January 2002; and (c) &#147;tag-along&#148; provisions described below in
relation to transfers by Advent. For the requirements of our license and
permit, see &#147;Item&nbsp;4B. Information on the Company&#151;Business
Overview&#151;Regulation&#151;Our License&#151;License Conditions&#148; and &#147;Item&nbsp;4B.
Information on the Company&#151;Business Overview&#151;Regulation&#151;Our Permit Regarding
Cross Ownership.&#148; For the terms of our credit facility, see &#147;Item&nbsp;5B. Operating
and Financial Review and Prospects&#151;Liquidity and Capital Resources.&#148;
</FONT>
<P align="left"><FONT size="2"><B><I>Minimum 51% threshold</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Ministry of Communications has notified us that it will not terminate
our license as a result of certain breaches which might otherwise be caused
when our ADSs are publicly traded, as long as our principal shareholders retain
an aggregate of 51% of the means of control of Partner. See &#147;Item&nbsp;3D. Key
Information&#151;Risk Factors&#151;Our telecommunications license imposes certain
restrictions on
</FONT>
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<P align="left"><FONT size="2">who can own our shares. If these restrictions are breached, we could lose our
license&#148; and &#147;Item&nbsp;4B. Information on the Company&#151;Business
Overview&#151;Regulation&#151;Our License&#148;. In addition to the requirement noted above
in relation to Board composition, the Relationship Agreement requires that our
principal shareholders retain 51% of our shares (or such other percentage as is
specified in our License).
</FONT>
<P align="left"><FONT size="2"><B><I>Tag-along with transfers by Advent</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If Advent disposes of 4.99% or more of our shares in one transaction or a
series of transactions within any six month period, the other principal
shareholders have the right to &#147;tag-along&#148; by requiring that some of their own
shares be bought instead of an equivalent number of Advent&#146;s shares. The number
of shares which the other principal shareholders may sell shall in aggregate be
at most one half of the number of shares Advent proposes to transfer. The
tag-along rights do not apply to:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the first transfer by Advent of at least 4.99% of our shares where it
also assigns the right to nominate a director,</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">transfers within the Hutchison Whampoa Limited group provided the
transferee adheres to the Relationship Agreement,</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">transfers pursuant to the Registration Rights Agreement, or</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">transactions effected on an investment exchange on which our
securities are or may become listed.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The tag-along rights expire five years after the date of the Relationship
Agreement or if Advent&#146;s shareholding falls below 15% of our shares.
</FONT>
<P align="left"><FONT size="2"><B><I>Compulsory transfer in the event of default</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If a party to the Relationship Agreement commits certain events of default
described in the agreement, then our Board, minus the representatives of the
defaulting party, may require the defaulting party to offer its shares to the
other parties on a pre-emptive basis. Events of default for this purpose
include a breach of the Relationship Agreement which has a material adverse
effect on Partner, any voluntary or involuntary liquidation, various
insolvency-related events, a party ceasing to carry on business or a breach of
the terms of our credit facility which has a material adverse effect. In the
case of breaches of the Relationship Agreement, the offending shareholder is
penalized in that
</FONT>
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<P align="left"><FONT size="2">the price at which the shares are to be offered will be market value less a
17.5% discount. Disputes in relation to events of default are to be resolved by
arbitration.
</FONT>
<P align="left"><FONT size="2"><B><I>Compliance with our license</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The parties to the Relationship Agreement have agreed that they and we
shall at all times comply with the terms of our license. In addition, Elbit.COM
Limited has undertaken to use its best efforts to ensure that its parent,
Elbit, and its associates and any person mentioned in the cross-holdings permit
issued by the Ministry of Communications shall undertake to comply with any
applicable conditions of that permit and the relevant terms of our license.
Each Israeli party to the Relationship Agreement has undertaken to maintain
such portion of the shares as is necessary to ensure that at least 20% of the
shares are held by citizens and residents of Israel. Advent has undertaken to
maintain at least 25% or any other level required by our license for so long as
this is required by our license. See &#147;Item&nbsp;4B. Information on the
Company&#151;Business Overview&#151;Regulation&#151;Our License&#151;License Conditions.&#148;
</FONT>
<P align="left"><FONT size="2"><B><I>Other undertakings</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each party has undertaken to exercise its rights as a shareholder or
through its appointees to the Board to ensure that our affairs are conducted in
accordance with the Relationship Agreement, our license and those documents
connected with the credit facility to which it is a party. In particular, the
parties have agreed to procure that we shall not issue any shares or securities
convertible into shares unless, following such issuance, we will be in
compliance with the share pledge requirement in our credit facility.
</FONT>
<P align="left"><FONT size="2"><B><I>Guarantees</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The obligations of each party to the Relationship Agreement are, unless
the party itself has net assets of $50&nbsp;million or more, to be guaranteed by
their respective parent companies.
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Hutchison Telecommunications Limited guarantees the obligations of
Advent Investments Pte Limited and Hutchison Telecommunications
(Amsterdam) BV;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Matav-Cable Systems Media Limited guarantees the obligations of Matav
Investment Limited.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Elbit Limited guarantees the obligations of Elbit.COM Limited;</FONT></TD>
</TR>
</TABLE>
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</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Eurocom Communications Limited guarantees the obligations of Tapuz
Cellular Systems Limited; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Eurocom Holding (1997)&nbsp;Limited guarantees the obligations of Eurocom
Communications Limited.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><B><I>Term and termination</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Agreement continues in full force and effect until we are wound up.
However, the agreement may be terminated if there is an insolvency event in
relation to us. The agreement will terminate in relation to any individual
party after it ceases to hold any share beneficially. For so long as the shares
are pledged, a transfer of 50% or more of the shares held by our principal
shareholders made as part of the foreclosure of such pledges will also cause
the agreement to terminate.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the undertaking of the parties to the Relationship Agreement,
other than Matav Investments Ltd. and Eurocom Communications Ltd., to vote for
the board nominations of the nominating parties under the Relationship
Agreement will terminate if those parties cease to hold, in the aggregate, (i)
more than 50% of our shares or, (ii)&nbsp;if we offer additional shares to the
public, shares which constitute at least that percentage of our shares which
they held immediately following such offering.
</FONT>
<P align="left"><FONT size="2"><B>The Supplemental Agreement</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the sale of shares in Partner beneficially owned by Matav-Cable
System Media Ltd. to Hutchison Telecommunications (Amsterdam) B.V. on April&nbsp;24,
2002, a Supplemental Agreement entered into between Matbit Telecommunication
Systems Ltd., Matav Investments Ltd., Elbit.COM Ltd., Advent Investments Pte
Ltd., Hutchison Telecommunications (Amsterdam) B.V., and Matav-Cable Systems
Media Ltd. took effect.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the Supplemental Agreement, Matav Investments Ltd. undertook
that it will not, and that it will use its best efforts to procure that none of
its affiliates will, take any action or allow any event to occur, which would
cause us to become obliged, under the applicable rules of the Bank of Israel restricting loans to related
parties, to repay amounts to, or alter the terms of any existing or subsequent
credit facility with, any bank on terms substantially different from those
applicable to other banks participating in such facility or on terms which
would not apply were it not for the application of such rules. Matav-Cable
Systems Media Ltd. guaranteed the performance of Matav Investments Ltd.&#146;s
obligations set forth in the Supplemental Agreement or arising in connection
with the Supplemental Agreement.
</FONT>
<P align="center"><FONT size="2">Page 132
</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If Matav Investments Ltd., in breach of its undertaking, causes us to
become obliged as mentioned above under the rules of the Bank of Israel, our
Board of Directors, excluding the representatives of Matav Investments Ltd.,
may require Matav Investments Ltd. to sell the amount of shares that our Board
of Directors determines must be sold, at a price per share equal to 82.5% of
the Market Price, as determined in the Relationship Agreement, in accordance
with the provisions of the Relationship Agreement, in addition to, or as an
alternative, to take such other actions as our Board of Directors and Matav
Investments Ltd. agree will remedy the breach.
</FONT>
<P align="left"><FONT size="2"><B>Transactions with affiliates</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently operate under an unwritten arrangement with Eurocom
Communications Ltd., one of our principal shareholders, pursuant to which
Eurocom sells our services or distributes handsets in connection with their
sale of Nokia handsets in twelve outlets. Eurocom receives a commission for the
activation of each handset that it sells to customers as one of our
distributors and for the logistical support related to the supply of handsets.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also purchase a portion of our Nokia handsets from Eurocom. In the year
ended December&nbsp;31, 2002, purchases from Eurocom constituted approximately 28%
of all of our handset purchases.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our distribution arrangement and handset purchases from
Eurocom are on commercial, arms-length terms.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, we have agreements with Eurocom Cellular Communication Ltd.,
a subsidiary of Eurocom Communications Ltd., according to which Eurocom will
provide us with various content and interactive games and the right to use
certain intellectual property.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have an agreement with Cellact Ltd., a subsidiary of Elbit Ltd.,
according to which Cellact is directly connected to our SMS server so that
Cellact may send large amounts of SMSs to our subscribers and vice-versa.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have signed an agreement with NonStop Internet 1999 Limited, or
NonStop, a subsidiary of Matav-Cable Systems Media Ltd., one of our
shareholders. This agreement is part of a series of similar agreements with
other providers of content and services, and is in the ordinary course of
business. The agreement will not have a significant financial impact on us. In
June 2001, NonStop assigned all of its rights and obligations under this
agreement to Matav. In December 2001, we agreed with Matav to terminate the
agreement, which termination was effective on February&nbsp;26, 2002.
</FONT>
<P align="center"><FONT size="2">Page 133
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have a strong relationship and are working with Hutchison Whampoa
Limited, one of our principal shareholders, in connection with the development
of products and services for UMTS third generation mobile communications.
Hutchison is a global leader in UMTS third generation technology and, in
particular the deployment and development of third generation cellular networks
and products and services worldwide.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 2002, we signed a Cost-Sharing Agreement, or the CSA, with
Hutchison Telecommunications Limited, or HTL, and certain of its subsidiaries
for the joint acquisition and development of information technology platforms
and software solutions, hardware, content and other services, in connection
with the UMTS third generation business.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The CSA allows us to participate in acquisition and development projects
with other UMTS third generation companies within the Hutchison Whampoa Limited
group, and to benefit from the combined purchasing power and resources of the
group which includes companies in Austria, Australia, Denmark, Hong Kong,
Ireland, Italy, Sweden and the United Kingdom.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, we had given notice of our participation in four
joint contracts. We expect that our share in these contracts in financial terms
(including our share of joint expenses and liabilities) is not material.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that the CSA gives us an advantage unavailable to our
competitors. The CSA gives us an opportunity to maximize economies of scale and
operational efficiencies for development and procurement activities associated
with our 3G business. See Note 14(c) to our consolidated financial statement.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For more information, see &#147;Item&nbsp;3D. Risk Factors&#151;Risks and uncertainties
in connection with UMTS third generation technology mean that we may not make
an economic return on investment in acquiring UMTS third generation spectrum,
establishing a UMTS third generation network, or developing UMTS third
generation services&#148;.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2002, we signed an Interconnect Agreement with Matav-Cable
Systems Media Ltd. See &#147;Item&nbsp;4B. Business Overview&#151;Interconnection&#148;.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain of our directors, who are also controlling persons of our
principal shareholders, are also, indirectly, part of the controlling group of
shareholders of Bank Hapoalim B.M., which is a participating bank in our credit
facility. For a description of our credit facility, see &#147;Item&nbsp;5B. Operating and
Financial Review and Prospects&#151;Liquidity and Capital Resources.&#148;
</FONT>
<P align="center"><FONT size="2">Page 134
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2"><B>Foreign mobile radio telephone operator undertaking</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our license requires a foreign mobile radio telephone operator to
undertake to make available to us, if we request it, all know-how in its
possession required to establish and operate a mobile radio telephone system
for the provision of mobile radio telephone communications services, their
marketing and sale. By virtue of Advent&#146;s parent corporation being the
controlling corporation of Hutchison Telephone Company Limited, this operator
currently provides this undertaking, under which the know-how is to be provided
to us, if requested, at market prices and on arms-length terms. If Advent&#146;s
parent ceases to be the controlling corporation of Hutchison Telephone Company
Limited, Advent&#146;s parent corporation will arrange an appropriate alternative
foreign mobile radio telephone operator to provide the required undertaking.
</FONT>
<P align="left"><FONT size="2"><B>Registration rights</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into a registration rights agreement with our principal
shareholders in which we granted our principal shareholders the right to
require us to register ordinary shares held by them under the Securities Act.
We have agreed that, upon request from any of our principal shareholders, which
request could not have been made until October&nbsp;26, 2000, we will file a
registration statement under the Securities Act to register ordinary shares
held by them, subject to a maximum of one request in any 6-month period. There
is no limit to the number of registrations that can be requested under the
agreement. The minimum amount of shares that must be included in any
registration requested under this agreement is 2.65% of our outstanding shares.
We have also granted each of the principal shareholders the right to include
their ordinary shares in any registration statement covering offerings of
ordinary shares by us. The registration rights agreement will terminate with
respect to each holder upon the earlier of October&nbsp;26, 2009 and such time as
the holder can sell its ordinary shares into the United States public market
pursuant to an exemption from the registration requirements of the Securities
Act without regard to holding period, volume or manner-of-sale limitations.
</FONT>
<P align="left"><FONT size="2"><B>7C. Interests of Experts and Counsel</B>
</FONT>
<P align="left"><FONT size="2">Not applicable.
</FONT>
<P align="center"><FONT size="2">Page 135
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<!-- link2 "ITEM 8. FINANCIAL INFORMATION" -->
<DIV align="left"><A NAME="009"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 8. FINANCIAL INFORMATION</B>
</FONT>

<P align="left"><FONT size="2"><B>8A. Consolidated financial statements and other financial information</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Audited financial statements for the three fiscal years ended December&nbsp;31,
2002 are included under &#147;Item&nbsp;18. Financial Statements.&#148;
</FONT>
<P align="left"><FONT size="2"><B>Legal and arbitration proceedings</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the legal proceedings discussed below, we are party to a
number of legal and administrative proceedings arising in the ordinary course
of our business. We do not expect the outcome of such matters in the aggregate
to have a material adverse effect upon our business and financial condition,
results of operations and cash flows.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have experienced difficulties in obtaining building permits from local
authorities for the erection of antennas, particularly before the signing of
the agreement in principle with the Union of Local Authorities in Israel. As a
result, we, like other mobile telephone operators in Israel, have erected
antenna sites without the issuance of a building permit from the relevant local
or regional authority. Currently, approximately 50% of our antenna sites are
operating without local building permits. In addition, approximately 36% of the
sites (base transceiver stations and microbase transceiver stations) are
operating without permits from the Ministry of the Environment, although all
third party environmental testing necessary for those permits has been
successfully completed. Moreover, a small percentage of antenna sites are
operating without permits from the Civil Aviation Authority and the Israeli
Defense Forces. Applications have been submitted to the relevant local or
regional authority and are at various stages of the approval process for
approximately 20% of our antenna sites, and the application process has not
been commenced for approximately 30% of our sites. We believe that a
portion of the
sites for which the application process has not been commenced do not require
building permits under the Planning and Building Law. The erection of an
antenna site without a required local building permit is a violation of the
Planning and Building Law and, in some cases, has resulted in a demolition
order being imposed on us and in the filing of criminal charges and civil
proceedings by Israeli municipalities against us and our officers and
directors.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, 235 criminal proceedings have been brought
against us concerning the erection of antenna sites without building permits.
127 of those proceedings have also been brought against our officers and
directors. 22 of those proceedings have been brought against us regarding
failure to comply with demolition orders, of which five have been brought
against our
</FONT>
<P align="center"><FONT size="2">Page 136
</FONT>
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<P align="left"><FONT size="2">officers and directors and 19 have been settled. We are currently negotiating
with the relevant local authority to reach a settlement regarding the
relocation of affected sites or obtaining building permits for those sites. 199
of the criminal proceedings brought against us have been settled, with Partner,
but not our directors or officers, admitting guilt and paying a fine, ranging
from NIS 200 to NIS 48,000 per offense. The total amount of fines paid as of
December&nbsp;31, 2002, is approximately NIS 1.8&nbsp;million, with NIS 0.5&nbsp;million of
that paid during 2000, NIS 0.3&nbsp;million of that paid during 2001 and NIS 0.3
million of that paid during 2002. These settlements also resulted in the
imposition of demolition orders for the relevant sites, the execution of which
have been stayed for a period of time to allow us to obtain the necessary
permits or to relocate the relevant antenna site. 108 of the criminal
proceedings involving our officers and directors have been settled with no
admission of guilt by any of the officers and directors. In addition, currently
68 administrative demolition order proceedings have been brought against us. Of
these, 65 have been settled with the imposition of demolition orders, the
execution of which has been stayed for a period of several months to allow us
to obtain the necessary permits or to relocate the relevant antenna.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There can be no assurance that we will continue to be successful in
settling legal proceedings brought against us and our officers and directors or
that we will not be faced with demolition orders and criminal charges,
including against our officers and directors. See &#147;Item&nbsp;3D. Key Information&#151;Risk Factors&#151;We have had difficulties
obtaining some of the permits for which we have applied and have not yet
applied for other permits that are required for the erection of our antenna
sites. These difficulties could continue and therefore affect our ability to
erect or maintain antenna sites. This could have an adverse effect on the
extent, quality and capacity of our network coverage which could prevent us
from achieving or maintaining the network coverage and quality requirements
contained in our license and adversely affect our business.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;28, 1999, a lawsuit was filed by &#147;Consumer Hotline,&#148; an Israeli
consumer organization, in the Haifa District Court alleging a variety of
consumer complaints against us and requesting recognition as a class action
lawsuit. On March&nbsp;20, 2002, the Haifa District Court decided to strike the
claim because on December&nbsp;31, 2001, Consumer Hotline lost the special status
required under Israeli law for consumer organizations to file class action
law-suits.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Another claim, involving a substantial amount, which was filed by a
private consumer who had previously asked to join the above class action, may
be brought again before the court. The court had previously frozen the
proceedings of the private consumer&#146;s claim, until a decision is made in the
case filed by the consumer organization. On June&nbsp;20, 2002, legal counsel
representing the consumer organization informed the company of his intention to
resume these proceedings. At this stage, the Company and its legal counsel are
unable to evaluate the probability of success of the claims, if and
</FONT>
<P align="center"><FONT size="2">Page 137
</FONT>
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<P align="left"><FONT size="2">when re-opened, and therefore no provision has been made. See note 8(b)1 to our
audited financial statements.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;8, 2001 a claim was filed against us for alleged violation of a
supplier&#146;s exclusivity agreement. For filing purposes, the claim was set at NIS
18&nbsp;million; however, this amount can be increased by the claimant. Since
preliminary proceedings between the parties have yet to take place, and the
claim concerns a contract interpretation issue, the Company and its legal
counsel are unable to evaluate the probability of success of this litigation,
and therefore no provision has been made. See Note 8b(2) to our consolidated
financial statements.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;31, 2001, a claim was filed against us and other Israeli
telecommunication companies, together with a request to approve this claim as a
class action. The claim is for air time charged in respect of calls which were
terminated due to causes other than the termination of the call by the parties
thereto. The amount of the claim against us is estimated at approximately NIS
21&nbsp;million. On January 2003, a mutually-agreed motion to strike out the claim
against the Company was granted by the court. See Note 8b(3) to our
consolidated financial statements.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;20, 2002, we received a demand from one of our former
distributors, mainly for an alleged violation of his distribution agreement and
understanding. The amount of the demand against us is set at NIS 130&nbsp;million
for filing purposes, although the claimant states that his damages far exceed
the above amount. As of December&nbsp;31, 2002, this demand has not been filed by
way of a legal claim. At this stage, the Company and its legal counsel are
unable to evaluate the probability of success of such a demand if filed by way
of legal claim, and the amount it claims, therefore no provision has been made.
See Note 8b(4) to our consolidated financial statements.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;8, 2002, a claim was filed against us, alleging a variety of
consumer complaints and requesting recognition as a class action. The amount of
the claim against us is estimated at approximately NIS 545&nbsp;million plus
additional significant amounts related to other alleged damages. At this stage,
no hearings have taken place and until the claim is certified as a class
action, the Company and its legal counsel are unable to evaluate the
probability of success of such claim, and therefore no provision has been made.
In addition, the Company and its legal counsel are of the opinion that even if
the request to approve this claim as a class action is granted, and even if the
plaintiff&#146;s arguments are accepted, the outcome of the claim will be
significantly lower than the amount mentioned above.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;21, 2002, a claim was filed against the Company and other Israeli
telecommunication companies together with a request to approve this claim as a
class action. According to the
</FONT>
<P align="center"><FONT size="2">Page 138
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<P align="left"><FONT size="2">applicants, the defendants have entered into agreements with commercial
entities that offer the public various content services via calls to cellular
telephone numbers. The applicants allege that, in fact, the calls are not
carried out through a wireless but via a fixed line, an act that is in
violation of the law and the license. Accordingly, the applicants claim that
the defendants must refund the public all the amounts that were charged in
connection with these content services agreements. The applicants do not know
the amount of the class action, but estimate it at NIS 600&nbsp;million. At this
stage, no hearings have taken place, and until the claim is certified as a
class action, the Company and its legal counsel are unable to evaluate the
probability of success of such claim and therefore no provision has been made.
In addition, the Company and its legal counsel are of the opinion that in light
of the facts known at this early stage, the amount mentioned above of the claim
is excessive. See Note 8b(6) to our consolidated financial statements.
</FONT>
<P align="left"><FONT size="2"><B>Dividend distribution policy</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have never paid cash dividends to our shareholders, and we currently do
not anticipate paying dividends for the foreseeable future. We expect that all
available cash from operations, together with borrowings under our credit
facility and a portion of the proceeds from our initial public offering and our
August 2000 offering of 13% senior subordinated notes due 2010, will be used to
meet our projected capital and other expenditure requirements and to settle or
refinance our projected liabilities as they fall due. In addition, the terms of
our credit facility restrict the amount of dividends we may pay to our
shareholders and the timing of dividend payments.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event we declare dividends in the future, we will pay those
dividends in shekels. Under current Israeli regulations, any dividends or other
distributions paid in respect of ordinary shares may be freely repatriated in
non-Israeli currencies at the rate of exchange prevailing at the time of
conversion, provided that Israeli income tax has been paid on or withheld from
such dividends. Because exchange rates between the shekel and the US dollar
fluctuate continuously, a holder of ADSs will be subject to currency
fluctuation generally and, particularly, between the date when dividends are
declared and the date dividends are paid.
</FONT>
<P align="left"><FONT size="2"><B>8B. Significant changes</B>
</FONT>
<P align="left"><FONT size="2">No significant change has occurred since the date of our financial statements.
</FONT>
<P align="center"><FONT size="2">Page 139
</FONT>
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<!-- link2 "ITEM 9. THE OFFER AND LISTING" -->
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<P align="left"><FONT size="2"><B>ITEM 9. THE OFFER AND LISTING</B>
</FONT>

<P align="left"><FONT size="2"><B>9A. Offer and Listing Details</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our capital consists of ordinary shares, which are traded on the Tel
Aviv Stock Exchange under the symbol &#147;PTNR&#148;. American Depositary Shares, or
ADSs, each representing one of the Company&#146;s ordinary shares are quoted on the
Nasdaq National Market under the symbol &#147;PTNR&#148; and are traded on the London
Stock Exchange under the symbol &#147;PCCD&#148;. The ADSs are evidenced by American
Depositary Receipts, or ADRs, issued by JPMorgan Chase, as Depositary under a
Deposit Agreement, dated as of November&nbsp;1, 1999, among the Company, JPMorgan
Chase and registered holders from time to time of ADRs. ADSs were first issued
in October 1999.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The table below sets forth, for the periods indicated, the reported
high and low closing quotations, based on the Daily Official List of the London
Stock Exchange, information supplied by the National Association of Securities
Dealers, Inc., and information supplied by the Tel Aviv Stock Exchange.
</FONT>
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    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Exchange**</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Nasdaq</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>London Stock Exchange</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>(NIS per</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>($ per ADS)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>($ per ADS)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>ordinary share)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">

<TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>High</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Low</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>High</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Low</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>High</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Low</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="26"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B><I>Year Ended December 31,</I></B></FONT></DIV></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>1999*</B></FONT></DIV></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fourth Quarter (from October&nbsp;27)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25.88</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.88</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.93</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>2000</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">First Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.83</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Second Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.81</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Third Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fourth Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.63</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.75</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>2001</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">37.85</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.73</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">First Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Second Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.63</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Third Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.89</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.95</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">37.85</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.73</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fourth Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.85</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.95</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18.90</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>2002</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33.92</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">First Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.70</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.70</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33.92</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Second Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.93</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">24.04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Third Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.77</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.86</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.68</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.88</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22.53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18.51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fourth Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21.67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">Page 140
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
'
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">*</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Because our ADSs were first issued on October&nbsp;26, 1999, the high and
low closing quotations for 1999 are the same as those for the Fourth
Quarter.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">**</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Our ordinary shares began trading on the Tel Aviv Stock Exchange on
July&nbsp;3, 2001.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><B>Previous Six Months</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Tel Aviv Stock</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Exchange**</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Nasdaq</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>London Stock Exchange</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>(NIS per</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>($ per ADS)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>($ per ADS)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>ordinary share)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>High</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Low</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>High</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Low</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>High</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Low</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">September 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.96</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.62</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21.85</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">October 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.92</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.88</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21.67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18.52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">November 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.87</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.92</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.63</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18.40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">December 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.95</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">January 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.91</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16.47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.72</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">February 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.97</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.56</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.98</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.68</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2"><B>9B. Plan of Distribution</B>
</FONT>
<P align="left"><FONT size="2">Not applicable.
</FONT>
<P align="left"><FONT size="2"><B>9C. Markets</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ADSs are quoted on the Nasdaq National Market under the symbol
&#147;PTNR&#148; and are traded on the London Stock Exchange under the symbol &#147;PCCD&#148;. Our
ordinary shares are traded on the Tel Aviv Stock Exchange under the symbol
&#147;PTNR&#148;.
</FONT>
<P align="left"><FONT size="2"><B>9D. Selling Shareholders</B>
</FONT>
<P align="left"><FONT size="2">Not applicable.
</FONT>
<P align="left"><FONT size="2"><B>9E. Dilution</B>
</FONT>
<P align="left"><FONT size="2">Not applicable.
</FONT>
<P align="center"><FONT size="2">Page 141
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="left"><FONT size="2"><B>9F. Expenses of the Issue</B>
</FONT>
<P align="left"><FONT size="2">Not applicable.
</FONT>
<P align="center"><FONT size="2">Page 142
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link2 "ITEM 10. ADDITIONAL INFORMATION" -->
<DIV align="left"><A NAME="011"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 10. ADDITIONAL INFORMATION</B>
</FONT>

<P align="left"><FONT size="2"><B>10A. Share Capital</B>
</FONT>
<P align="left"><FONT size="2">Not applicable.
</FONT>
<P align="left"><FONT size="2"><B>10B. Memorandum and Articles of Association</B>
</FONT>
<P align="left"><FONT size="2"><B>Purposes and objects of the company</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a public company registered under the Israeli Companies Law as
Partner Communications Company Ltd., registration number 52-004431-4.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to our memorandum of association, we were formed for the
purpose of participating in the auction for the granting of license to operate
mobile radio telephone services in Israel, to provide such services, and without
derogating from the above, we are also empowered to hold any right, obligation
or legal action and to operate in any business or matter approved by the
Company.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to section three of our articles of association, our purpose
is to operate in accordance with business considerations to generate profits;
provided, however, that the Board of Directors is entitled to donate reasonable
amounts to worthy causes, even if such donation is not within the frame of these
business considerations.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to section four of our articles of association, our objective
is to engage in any legal business.
</FONT>
<P align="left"><FONT size="2"><B>The powers of the directors</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The power of our directors to vote on a proposal, arrangement or
contract in which the director is materially interested is limited by the
relevant provisions of the Companies Law. In addition, the power of our
directors to vote compensation to themselves or any members of their body,
requires the approval of the audit committee and the shareholders at a general
meeting. See &#147;Item&nbsp;6C. Board Practices&#151;Approval of Related Party Transactions.&#148;
</FONT>
<P align="left"><FONT size="2"><B>Rights attached to shares</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our registered share capital consists of a single class of 235&nbsp;million
ordinary shares, par value NIS 0.01 per share, of which 181,595,222 ordinary
shares were issued and outstanding as of
</FONT>
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<P align="left"><FONT size="2">December&nbsp;31, 2002. All outstanding ordinary shares are validly issued, fully
paid and non-assessable. The rights attached to the ordinary shares are as
follows:
</FONT>
<P align="left"><FONT size="2"><B>Dividend rights</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders of ordinary shares are entitled to the full amount of any cash
or share dividend subsequently declared. The Board of Directors may propose a
dividend with respect to any fiscal year only out of profits, in accordance with
the provisions of the Companies Law. Declaration of a dividend requires approval
by an ordinary shareholders&#146; resolution, which may decrease but not increase the
amount proposed by the board of directors. See &#147;Item&nbsp;10E. Additional
Information&#151;Taxation.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dormant shares retain the rights to receive dividends or other
distributions to shareholders, and to participate in rights offerings, but no
other rights.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;One year after a dividend has been declared and is still unclaimed, the
board of directors is entitled to invest or utilize the unclaimed amount of
dividend in any manner to the benefit of the Company until it is claimed. We are
not be obligated to pay interest or linkage on an unclaimed dividend.
</FONT>
<P align="left"><FONT size="2"><B>Voting rights</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders of ordinary shares have one vote for each ordinary share held
on all matters submitted to a vote of shareholders. Such voting rights may be
affected by the grant of any special voting rights to the holders of a class of
shares with preferential rights that may be authorized in the future. The quorum
required for an ordinary meeting of shareholders consists of at least two
shareholders present in person or by proxy who hold or represent, in the
aggregate, at least one third of the voting rights of the issued share capital.
In the event that a quorum is not present within thirty minutes of the scheduled
time, the shareholders&#146; meeting will be adjourned to the same day of the
following week, or the next business day thereafter, at the same time and place,
or such time and place as the Board of Directors may determine. If at such
reconvened meeting a quorum is not present at the time appointed for holding the
meeting, one or more shareholders present in person or by proxy holding or
representing in the aggregate at least 10% of the voting rights in us will
constitute a quorum.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any shareholder seeking to vote at a general meeting of our
shareholders must first notify us if any of the shareholder&#146;s holdings in us
requires the consent of the Minister of Communications. The instructions of a
shareholder will not be valid unless accompanied by a certification by the
shareholder as to whether or not the shareholder&#146;s holdings in us or the
shareholder&#146;s vote requires the consent of
</FONT>
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<P align="left"><FONT size="2">the Ministry of Communications due to a breach by the shareholder of the
restrictions on transfer or acquisition of means of control, or provisions
regarding cross-ownership with other mobile telephone operators or shareholdings
or agreements which may reduce or harm competition. If the shareholder does not
provide such certification, his instructions will be invalid and his vote not
counted.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An ordinary resolution, such as a resolution for the election of
directors, the declaration of dividends or the appointment of auditors, requires
approval by the holders of a majority of the voting rights represented at the
meeting, in person or by proxy, and voting thereon. Under our articles of
association, resolutions such as a resolution amending the Memorandum or
Articles of Association or approving any change in capitalization, liquidation,
changes in the objectives of the company, or the name of the company, or other
changes as specified in our articles of association, requires approval of a
special majority, representing the holders of no less than 75% of the voting
rights represented at the meeting, in person or by proxy, and voting thereon.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under our articles of association our directors are elected by an
ordinary majority of the shareholders at each duly convened annual meeting, and
they serve until the next annual meeting, provided that external directors shall
be elected in accordance with applicable law and/or relevant stock exchange
rules applicable to us. In each annual meeting the directors that were elected
at the previous annual meeting are deemed to have resigned from their office,
excluding an external director, who according to the Companies Law, is elected
for a period of three years. A resigning director may be reelected. Each
Ordinary Share represents one vote. No director may be elected or removed on the
basis of a vote by dormant shares. The ordinary share do not have cumulative
voting rights in the election of directors.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Directors may be appointed also in certain circumstances by an
extraordinary general meeting and by the Board of Directors upon approval of 75%
of the directors. Such director, excluding an external director, shall serve for
a term ending at the next annual general meeting.
</FONT>
<P align="left"><FONT size="2"><B>Rights in the company&#146;s profits</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our shareholders have the rights to share in our profits distributed as
a dividend and any other permitted distribution. See &#147;Item&nbsp;10B. Rights Attached
to Shares&#151;Dividend Rights.&#148;
</FONT>
<P align="left"><FONT size="2"><B>Rights in the event of liquidation</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of our ordinary shares confer equal rights among them with respect
to amounts distributed to shareholders in case of liquidation.
</FONT>
<P align="center"><FONT size="2">Page 145
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<P align="left"><FONT size="2"><B>Limitations on ownership and control</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ownership and control of our ordinary shares are limited by the terms
of our license and our articles of association. See &#147;Item&nbsp;4B. Information on the
Company&#151;Business Overview&#151;Our License&#151;License Conditions.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to comply with the conditions and restrictions imposed on us
by the Ministry of Communications or under our License in relation to ownership
or control over us, under certain events specified in our articles of
association, the Board of Directors may determine that certain Ordinary Shares
are dormant shares, as defined in the Companies Law. According to our articles
of association, dormant shares bear no rights as long as they are dormant
shares, except the right to receive dividends and other distributions to
shareholders.
</FONT>
<P align="left"><FONT size="2"><B>Changing rights attached to shares</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to our articles of association, in order to change the rights
attached to any class of shares, the general meeting of the shareholders must
adopt a resolution to change such rights by a special majority, representing at
least 75% of the votes of shareholders participating and voting in the general
meeting, and in case of changing the rights attached to certain class of shares,
the approval by special majority of each class meeting, is required.
</FONT>
<P align="left"><FONT size="2"><B>Annual and extraordinary meetings</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors must convene an annual meeting of shareholders
at least once every calendar year, within fifteen months of the last annual
meeting. Notice of at least twenty-one days prior to the date of the meeting is
required. An extraordinary meeting may be convened by the board of directors, as
it decides or upon a demand of any two directors or 25% of the directors,
whichever is lower, or of one or more shareholders holding in the aggregate at
least 4.99% of our issued capital. An extraordinary meeting must be held not
more than thirty-five days from the publication date of the announcement of the
meeting. See &#147;Item&nbsp;10B. Rights Attached to Shares&#151;Voting Rights.&#148;
</FONT>

<P align="left"><FONT size="2"><B>Limitations on the rights to own
securities in us</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For limitations on the rights to own securities in us see &#147;Item&nbsp;4B.
Information on the Company&#151;Business Overview&#151;Our License&#151;License Conditions,&#148;
&#147;&#151;Our Permit Regarding Cross Ownership&#148; and &#147;Item&nbsp;10B. Rights Attached to
Shares&#151;Limitations on ownership and control.&#148;
</FONT>
<P align="center"><FONT size="2">Page 146
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<P align="left"><FONT size="2"><B>Limitations on change in control and disclosure duties</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For limitations on change in control, see &#147;Item&nbsp;4B. Information on the
Company&#151;Business Overview&#151;Our License&#151;License Conditions,&#148; &#147;Item&nbsp;4B.
Information on the Company&#151;Business Overview&#151;Our License&#151;Our Permit Regarding
Cross Ownership&#148; and &#147;Item&nbsp;10B. Rights Attached to Shares&#151;Limitations on
ownership and control.&#148;
</FONT>
<P align="left"><FONT size="2"><B>Changes in our capital</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes in our capital are subject to the approval of the shareholders
at a general meeting by a special majority of 75% of the votes of shareholders
participating and voting in the general meeting.
</FONT>
<P align="left"><FONT size="2"><B>10C. Material Contracts</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are not a party to any material contracts other than those entered
into in the ordinary course of business.
</FONT>
<P align="left"><FONT size="2"><B>10D. Exchange Controls</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no Israeli government laws, decrees or regulations that
restrict or that affect our export or import of capital or the remittance of
dividends, interest or other payments to non-resident holders of our securities,
including the availability of cash and cash equivalents for use by us and our
wholly owned subsidiary, Partner Future Communications 2000 Ltd., except or
otherwise as set forth under &#147;Item&nbsp;10E. Additional Information&#151;Taxation.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Israeli law (and our Memorandum and Articles of Association),
persons who are neither residents nor nationals of Israel may freely hold, vote
and transfer ordinary shares in the same manner as Israeli residents or
nationals.
</FONT>
<P align="center"><FONT size="2">Page 147
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<P align="left"><FONT size="2"><B>10E. Taxation</B>
</FONT>

<P align="left"><FONT size="2"><B>Israeli taxation</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary of the current tax laws of the State of
Israel as they relate to us and to our shareholders and also includes a
discussion of the material Israeli tax consequences for persons purchasing our
ordinary shares or ADSs, both referred to below as the &#147;Shares&#148;. To the extent
that the discussion is based on legislation yet to be subject to judicial or
administrative interpretation, there can be no assurance that the views
expressed herein will accord with any such interpretation in the future. This
discussion is not intended and should not be construed as legal or professional
tax advice and does not cover all possible tax considerations.
</FONT>
<P align="left"><FONT size="2"><B><I>Israeli Tax Reform</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;24, 2002, the Israeli Knesset enacted income tax reform
legislation, commonly referred to as the &#147;Tax Reform&#148;. The Tax Reform has
introduced fundamental and comprehensive changes into Israeli tax laws. Most of
the legislative changes took effect on January&nbsp;1, 2003. The Tax Reform has
introduced a transition from a primarily territorial-based tax system to a
personal-based system of taxation with respect to Israeli residents. The Tax
Reform has also resulted in significant amendment of the international taxation
provisions, and new provisions concerning the taxation of capital markets
including the abolishment of currently &#147;exempt investment routes&#148; (e.g., capital
gains generated by individuals from the sale of securities traded on the
Tel-Aviv Stock Exchange). Various issues related to the Tax Reform remain
unclear in view of the legislative language utilized and the lack of
authoritative interpretations at this stage. The analysis below is therefore
based on our current understanding of the new legislation.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It should be noted that under the Tax Reform legislation the Shares are no
longer regarded and defined as &#147;foreign traded securities&#148; and thus certain
associated Israeli tax aspects will accordingly be subject to change as
discussed below.
</FONT>
<P align="left"><FONT size="2"><B><I>General corporate tax structure</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The regular rate of corporate tax in Israel is 36%.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our taxable income is determined under the Income Tax (Inflationary
Adjustment) Law 1985, or the &#147;Inflationary Adjustments Law&#148;, which attempts to
overcome some of the problems presented to a traditional tax system by rapid
inflation. Generally, the Inflationary Adjustments Law provides tax
</FONT>
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<P align="left"><FONT size="2">deductions and adjustments to depreciation deductions and tax loss carry
forwards to mitigate the effects resulting from an inflationary economy.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Israeli Income Tax Ordinance and regulations promulgated there
under allow Foreign-Invested Companies, to adjust their tax returns based on
exchange rate fluctuations of the shekel against the US Dollar rather than
changes in the Israeli Consumer Price Index or &#147;CPI&#148;, in lieu of the principles
set forth by the Inflationary Adjustments Law. For these purposes, a
Foreign-Invested Company is a company in which more than 25% of the share
capital in terms of rights to distributions, voting and appointment of
directors, and of the combined share capital, including shareholder loans and
capital notes, is held by persons who are not residents of Israel. A company
that elects to measure its results for tax purposes based on the US Dollar
exchange rate cannot change that election for a period of three years following
the election. We adjust our tax returns based on the changes in the Israeli CPI.
Because we qualify as a Foreign-Invested Company, we are entitled to elect
measurement of our results for tax purposes on the basis of changes in the
exchange rate of the US Dollar in future tax years.
</FONT>

<P align="left"><FONT size="2"><B><I>Tax on capital gains of
shareholders</I></B>
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">GENERAL. Israeli law imposes a capital gains tax on the sale of capital
assets by an Israeli resident and on the sale of capital assets located in
Israel or the sale of direct or indirect rights to assets located in
Israel, including on the sale of our Shares by some of our shareholders
(see discussion below). The Israeli Tax Ordinance distinguishes between
&#147;Real Gain&#148; and &#147;Inflationary Surplus&#148;. Real Gain is the excess of the
total capital gain over Inflationary Surplus computed on the basis of the
increase in the Israeli CPI between the date of purchase and the date of
sale. The Real Gain accrued at the sale of an asset purchased on or after
January&nbsp;1, 2003 is taxed at a 25% rate, both for individuals and for
corporations, as opposed to the previous 36% rate applicable to
corporations, and to the marginal tax rate of up to 50% applicable to
individuals with respect to sale transactions effected prior to January&nbsp;1,
2003.</FONT></TD>
</TR>
</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Real Gains derived from the disposal after January&nbsp;1, 2003 of an asset
purchased prior to this date will be subject to capital gains tax at a
blended rate. The previous capital gains tax rate (36% for a
corporation and a marginal tax rate of up to 50% for individuals) will
be applied to the gain amount which bears the same ratio to the total
gain realized as the ratio which the holding period commencing at the
acquisition date and terminating on January&nbsp;1, 2003 bears to the total
holding period. The remainder of the gain realized will be subject to
capital gains tax at a 25% rate.</FONT></TD>
</TR>

</TABLE>
<P align="center"><FONT size="2">Page 149
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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Inflationary Surplus is exempt from tax.</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Upon the sale of an asset subject to capital gains tax, a tax advance
of 25% of the capital gain is payable within 30&nbsp;days of the
transaction. The Assessing Officer may accept the actual amount of tax
payable, if this is lower, provided that a detailed return including a
computation of the tax due is filed within that period. Capital gains
are also reportable on annual income tax returns.</FONT></TD>
</TR>

</TABLE>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">TAXATION OF ISRAELI RESIDENTS&#151;SHAREHOLDERS SUBJECT TO THE INFLATIONARY
ADJUSTMENTS LAW. The Inflationary Adjustments Law includes provisions
concerning taxation on gains from the sale of traded securities. These
provisions apply to most corporate shareholders and to certain individuals.
There is some uncertainty as to whether those provisions also apply to
foreign corporations that hold our shares because non-resident companies
are not expressly exempt from them. A shareholder who is subject to the
Inflationary Adjustments Law will be taxed, upon the sale of his or her
Shares, on the full amount of its gain at the tax rate applicable to that
shareholder (36% for a corporation and a marginal tax rate of up to 50% for
individuals). It should be noted that the Tax Reform has not altered
significantly the legal situation concerning this aspect of Israeli
taxation.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">TAXATION OF ISRAELI RESIDENTS&#151;OTHER SHAREHOLDERS. In July 2001 our
ordinary shares were listed for trading on the Tel Aviv Stock Exchange. As
a result of our dual listing and due to the Tax Reform (inclusion of new
provisions concerning the taxation of capital markets) and that since our
ordinary shares are no longer considered &#147;foreign traded securities&#148;, the
tax treatment of our shareholders under Israeli law has changed.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>
<TR valign="top">
    <TD colspan="2"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary of the most significant Israeli capital
gains tax implications arising with respect to the sale of our Shares
by shareholders who are not engaged in the business of trading
securities or who are not subject to the Inflationary Adjustments Law.
As demonstrated below, the timing of that the shareholder&#146;s purchase of
the shares will determine the tax outcomes in this regard.</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD colspan="2"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our analysis is based partially on guidelines published by the Israeli
Tax Authorities prior to enactment of the Tax Reform concerning the tax
treatment of securities traded in the Tel Aviv Stock Exchange and on
foreign stock exchanges. Accordingly, the analysis may change should
new legislation or amended guidelines be published in the future.</FONT></TD>
</TR>

</TABLE>
<P align="left"><FONT size="2"><I>Sale of shares purchased after
January 1, 2003</I>
</FONT>

<P align="center"><FONT size="2">Page 150
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The shareholder will be subject to tax at 15% rate on realized real
capital gain. To the extent that the shareholder claims a deduction of financing
expenses, the gain will be subject to tax at a rate of 25%.
</FONT>

<P align="left"><FONT size="2"><I>Sale of shares purchased after the listing on the Tel Aviv Stock Exchange and
before January 1, 2003</I>
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The shareholder will be subject to tax on the gain derived commencing
January&nbsp;1, 2003 at a rate of 15%. The cost value of the shares for the
purpose of the gain computation, will be based on the average price of
the shares during the last three trading days preceding January&nbsp;1, 2003
or the original cost of the shares, whichever is the higher. To the
extent that the taxpayer claims a deduction of financing expenses, the
gain will be subject to tax at a rate of 25%.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The remainder of the gain realized (i.e., the real gain attributed to
the period from the purchase date until January&nbsp;1, 2003) will be exempt
from Israeli tax.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><I>Sale of shares purchased prior to
the listing on the Tel Aviv Stock Exchange</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A shareholder who elected to recognize a tax event at the listing date
on the Tel Aviv Stock Exchange or rescinded an election to defer the
tax event.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If a shareholder elected to recognize a tax event on the date of the
listing of our Shares on the Tel Aviv Stock Exchange, or rescinded an election
to defer the tax event until the date of actual sale of the shares on the Tel
Aviv Stock Exchange, the profit realized will be allocated among three separate
components: (i)&nbsp;profit or loss determined as of the date of listing on the Tel
Aviv Stock Exchange; (ii)&nbsp;profit or loss accrued from the date of listing the
shares on the Tel Aviv Stock Exchange until January&nbsp;1, 2003 and (iii)&nbsp;Gain (or
loss) accrued from January&nbsp;1, 2003 until the actual sale of the shares.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Regarding profits determined as of the listing date, the shareholder
generally will be taxed at a rate of 35% for an individual shareholder or 36%
for a corporate shareholder. If such shareholder elected to defer payment of the
tax on the date of listing, the shareholder will be required to pay interest and
linkage to the Israeli CPI on the tax amount from the date of listing.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Profits accrued from the date of listing of the shares on the Tel Aviv
Stock Exchange until January&nbsp;1, 2003 are generally exempt from capital gains
tax.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capital gain accrued from January&nbsp;1, 2003 until the actual sale of the
shares will be subject to tax at a rate of 15%. The cost basis of the shares for
the purpose of the gain computation, will be
</FONT>
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<P align="left"><FONT size="2">based on the average price of the shares during the last three trading days
preceding January&nbsp;1, 2003 or the value at the listing date, whichever is higher.
To the extent that the taxpayer claims a deduction of financing expenses, the
gain will be subject to tax at a rate of 25%.
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A shareholder who elected to defer the tax event until the actual sale
of the shares</FONT></TD>
</TR>

</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If a shareholder elected to defer the tax event until the date of the
actual sale of the securities and has notified the tax authorities of the
election, the shareholder will generally be taxed at a rate of 35% for an
individual shareholder or 36% for a corporate shareholder on all gains realized
from the sale of the securities.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under certain interpretations of the law, reduced tax rates may apply
with respect to the gain accrued as from January&nbsp;1, 2003 until the actual sale
of the shares.
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">TAXATION OF NON-ISRAELI RESIDENTS. As mentioned above, Israeli law
generally imposes a capital gains tax on sales of capital assets, including
securities and any other direct or indirect rights to capital assets
located in Israel. This tax is also applicable to non-residents of Israel
as follows:</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Foreign investors (individuals and corporations) that are not engaged
in the business of trading securities through a permanent establishment
in Israel and are not subject to the Inflationary Adjustments Law, who
purchased the shares after the listing on the Tel Aviv Stock Exchange
will be exempt from tax on capital gains derived from the sale of the
Shares.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Foreign investors (individuals and corporations) that are not engaged
in the business of trading securities and are not subject to the
Inflationary Adjustments Law, who purchased Shares before the listing
on the Tel Aviv Stock Exchange or will be subject to similar capital
gain tax treatment as Israeli residents. The tax applicable to foreign
individual investors will be determined in accordance with the marginal
tax rates of up to 50% and not in accordance to the preferential 35%
tax rate applicable to Israeli individual investors. However, foreign
investors may be exempt under the terms of an applicable bilateral
double taxation treaty.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">TAXATION OF INVESTORS ENGAGED IN A BUSINESS OF TRADING SECURITIES</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Individual and corporate dealers in securities in Israel are taxed at tax
rates applicable to business income.
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">WITHHOLDING AT SOURCE FROM CAPITAL GAINS FROM TRADED SECURITIES. Under the
Tax Reform, Israeli stockbrokers have a duty to withhold tax upon the sale
of traded securities. The applicable withholding tax rate is 15% from the
real gain. As an interim measure for 2003, the stockbroker</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page 152
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">will withhold tax on the consideration received upon the sale at the rate
of 0.5% until June&nbsp;30, 2003 and at the rate of 1% from July&nbsp;1, 2003 until
December&nbsp;31, 2003.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><B><I>Dividends</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently do not intend to pay dividends in the foreseeable future.
However, the following Israeli tax consequences would apply in the event of
actual payment of any dividends on ordinary shares or ADSs.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The distribution of dividend income, other than bonus shares (stock
dividends), to Israeli residents who purchased our Shares will generally be
subject to income tax at a rate of 25% for individuals and will be exempt from
income tax for corporations.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-residents of Israel (both individuals and corporations) are subject
to income tax on income accrued or derived from sources in Israel, including
dividends from Israeli corporations. The distribution of dividend income, other
than bonus shares (stock dividends), to non-residents of Israel will generally
be subject to income tax at a rate of 25% by way of a tax withholding, unless a
lower rate is stipulated by a treaty between Israel and the shareholder&#146;s
country of residence.
</FONT>
<P align="left"><FONT size="2"><B>Taxation of residents of the United States under the US Treaty</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Residents of the United States will generally be subject to withholding
tax in Israel on dividends paid, if any, on Shares (including ADS). Generally,
under the Convention Between the Government of the United States of America and
the Government of the State of Israel with Respect to Taxes on Income, or the US
Treaty, the maximum rate of withholding tax on dividends paid to a holder of
Shares (including ADS) who is a resident of the United States (as defined in the
US Treaty) will be 25%.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The US Treaty exempts from taxation in Israel any capital gain realized
on the sale, exchange or other disposition of Shares (including ADS) by a holder
that (a)&nbsp;is a resident of the United States for purposes of the US Treaty, and
(b)&nbsp;owns directly or indirectly, less than 10% of our voting stock at all times
during the 12-month period preceding such sale, exchange or other disposition.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchasers of Shares (including ADS), who are residents of the United
States and who hold 10% or more of the outstanding ordinary shares at any time
during such 12-month period will be subject to Israeli capital gains tax.
However, under the US treaty, residents of the United States (as defined in the
US Treaty) generally would be permitted to claim a credit for this tax against
US federal
</FONT>
<P align="center"><FONT size="2">Page 153
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2">income tax imposed on the sale, exchange or other disposition, subject to the
limitations in US laws applicable to the utilization of the foreign tax credits
generally.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The application of the US Treaty provisions to dividends and capital
gains described above is conditioned upon the fact that such income is not
effectively connected with a permanent establishment (as defined in the US
Treaty) maintained by the non-Israeli resident in Israel.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A non-resident of Israel that has dividend income derived from or
accrued in Israel, from which tax was withheld at the source, is generally
exempt from the duty to file tax returns in Israel in respect of such income,
provided such income was not connected to or derived from a trade or business
conducted in Israel by the tax payer.
</FONT>
<P align="left"><FONT size="2"><B><I>Repatriation</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-residents of Israel who acquire any of the Shares (including ADSs)
of the Company will be able to repatriate dividends, liquidation distributions
and the proceeds from the sale of such ADSs or ordinary shares, in non-Israeli
currencies at the rate of exchange prevailing at the time of repatriation
provided that any applicable Israel income tax has been paid, or withheld, on
such amounts. US holders should refer to the &#147;United States Federal Income
Taxation &#151; Dividends&#148; section below with respect to the US federal tax treatment
of foreign currency gain or loss.
</FONT>
<P align="left"><FONT size="2"><B><I>United States federal income
taxation</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following discussion is a summary of the material US federal income
tax considerations applicable to a US holder (as defined below) regarding the
acquisition, ownership and disposition of ordinary shares or ADSs. This summary
is based on provisions of the Internal Revenue Code of 1986, as amended (the
&#147;Code&#148;), existing and proposed US Treasury regulations, administrative
pronouncements, rulings and judicial decisions in effect as of the date of this
Annual Report. All of these authorities are subject to change, possibly with
retroactive effect, and to change or changes in interpretation. In addition,
this summary does not discuss all aspects of US federal income taxation that may
be applicable to investors in light of their particular circumstances or to
investors who are subject to special treatment under US federal income tax law,
including US expatriates, insurance companies, securities broker-dealers,
financial institutions, tax-exempt organizations, persons holding ordinary
shares or ADSs as part of a straddle, hedging or conversion transaction, persons
subject to the alternative minimum tax, persons who acquired their ordinary
shares or ADSs, pursuant to the exercise of employee stock options or otherwise
as compensation, persons having a functional
</FONT>
<P align="center"><FONT size="2">Page 154
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2">currency other than the US dollar, persons owning (directly, indirectly or by
attribution) 10% or more of our outstanding share capital, and persons not
holding the ordinary shares or ADSs as capital assets.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As used herein, the term &#147;US holder&#148; means a beneficial holder of an
ordinary share or an ADS who is:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">an individual citizen or resident of the United States for US federal
income tax purposes,</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">a corporation or certain other entity created or organized in or under the
laws of the United States or any political subdivision thereof (including
the District of Columbia),</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">an estate whose income is subject to US federal income taxation regardless
of its source, or</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">a trust if (A)&nbsp;a US court is able to exercise primary supervision over the
trust&#146;s administration and (B)&nbsp;one or more United States persons have the
authority to control all of the trust&#146;s substantial decisions.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If a partnership holds ordinary shares or ADSs, the tax treatment of a
partner generally will depend upon the status of the partner and the activities
of the partnership. If a US holder is a partner in a partnership that holds
ordinary shares or ADSs, the holder is urged to consult its own tax advisor
regarding the specific tax consequences of owning and disposing of ordinary
shares or ADSs.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For US federal income tax purposes, US holders of ADRs will be treated
as owners of the ADSs evidenced by the ADRs and the ordinary shares represented
by the ADSs. The statements of US federal income tax laws set forth assume that
each obligation in the Deposit Agreement and any related agreement will be
performed in accordance with its terms.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Holders of ordinary shares or ADSs should consult their own tax
advisors concerning the specific Israeli, US Federal, state and local tax
consequences of the ownership and disposition of the ordinary shares or ADSs in
light of their particular situations as well as any consequences arising under
the laws of any other taxing jurisdiction. In particular, US holders are urged
to consult their own tax advisors concerning whether they will be treated as
residents of the United States, and therefore be eligible for benefits, under
the US Treaty.</B>
</FONT>
<P align="left"><FONT size="2"><B><I>Dividends</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently do not intend to pay dividends for the foreseeable future.
However, in the event we make any distributions of cash or other property to a
US holder of ordinary shares or ADSs, the US holder generally will be required
to include in gross income as ordinary dividend income the
</FONT>
<P align="center"><FONT size="2">Page 155
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2">amount of any distributions paid on the ordinary shares and ADSs, including the
amount of any Israeli taxes withheld in respect of such dividend, to the extent
that such distributions are paid out of our current or accumulated earnings and
profits as determined for US federal income tax purposes. Distributions in
excess of our earnings and profits will be applied against and will reduce the
US holder&#146;s tax basis in its ordinary shares or ADSs and, to the extent in
excess of such tax basis, will be treated as gain from a sale or exchange of
such ordinary shares or ADSs. Dividends paid by us will not qualify for the
dividends-received deduction applicable in certain cases to US corporations.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amount of any distribution paid in NIS, including the amount of any
Israeli withholding tax thereon, will be included in the gross income of a US
holder of ordinary shares in an amount equal to the US dollar value of the NIS
calculated by reference to the spot rate of exchange in effect on the date the
distribution is received by the US holder or, in the case of ADSs, by the
Depositary. If a US holder converts dividends paid in NIS into US dollars on the
day such dividends are received, the US holder generally should not be required
to recognize foreign currency gain or loss with respect to such conversion. If
the NIS received in the distribution is not converted into US dollars on the
date of receipt, any foreign currency gain or loss recognized upon a subsequent
conversion or other disposition of the NIS will be treated as US source ordinary
income or loss.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any dividends paid by us to a US holder on the ordinary shares or ADSs
will be treated as foreign source income and will be categorized as &#147;passive
income&#148; or, in the case of certain holders, &#147;financial services income&#148; for US
foreign tax credit purposes. Subject to the limitations in the Code, as modified
by the US Treaty, a US holder may elect to claim a foreign tax credit against
its US federal income tax liability for Israeli income tax withheld from
dividends received in respect of ordinary shares or ADSs. The US Treasury has
expressed concerns that parties to whom ADSs are released may be taking actions
that are inconsistent with the claiming of foreign tax credit for US holders of
ADSs. Accordingly, the discussion above regarding the creditability of the
Israeli withholding tax on dividends could be affected by future actions that
may be taken by the US Treasury. The rules relating to the determination of the
foreign tax credit are complex. Accordingly, if you are a US holder of ordinary
shares or ADSs, you should consult your own tax advisor to determine whether and
to what extent you would be entitled to the credit. US holders who do not elect
to claim foreign tax credit may instead claim a deduction for Israeli income tax
withheld, but only for a year in which the US holder elects to do so with
respect to all foreign income taxes. A deduction does not reduce US tax on a
dollar-for-dollar basis like a tax credit. The deduction, however, is not
subject to the limitations applicable to foreign tax credits.
</FONT>
<P align="center"><FONT size="2">Page 156
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2"><B><I>Sale or other disposition</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the sale or other disposition of ordinary shares or ADSs, a US
holder generally will recognize capital gain or loss equal to the difference
between the US dollar value of the amount realized on the disposition and the
holder&#146;s adjusted tax basis, determined in US dollars, in the ordinary shares or
ADSs. Any gain or loss recognized upon the disposition of the ordinary shares or
ADSs will be treated as long-term capital gain or loss if, at the time of the
disposition, the holding period of the ordinary shares or ADSs exceeds one year.
In the case of individual US holders, capital gains generally are subject to US
federal income tax at preferential rates if specified minimum holding periods
are met. The deductibility of capital losses by a US holder is subject to
significant limitations.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In general, gain or loss recognized by a US holder on the sale or other
disposition of ordinary shares or ADSs will be US source income or loss for US
foreign tax credit purposes. Pursuant to the US Treaty, however, gain from the
sale or other disposition of ordinary shares or ADSs by a holder who is a US
resident, for US Treaty purposes, and who sells the ordinary shares or ADSs
within Israel may be treated as foreign source income for US foreign tax credit
purposes.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If a US holder receives NIS upon the sale of ordinary shares, that US
holder may recognize ordinary income or loss as a result of currency
fluctuations between the date of the sale of the ordinary shares and the date
the sales proceeds are converted into US dollars, as described above in
connection with the receipt of dividends.
</FONT>
<P align="left"><FONT size="2"><B><I>Information reporting and backup withholding</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividend payments with respect to ordinary shares or ADSs and proceeds
from the sale or other disposition of ordinary shares or ADSs may be subject to
information reporting to the Internal Revenue Service (&#147;IRS&#148;) and possible US
backup withholding at a current rate of 30%. Backup withholding will not apply,
however, to a holder who furnishes a correct taxpayer identification number or
certificate of foreign status and makes any other required certification or who
is otherwise exempt from backup withholding. US persons who are required to
establish their exempt status generally must provide IRS Form&nbsp;W-9 (Request for
Taxpayer Identification Number and Certification). Non-US holders generally will
not be subject to US information reporting or backup withholding. However, such
holders may be required to provide certification of non-US status (generally on
IRS Form&nbsp;W-8BEN) in connection with payments received in the United States or
through certain US-related financial intermediaries.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Backup withholding is not an additional tax. Amounts withheld as backup
withholding may be credited against a holder&#146;s US federal income tax liability,
and a holder may obtain a refund of any
</FONT>
<P align="center"><FONT size="2">Page 157
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P align="left"><FONT size="2">excess amounts withheld by filing the appropriate claim for refund with the IRS
and furnishing any required information.
</FONT>
<P align="left"><FONT size="2"><B>10F. Dividends and Paying Agents</B>
</FONT>

<P align="left"><FONT size="2">Not applicable.
</FONT>
<P align="left"><FONT size="2"><B>10G. Statement By Experts</B>
</FONT>

<P align="left"><FONT size="2">Not applicable.
</FONT>
<P align="left"><FONT size="2"><B>10H. Documents on Display</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reports and other information of Partner filed electronically with the
U.S. Securities and Exchange Commission may be found at www.sec.gov. They can
also be inspected without charge and copied at prescribed rates at the public
reference facilities maintained by the SEC in Room&nbsp;1024, 450 Fifth Avenue, N.W.,
Washington, D.C. 20549 and, as long as our notes are listed on the Luxembourg
Stock Exchange, at the office of the paying agent in Luxembourg. Copies of this
material are also available by mail from the Public Reference Section of the
SEC, at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
</FONT>
<P align="left"><FONT size="2"><B>10I. Subsidiary Information</B>
</FONT>

<P align="left"><FONT size="2">Not applicable.
</FONT>
<P align="center"><FONT size="2">Page 158
</FONT>
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<!-- link2 "ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK" -->
<DIV align="left"><A NAME="012"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B>
</FONT>

<P align="left"><FONT size="2"><B>General</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are exposed to market risk, including movements in foreign currency
exchange rates. Where appropriate, we enter into derivative transactions to
hedge underlying exposure to interest rates and foreign currencies. As a matter
of policy we do not enter into transactions of a speculative or trading nature.
Interest rate and foreign exchange exposures are monitored by tracking actual
and projected commitments and through the use of sensitivity analysis.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have borrowings in US dollars, shekels linked to the Israeli CPI and
unlinked shekels. The following table provides information derived from the
financial statements about these borrowings.
</FONT>
<P align="center"><FONT size="2"><B>Non-derivative instruments</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Book
value(1) (NIS equivalent in</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>millions,
except percentages)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>US Dollar Borrowings</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long term&#151;subordinated notes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">829</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed interest rate payable on our senior subordinated notes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>NIS Linked to the Israeli CPI</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term&#151;fixed</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">629</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted average interest rate payable on fixed rate debt</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.6</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Unlinked NIS</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term&#151;floating</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,839</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted average interest rate payable on floating rate debt</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.0</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,297</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Book value approximates fair value at December&nbsp;31, 2002.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">Expected Maturity Dates:
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our credit facility is divided into three tranches: A multi-currency
term loan facility of $410&nbsp;million (&#147;Facility A&#148;), a revolving multi-currency
loan facility of $150&nbsp;million (&#147;Facility B&#148;) and a fixed-term shekel loan
facility of $150&nbsp;million (&#147;Facility C&#148;).
</FONT>
<P align="center"><FONT size="2">Page 159
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="left"><FONT size="2">The total commitments under the Facilities will be reduced during each of the
following years to the following amounts:*
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>Dollars
in millions</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>A</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>B</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>C</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">December&nbsp;31, 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">410</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">710</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">685</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2004</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">356</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">656</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2005</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">266</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">557</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2006</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">172</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">114</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">436</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2007</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">62</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">84</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2008</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">72</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">72</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">June&nbsp;30, 2009</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;10, 2000, the Company completed an offering of $175&nbsp;million
of unsecured senior subordinated notes due 2010, which have been issued at their
dollar par value. The notes bear interest at the rate of 13% per annum, which is
payable semi-annually on each February&nbsp;15 and August&nbsp;15, commencing February&nbsp;15,
2001. The Company may redeem up to 35% of the aggregate principal amount of the
notes at any time prior to August&nbsp;15, 2003, provided that immediately after
giving effect to any such redemption, at least 65% of the aggregate principal
amount of the notes remains outstanding.
</FONT>
<P align="left"><FONT size="2"><B>Foreign exchange</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of our revenues and a majority of our operating
expenses are denominated in shekels. However, through December&nbsp;31, 2002, a
material amount of our operating expenses were linked to non-shekel currencies.
These expenses related mainly to the acquisition of handsets where the price
paid by us is based on various foreign currencies. In addition, a substantial
majority of our capital expenditures are incurred in, or linked to, non-shekel
currencies, and our notes are denominated in US dollars and require US dollar
interest payments. Thus, any devaluation of the shekel against the dollar (or
other foreign currencies), will increase the shekel cost of our non-shekel
denominated or linked expenses. Such an increase may have an adverse impact on
our results, which may be material. We hedge some of our foreign currency
commitments, but we do not currently hedge the principal payable on our notes.
</FONT>
<P align="center"><FONT size="2">Page 160
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are exposed from time to time to movements in foreign currency
exchange rates on short-term liabilities to suppliers, denominated in US dollars
or euros. Our hedging strategy is to neutralize and mitigate our currency
exposures by entering into hedging transactions which convert into shekels the
liabilities not denominated in shekels.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We enter into foreign currency forward transactions and purchases and
write foreign currency options in order to protect ourselves against the risk
that the eventual dollar cash flows resulting from the existing assets and
liabilities will be affected by changes in exchange rates. The writing of such
options is part of a comprehensive hedging strategy and is designed to
effectively swap the currencies relating to existing assets and liabilities.
Each of the options written is combined with purchase of an option for the same
period and the same notional amount. We do not hold or issue derivative
financial instruments for trading purposes.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The transactions are mainly designated to hedge the cash flows related
to payments of dollar interest on notes payable as well as those related to
anticipated payments in respect of purchases of handsets and capital
expenditures in foreign currency. However, these contracts do not qualify for
hedge accounting under FAS 133.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The notional amount does not necessarily represent amounts exchanged by
the parties and, therefore, is not a direct measure of our exposure.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table provides information derived from the financial
statements about our outstanding foreign exchange instruments.
</FONT>
<P align="center"><FONT size="2"><B>Derivative instruments</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="67%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>As of</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Fair
value at</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>December 31,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Maturing</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>in 2003</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="11"><FONT size="1"><B>(NIS equivalent
in millions)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Currency options purchased&#151;for the exchange of:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dollars into NIS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Currency options written&#151;for the exchange of:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dollars into NIS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Forward transactions&#151;for the exchange of:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dollars into NIS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">264</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">264</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Euros into NIS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Embedded derivatives&#151;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dollars into NIS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">Page 161
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link2 "ITEM 12. &#096; DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES" -->
<DIV align="left"><A NAME="013"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES</B>
</FONT>

<P align="left"><FONT size="2">Not applicable.
</FONT>
<!-- link2 "ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES" -->
<DIV align="left"><A NAME="014"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES</B>
</FONT>

<P align="left"><FONT size="2">None.
</FONT>
<!-- link2 "ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND<BR> USE OF PROCEEDS" -->
<DIV align="left"><A NAME="015"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND<BR>
USE OF PROCEEDS</B>
</FONT>

<P align="left"><FONT size="2">None.
</FONT>
<!-- link2 "ITEM 15. CONTROLS AND PROCEDURES" -->
<DIV align="left"><A NAME="016"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 15. CONTROLS AND PROCEDURES</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Chief Executive Officer and our Chief Financial Officer, after
evaluating the effectiveness of our disclosure controls and procedures (as
defined in US Exchange Act rule 13a-14(c)) within 90&nbsp;days of the date of this
Form&nbsp;20-F, have concluded that, as of such date, our disclosure controls and
procedures were effective to ensure that material information relating to us was
made known to them by others within the Company particularly during the period
in which this Form&nbsp;20-F was being prepared.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date
our Chief Executive Officer and our Chief Financial Officer completed their
evaluation, nor were there any significant deficiencies or material weaknesses
in our internal controls requiring corrective actions.
</FONT>
<!-- link2 "ITEM 16. &#091;RESERVED&#093;" -->
<DIV align="left"><A NAME="017"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 16. &#091;RESERVED&#093;</B>
</FONT>

<!-- link2 "ITEM 17. FINANCIAL STATEMENTS" -->
<DIV align="left"><A NAME="018"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 17. FINANCIAL STATEMENTS</B>
</FONT>

<P align="left"><FONT size="2">The company has responded to &#147;Item&nbsp;18. Financial Statements&#148; in lieu of
responding to this item.
</FONT>
<P align="center"><FONT size="2">Page 162
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link2 "ITEM 18. FINANCIAL STATEMENTS" -->
<DIV align="left"><A NAME="019"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 18. FINANCIAL STATEMENTS</B>
</FONT>

<P align="left"><FONT size="2">The following financial statements are filed as part of this annual report.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="87%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Page</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>

</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Report of Independent Auditors</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">F-1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Financial Statements:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Balance sheets at December&nbsp;31, 2001 and 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">F-2&#150;F-3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Statements of operations for the years ended December&nbsp;31, 2000, 2001 and 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">F-4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Statements of changes in shareholders&#146; equity (capital deficiency) for the years ended December&nbsp;31,
2000, 2001 and 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">F-5&#150;F-6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Statements of cash flows for the years ended December&nbsp;31, 2000, 2001 and 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">F-7&#150;F-8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Notes to financial statements</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">F-9&#150;F-45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">Page 163
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link2 "ITEM 19. EXHIBITS" -->
<DIV align="left"><A NAME="020"></A></DIV>
<P align="left"><FONT size="2"><B>ITEM 19. EXHIBITS</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="12%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="1"><B>Exhibit</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="1"><B>Number</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Description</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">1.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Partner&#146;s Articles of Association</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">*1.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Partner&#146;s Certificate of Incorporation</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">*1.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Partner&#146;s Memorandum of Association</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**2.(a).1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Form of Share Certificate</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**2.(a).2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Form of Deposit Agreement including Form of ADR Certificate</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">*2.(b)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Form of Indenture between Partner and The Bank of New York, as trustee, including form of note</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Relationship Agreement dated October&nbsp;10, 1999</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
License from the Israeli Ministry of Communications issued April&nbsp;8, 1998</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Bank Facility dated August&nbsp;13, 1998</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
License Agreement for use of the Orange Brand in Israel dated September&nbsp;14, 1998</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Brand Support/Technology Transfer Agreement dated July&nbsp;18, 1999</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Agreement with Ericsson Radio Systems AB dated May&nbsp;28, 1998</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">#4.(a).7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Agreement with LM Ericsson Israel Ltd. dated November&nbsp;25, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">#***4.(a).8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Dealer Agreement with SuperPharm dated February&nbsp;11, 2001</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Lease Agreement with Mivnei Taasia dated July&nbsp;2, 1998</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Interconnect Agreement with Cellcom dated February&nbsp;15, 1999</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Interconnect Agreement with Pelephone dated May&nbsp;1, 1999</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">*4.(a).12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending and Rescheduling Agreement dated July&nbsp;9, 2000</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">4.(a).13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Supplemental Agreement dated April&nbsp;18, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment to Relationship Agreement dated April&nbsp;23, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">***4.(a).15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;1 to License from the Israeli Ministry of Communications issued May&nbsp;11, 1999</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">***4.(a).16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;2 to License from the Israeli Ministry of Communications issued September&nbsp;29, 1999</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">***4.(a).17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;3 to License from the Israeli Ministry of Communications issued October&nbsp;3, 1999</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">***4.(a).18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;4 to License from the Israeli Ministry of Communications issued June&nbsp;28, 2000</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">***4.(a).19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;5 to License from the Israeli Ministry of Communications issued September&nbsp;10, 2000</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">***4.(a).20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;6 to License from the Israeli Ministry of Communications issued March&nbsp;19, 2001</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;7 to License from the Israeli Ministry of Communications issued September&nbsp;23, 2001</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;8 to License from the Israeli Ministry of Communications issued December&nbsp;27, 2001</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;9 to License from the Israeli Ministry of Communications issued March&nbsp;13, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;10 to License from the Israeli Ministry of Communications issued April&nbsp;14, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;11 to License from the Israeli Ministry of Communications issued April&nbsp;25, 2002</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">Page 164
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="12%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="1"><B>Exhibit</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="1"><B>Number</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Description</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">4.(a).27</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;12 to License from the Israeli Ministry of Communications issued June&nbsp;26, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">4.(a).28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;13 to License from the Israeli Ministry of Communications issued June&nbsp;30, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">4.(a).29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;14 to License from the Israeli Ministry of Communications issued September&nbsp;11, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">4.(a).30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;15 to License from the Israeli Ministry of Communications issued October&nbsp;24, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">4.(a).31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;16 to License from the Israeli Ministry of Communications issued November&nbsp;26, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">4.(a).32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;17 to License from the Israeli Ministry of Communications issued February&nbsp;2, 2003</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement dated January&nbsp;8, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement dated January&nbsp;30, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement dated February&nbsp;6, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).36</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement dated February&nbsp;28, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement dated March&nbsp;14, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement dated March&nbsp;24, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement of April 2002</FONT></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement dated April&nbsp;24, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">4.(a).41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement dated December&nbsp;31, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">6.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
See Note 1q to our financial statements for information explaining
how earnings (loss)  per share information was calculated.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">8.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
List of Subsidiaries</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">10.(a).1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Consent of Kesselman &#038; Kesselman</FONT></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">10.(a).2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002</FONT></TD>
</TR>

</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">*</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Incorporated by reference to our registration statement on Form&nbsp;F-1 (No.
333-12340).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">**</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Incorporated by reference to our registration statement on Form&nbsp;F-1 (No.
333-10992).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">***</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Incorporated by reference to our annual report on Form&nbsp;20-F for the fiscal
year ended December&nbsp;31, 2000.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#043;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Incorporated by reference to our
annual report on Form&nbsp;20-F for the fiscal
year ended December&nbsp;31, 2001.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">#</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Confidential treatment requested.</FONT></TD>
</TR>

</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Confidential material has been redacted and has been separately filed
with the Securities and Exchange Commission.
</FONT>
<P align="center"><FONT size="2">Page 165
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B>Glossary of Selected<BR>
Telecommunications Terms</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following explanations are not intended as technical definitions,
but to assist the reader to understand certain terms as used in this annual
report.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="65%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">AMPS</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Advanced Mobile Phone System; the analogue
cellular telephone technology adopted in the
United States. Also N-AMPS (Narrowband AMPS), a
more frequency-efficient variant of AMPS.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Analog Technology</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
A technology in which some property of an
electrical signal is varied proportionally to
the input signal being transmitted, stored or
processed.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Base Transceiver Station
(&#147;BTS&#148;)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Fixed transmitter/receiver equipment in each
cell of a mobile telecommunications network
that communicates by radio with all mobile
telephones in that cell.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Base Station Controller (&#147;BSC&#148;)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Monitors and controls one or more base stations
in order to exchange messages, handover mobile
units from cell to cell and perform other
system administrative tasks.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Blocked call</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Where a mobile phone call fails because no
channels are available in the cell in which the
user is located.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">CDMA</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Code Division Multiple Access; a method by
which many users sharing the same radio channel
can be distinguished by unique code numbers.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Cell</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
In a cellular telephone system, the coverage
area of a single base transceiver station or
one sector therein.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Channel</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
A frequency or time slot in a
telecommunications system over which distinct
messages can be conveyed.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Churn</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
The number of customers who are disconnected
from a network, either involuntarily, due to
payment delinquency or suspected fraudulent
use, or voluntarily, as customers switch to
competing networks, relocate outside the
network&#146;s service area, or cease using mobile
telephones permanently or temporarily.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Closed User Group</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
A group of users with a special mutual
relationship (such as working for the same
company or department within a company).</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">D-AMPS</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Digital Advanced Mobile Phone System; a digital
cellular system first implemented in the United
States and intended initially to permit gradual
upgrading of AMPS networks.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Digital Technology</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
A technology in which a signal is converted to
a stream of numbers which are in turn stored,
processed or transmitted in a binary (on-off)
manner.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Dropped call</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
When a mobile phone call is involuntarily
terminated.</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">Page 166
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="65%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">Dual band handsets</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Handsets that operate on two bands, for
example, GSM 900 and GSM 1800.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">GPRS</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
General Packet Radio Services (GPRS)&nbsp;is a
packet-based wireless communication service
that enables data rates from 56 up to 114 Kbps
and continuous connection to the Internet for
mobile phone and computer users. GPRS is based
on Global System for Mobile (GSM)&nbsp;communication.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">GSM</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
The Global System for Mobile Communications, a
comprehensive digital standard for the
operation of all elements of a cellular
telephone system. GSM originated in Europe, but
is now the most popular digital mobile
telephone standard worldwide.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">GSM 900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
GSM operation in the 900 MHz frequency band;
the original frequency band allocated to GSM,
later extended by 10 MHz (EGSM).</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">GSM 1800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
GSM operation in the 1800 MHz frequency band;
formerly known as DCS 1800 or PCN, first
allocated for the expansion of mobile network
competition in Europe, now used for the same
purpose in many other areas.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">GSM 1900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
GSM operation in the 1900 MHz band; primarily
used in North and South America</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">GSM Association</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Formerly known as the GSM Memorandum of
Understanding Association (GSM MoU), an
organization of operators, government
administrations, and equipment and service
suppliers that promotes the development and
promulgation of the GSM standard and relations
between GSM operators.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">HSCSD</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
High Speed Circuit Switched Data is an
infrastructure development which enables the
transmission of data at higher speeds than the
9600 Bps speed previously available on GSM
networks.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Intelligent Network (&#147;IN&#148;)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Network architecture that centralizes the
processing of calls and billing information of
calls.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Microcells</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
A base transceiver station of limited range and
capacity intended to serve a relatively small
area, such as a building or mall.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Mobile Switching Center
(&#147;MSC&#148;)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
A large, computer-based device used to connect
calls within a mobile network and as the
interface of the cellular network to other
networks.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">PLMN</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
A Public Land Mobile Network, or a mobile
telephone network which is available for use by
the public.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">PSTN</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
A Public Switched Telephone Network, or the
fixed (landline)&nbsp;telephone network.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Roaming</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
The mobile telephone feature that permits
subscribers of one network to use their mobile
telephones and telephone numbers when in
another operator&#146;s network.</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">Page 167
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="65%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">SIM roaming</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
The use of a GSM customer&#146;s SIM in a different
handset while roaming in a network that
operates on a frequency band or system
incompatible with the subscriber&#146;s own GSM
handset.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">SMS</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Short message service, a service which enables
mobile telephone users to send and receive
written messages on their handsets.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Subscriber Identity Module</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
SIM or SIM Card; a small card or chip provided
to each GSM network subscriber that is inserted
into a GSM handset. The SIM is a computer
processor that uniquely identifies a GSM
network subscription and stores the
subscriber&#146;s personal phone book, sent and
received text messages, network security codes
and other programs that enable addition network
features.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Switch</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Element of a telephone network which connects
telephone calls to and from one user or another
on the same or other networks.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">TDMA</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Time Division Multiple Access; a method by
which many users can share a single digit radio
channel by dividing it into a number of
repeating part-time channels to which each user
has access in turn.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">UMTS</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Universal Mobile Telecommunications System, the
&#147;third generation&#148; of mobile telecommunications
standard also referred to as 3G.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Virtual Private Network (&#147;VPN&#148;)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
A private network provided by means of the
facilities of a public telephone network but
which operates by logic as a closed user group
thereby providing the convenience of a private
network with the economy of scale of a public
network.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">WAP</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Wireless Application Protocol, a language
specifically developed for mobile telephones
that facilitates internet usage.</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">Page 168
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B>REPORT OF INDEPENDENT AUDITORS</B>
</FONT>

<P align="left"><FONT size="2">To the Shareholders of
</FONT>
<P align="left"><FONT size="2"><B>Partner Communications Company Ltd.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have audited the consolidated balance sheets of Partner
Communications Company Ltd. and its subsidiary (collectively &#147;the Company&#148;) as
of December&nbsp;31, 2001 and 2002 and the related consolidated statements of
operations, changes in shareholders&#146; equity (capital deficiency) and cash flows
for each of the three years in the period ended December&nbsp;31, 2002. These
financial statements are the responsibility of the Company&#146;s Board of Directors
and management. Our responsibility is to express an opinion on these financial
statements based on our audits.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conducted our audits in accordance with auditing standards generally
accepted in Israel and in the United States, including those prescribed by the
Israeli Auditors (Mode of Performance) Regulations, 1973. Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether 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 management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our opinion, the consolidated financial statements referred to
above, present fairly, in all material respects, the consolidated financial
position of the Company as of December&nbsp;31, 2001 and 2002 and the consolidated
results of operations, changes in shareholders&#146; equity (capital deficiency) and
cash flows for each of the three years in the period ended December&nbsp;31, 2002, in
conformity with accounting principles generally accepted in the United States.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
/s/ Kesselman &#038; Kesselman</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><HR size="1" noshade></TD>
</TR>




<TR valign="bottom">
    <TD valign="top"><FONT size="2">Tel-Aviv, Israel</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Kesselman &#038; Kesselman</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">March&nbsp;13, 2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Certified Public Accountants (Israel)</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">&nbsp;</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>

<P align="center"><FONT size="2">Kesselman &#038; Kesselman is a
member of PricewaterhouseCoopers International Limited,<BR>
a company limited by guarantee registered in England and Wales.</FONT>

<P align="center"><FONT size="2">&nbsp;</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>

<P align="center"><FONT size="2">Page F-1
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B>PARTNER COMMUNICATIONS COMPANY LTD.<BR>
(An Israeli Corporation)<BR>
CONSOLIDATED BALANCE SHEETS</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="61%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into U.S. $</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>New Israeli Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>(note 1a)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>In thousands</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">

<TD colspan="4" align="center"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>A
s s e t s</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>CURRENT ASSETS:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,272</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,360</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Security deposit (note 6)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">107,794</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22,756</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts receivable (note 13):</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Trade</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">458,434</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">518,768</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">109,514</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42,930</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50,986</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,763</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Inventories</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">124,512</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">137,508</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,028</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">T o t a l &nbsp;current assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">631,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">816,416</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">172,348</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>INVESTMENTS AND LONG-TERM RECEIVABLES:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Non-marketable securities (note 2)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,244</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,530</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">745</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Security deposit (note 6)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100,869</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts receivable&#151;trade (note 13)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,696</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Funds in respect of employee rights upon retirement (note 7)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,160</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42,461</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,964</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">140,969</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">45,991</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,709</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>FIXED ASSETS</B>, net of accumulated depreciation and
amortization (note 3)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,749,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,864,511</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">393,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">

<TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>LICENSE AND DEFERRED CHARGES</B>,
net of accumulated amortization (note 4)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,112,959</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,269,348</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">267,965</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">T o t a l &nbsp;assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,634,128</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,996,266</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">843,628</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="center"><FONT size="2">/s/ Amikam Cohen</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
/s/ Alan Gelman
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">/s/ Avraham Bigger</FONT></TD>
</TR>
<TR>
    <TD valign="top"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<HR size="1" noshade>
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="center"><FONT size="2">Amikam Cohen<BR>
Chief Executive Officer</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
Alan Gelman<BR>
Chief Financial Officer
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">Avraham Bigger<BR>
Director</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">Page F-2
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="61%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into U.S. $</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>New Israeli Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>(Note 1a)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>In thousands</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
<TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Liabilities,
Net of Capital Deficiency</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
<TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Current Liabilities:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current maturities of long-term bank loans (note 5)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">483,897</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts payable and accruals:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Trade</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">524,642</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">532,987</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">112,516</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other (note 13)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">186,165</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">202,166</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42,678</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">T o t a l &nbsp;current liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,194,704</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">735,153</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">155,194</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Long-Term Liabilities:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Bank loans, net of current maturities (note 5)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,818,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,467,556</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">520,911</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Notes payable (note 6)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">772,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">828,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">175,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Liability for employee rights upon retirement (note 7)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42,334</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">60,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,870</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">T o t a l &nbsp;long-term liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,633,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,357,497</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">708,781</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Commitments and Contingent Liabilities (note 8)</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">T o t a l &nbsp;liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,827,904</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,092,650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">863,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Capital Deficiency (note 9):</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>

<TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Share
capital - ordinary shares of NIS 0.01 par
value: authorized - December&nbsp;31, 2001
200,000,000 shares and December&nbsp;31, 2002 -
235,000,000 shares; issued and outstanding -
December&nbsp;31, 2001 - 178,924,585 shares and
December&nbsp;31, 2002 - 181,595,222 shares</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,789</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,816</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">383</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capital surplus</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,298,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,293,270</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">484,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred compensation</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(24,362</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,385</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,348</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accumulated deficit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,469,283</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,385,085</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(503,501</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">T o t a l &nbsp;capital deficiency</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(193,776</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(96,384</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(20,347</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,634,128</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,996,266</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">843,628</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2"><B>The accompanying notes are an integral part of the financial statements.</B></FONT>
<P align="center"><FONT size="2">Page F-3
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B>PARTNER COMMUNICATIONS COMPANY LTD.<BR>
(An Israeli Corporation)<BR>
CONSOLIDATED STATEMENTS OF OPERATIONS</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="54%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>Year Ended December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into U.S. $</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>New Israeli Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>(Note 1a)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>In Thousands (Except Per Share Data)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Revenues</B>, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,103,859</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,249,349</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,054,563</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">855,935</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Cost of Revenues</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,161,507</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,719,163</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,069,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">647,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Gross Profit (Loss)</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(57,648</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">530,186</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">985,105</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">207,960</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Selling and Marketing Expenses</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">327,881</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">292,960</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">308,079</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">65,037</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>General and Administrative Expenses</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">154,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">134,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">143,594</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30,313</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Operating Profit (Loss)</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(540,166</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">102,944</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">533,432</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">112,610</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Financial Expenses</B>, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">228,609</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">400,927</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">445,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">93,979</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Loss on Impairment of Investments in Non-Marketable
Securities (note 2)</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,862</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">856</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">

<TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Net Income (Loss)&nbsp;Before Cumulative Effect of a Change
in Accounting Principles</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(768,775</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(306,845</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">84,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,775</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Cumulative Effect, at Beginning of Year, of a Change
in Accounting Principles (note 1)</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Net Income (Loss)&nbsp;for the Year</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(768,775</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(303,362</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">84,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,775</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Earnings (Loss)&nbsp;Per Share (&#147;EPS&#148;):</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Basic:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Before cumulative effect</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.30</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.72</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cumulative effect</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.30</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.70</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Diluted:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Before cumulative effect</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.30</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.72</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cumulative effect</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.30</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.70</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Weighted Average Number of Shares Outstanding:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Basic</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,888,888</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,909,274</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">179,984,090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">179,984,090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Diluted</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,888,888</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,909,274</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">183,069,394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">183,069,394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2"><B>The accompanying notes are an
integral part of the financial statements.</B>
</FONT>
<P align="center"><FONT size="2">Page F-4
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B>Partner Communications Company
Ltd.<BR>
(An Israeli Corporation)</B>
</FONT>

<P align="center"><FONT size="2"><B>Consolidated Statements Of Changes In Shareholders&#146; Equity (Capital Deficiency)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Share capital</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Number of</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Capital</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Deferred</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Accumulated</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>shares</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Amount</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>surplus</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>compensation</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>deficit</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

    <TD align="center" colspan="5"><FONT size="1"><B>(In thousands)</B></FONT></TD>

    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="19"><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>New Israeli Shekels:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Balance at December&nbsp;31, 1999</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,888,888</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,789</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,280,968</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(84,619</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,397,146</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">800,992</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Changes During the Year Ended December&nbsp;31, 2000:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Receipts from exercise of stock options granted to employees
on account of shares to be allotted</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred compensation related to employee stock option grants</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">37,020</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(37,020</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of deferred compensation related to employee
stock options grants</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56,618</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56,618</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(768,775</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(768,775</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Balance at December&nbsp;31, 2000</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,888,888</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,789</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,317,993</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(65,021</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,165,921</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">88,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Changes During the Year Ended December&nbsp;31, 2001:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Exercise of options granted to employees</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">35,697</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of deferred compensation related to employee
stock option grants net of deferred compensation with
respect to stock options forfeited</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(19,960</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">40,659</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,699</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(303,362</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(303,362</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Balance at December&nbsp;31, 2001</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,924,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,789</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,298,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(24,362</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,469,283</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(193,776</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Changes During the Year Ended December&nbsp;31, 2002:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Exercise of options granted to employees</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,670,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,210</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,237</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of deferred compensation related to employee
stock option grants net of deferred compensation with
respect to stock options forfeited</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,020</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,977</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,957</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">84,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">84,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Balance at December&nbsp;31, 2002</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">181,595,222</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,816</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,293,270</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,385</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,385,085</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(96,384</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" noshade align="left">
<DIV align="left"><FONT size="2">*&nbsp;Representing an amount less than NIS 1,000</FONT></DIV>

<P align="center"><FONT size="2">F-5</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Share capital</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Number of</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Capital</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Deferred</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Accumulated</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>shares</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Amount</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>surplus</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>compensation</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>deficit</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

    <TD align="center" colspan="5"><FONT size="1"><B>(In thousands)</B></FONT></TD>

    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="19"><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Convenience translation into u.s. dollars (note 1a):</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Balance at January&nbsp;1, 2002</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,924,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">377</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">485,135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5,143</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(521,276</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(40,907</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Changes During the Year Ended December&nbsp;31, 2002:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Exercise of options granted to employees</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,670,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">888</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">894</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of deferred compensation related
to employee stock option grants net of
deferred compensation with respect to stock
options forfeited</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,904</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,795</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,891</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,775</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,775</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Balance at December&nbsp;31, 2002</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">181,595,222</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">383</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">484,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,348</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(503,501</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(20,347</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<P align="center"><FONT size="2">The accompanying notes are an integral part of the financial statements.
</FONT>

<P align="center"><FONT size="2">F-6</FONT>



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B>PARTNER COMMUNICATIONS COMPANY LTD.<BR>
(An Israeli Corporation)<BR>
CONSOLIDATED STATEMENTS OF CASH FLOWS</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="51%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>Year ended December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into U.S. $</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>New Israeli Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>(note 1a)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>In thousands</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Cash Flows From Operating Activities:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)&nbsp;for the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(768,775</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(303,362</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">84,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,775</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Adjustments to reconcile net income (loss)&nbsp;to net cash
provided by (used in) operating activities:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation and amortization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">431,510</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">538,267</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">516,199</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">108,972</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss on impairment of investments in non-marketable
securities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,862</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">856</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of deferred compensation related to
employee stock option grants, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56,618</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,699</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,957</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,891</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Liability for employee rights upon retirement</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,581</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18,736</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18,632</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,933</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accrued interest, exchange and linkage differences on
(erosion of) long-term liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(13,214</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">54,522</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">91,027</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,216</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accrued interest and exchange differences on security
deposit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,574</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,590</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,925</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,462</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amount carried to deferred charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(7,489</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(22</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,805</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(803</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Sundry</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(181</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,647</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">839</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">177</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Changes in operating asset and liability items:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Decrease (increase)&nbsp;in accounts receivable:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Trade</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(197,308</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(55,944</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(56,638</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(11,957</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23,970</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(14,235</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8,056</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,701</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase (decrease)&nbsp;in accounts payable and accruals:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Trade</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">93,499</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">57,271</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31,909</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,736</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shareholder&#146;s current account</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,230</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">84,685</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">68,068</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,796</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,124</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Decrease (increase)&nbsp;in inventories</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(65,614</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">36,859</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(12,996</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,744</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash provided by (used in) operating activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(353,272</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">422,548</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">682,191</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">144,013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Cash Flows From Investing Activities:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Purchase of fixed assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(712,377</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(601,050</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>

    <TD align="right"><FONT size="2">(599,769</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(126,613</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Proceeds from sale of fixed assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,063</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,771</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,737</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,211</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Investment in non-marketable securities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(16,446</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Investment in security deposit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(91,705</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Purchase of additional spectrum</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(207,635</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(43,833</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Funds in respect of employee rights upon retirement</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,712</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(13,336</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(14,301</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,019</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash used in investing activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(809,731</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(629,061</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(815,968</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(172,254</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
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    <TD><HR size="1" noshade></TD>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
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    <TD><HR size="1" noshade></TD>
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</TABLE>
</CENTER>
<P align="center"><FONT size="2">Page F-7
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B>PARTNER COMMUNICATIONS COMPANY LTD.<BR>
(An Israeli Corporation)<BR>
CONSOLIDATED STATEMENTS OF CASH FLOWS</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
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    <TD width="3%">&nbsp;</TD>
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    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>Year Ended December 31</B></FONT></TD>
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    <TD><FONT size="1">&nbsp;</FONT></TD>
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    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
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    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
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    <TD><FONT size="1">&nbsp;</FONT></TD>
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    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
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    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into U.S. $</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>New Israeli Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>(note 1a)</B></FONT></TD>
</TR>
<TR valign="bottom">
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    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>In thousands</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>CASH FLOWS FROM FINANCING ACTIVITIES:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Proceeds from exercise of stock options granted to
employees</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,237</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">894</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Proceeds from issuance of notes payable, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">684,463</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term bank loans received</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,119,032</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,111,869</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,349,326</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">284,848</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Repayment of long-term bank loans</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,054,725</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(901,000</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,223,698</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(258,327</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash provided by financing activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">748,775</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">210,916</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">129,865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27,415</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">

<TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(414,228</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,403</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,912</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(826</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">415,097</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">869</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,272</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,113</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>CASH AND CASH EQUIVALENTS AT END OF YEAR</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">869</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,272</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,360</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>SUPPLEMENTARY DISCLOSURE OF CASH FLOW
INFORMATION&#151;CASH PAID DURING THE YEAR:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">164,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">285,465</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">323,841</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">68,364</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Advances to income tax authorities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,617</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,207</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,099</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2"><B>Supplementary information on investing activities not involving cash flows</B>
</FONT>

<P align="left"><FONT size="2">At December&nbsp;31, 2000, 2001 and 2002, trade payables include NIS 144,482,000, NIS
148,276,000 and NIS 117,406,000 ($ 24,785,000), respectively, in respect of
acquisition of fixed assets. In addition, at December&nbsp;31, 2002, trade payables
include NIS 7.2&nbsp;million ($ 1.5&nbsp;million) in respect of acquisition of additional
spectrum. These balances will be given recognition in these cash flow statements
upon payment.
</FONT>
<P align="center"><FONT size="2"><B>The accompanying notes are an
integral part of the financial statements.</B>
</FONT>
<P align="center"><FONT size="2">Page F-8
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B>PARTNER COMMUNICATIONS COMPANY LTD.<BR>
(An Israeli Corporation)<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B>
</FONT>

<P align="left"><FONT size="2"><B>NOTE 1 &#150; SIGNIFICANT ACCOUNTING POLICIES</B>
</FONT>

<P align="left"><FONT size="2">The significant accounting policies, applied on a consistent basis, are as
follows:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>a.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>General:</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Nature of Operations:</B></FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Partner Communications Company Ltd. (&#147;the Company&#148;) operates a
mobile telecommunications network based upon the Global System
for Mobile Communications (&#147;GSM&#148;) Standard in Israel.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The Company was incorporated on September&nbsp;29, 1997. The
Company operates under a license granted by the Ministry of
Communications to operate a cellular telephone network for a
period of 10&nbsp;years beginning April&nbsp;7, 1998. At the beginning
of January 1999, the Company commenced full commercial
operations.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The Company paid a &#147;one-time&#148; license fee of approximately new
Israeli shekels (NIS)&nbsp;1.6&nbsp;billion which is presented under
&#147;license and deferred charges&#148;. The Company is entitled to
request extension of the license for an additional period of
six years and then renewal for one or more further six year
periods. Should the license not be renewed, the new
license-holder is obliged to purchase the communications
network and all the rights and obligations of the subscribers
for a fair price, as agreed between the parties or as
determined by an arbitrator.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">In December 2001, the Company was awarded additional spectrum
(2G band (1800MHz) and 3G band (1900MHz and 2100MHz)).
Following the award of the above spectrum, the Company&#146;s
license was amended and extended through 2017. During June
2002, the Minister of Communications amended and extended the
license through 2022.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">As to the change in estimate of the useful life of the license
see also note f(1) below.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">In consideration for the above additional spectrum the Company
is committed to pay NIS 180&nbsp;million ($38&nbsp;million) for the 2G
spectrum in two installments (payable by the end of 2003) and
NIS 220&nbsp;million ($46&nbsp;million) for the 3G spectrum in six
installments through</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-9
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2"></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">2006. Out of the above mentioned amounts, approximately NIS 208
million (approximately $44&nbsp;million) was paid during the year
ended December&nbsp;31, 2002.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Under the terms of the amended license, the Company has
provided a guarantee in NIS equivalent to $ 20&nbsp;million to the
State of Israel to secure the Company&#146;s adherence to the terms
of the license.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Use of estimates in the preparation of financial statements</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The preparation of financial statements in conformity with generally
accepted accounting principles (&#147;GAAP&#148;) requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting years. Actual results could
differ from those estimates.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Functional currency and
reporting currency</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The functional currency of the Company and its subsidiary is the local
currency New Israeli Shekels &#151; NIS. The consolidated financial
statements have been drawn up on the basis of the historical cost of
Israeli currency and are presented in NIS.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Convenience translation into
U.S. dollars (&#147;Dollars&#148; or &#147;$&#148;)</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The NIS figures at December&nbsp;31, 2002 and for the year then ended have
been translated into dollars using the representative exchange rate of
the dollar at December&nbsp;31, 2002 ($1 = NIS 4.737). The translation was
made solely for convenience. The translated dollar figures should not
be construed as a representation that the Israeli currency amounts
actually represent, or could be converted into, dollars.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Accounting principles</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States
(U.S. GAAP).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>b.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Principles of consolidation:</B></FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The consolidated financial statements include the
accounts of the Company and its wholly-owned
subsidiary (together &#151; the Group).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Intercompany balances between the Company and its
subsidiary have been eliminated.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-10
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>c.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Inventories</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Inventories of cellular telephones (handsets)&nbsp;and accessories are
stated at the lower of cost or net realizable value (which reflects the
value to the business of the handsets in the hands of the subscribers).
Cost is determined on the &#147;first-in, first-out&#148; basis.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>d.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Non-marketable securities</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">These investments are stated at cost, less of impairment losses.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>e.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Fixed Assets:</B></FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">These assets are stated at cost, handsets for use
abroad by subscribers are carried by the base stock
method.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Direct consultation and supervision costs and other
direct costs relating to setting up the Company&#146;s
communications network and information systems for
recording and billing calls are capitalized to cost
of the assets.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Interest costs in respect of loans and credit which
served to finance the construction or acquisition of
fixed assets &#151; incurred until installation of the
fixed assets is completed &#151; are capitalized to cost
of such assets.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">4)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Assets are depreciated by the straight-line method,
on basis of their estimated useful life. Annual rates
of depreciation are as follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="68%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="left"><FONT size="1"><B>%</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="left"><FONT size="1"><B><HR size="1" noshade></B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD valign="top">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Communications network</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
10 &#151; 20 (mainly 15)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Computers, hardware and software
for information systems</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
15-33</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Vehicles</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
20</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Office furniture and equipment</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
7-15</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Leasehold improvements are amortized by the
straight-line method over the term of the lease, or
the estimated useful life of the improvements,
whichever is shorter.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">During 2002, the Company decided to terminate the
lease agreement for one of its headquarter buildings
on March 2003, in favor of a new building (see note
8a(2)d) and abandon part of its leasehold
improvements.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-11
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Following the abandonment of the leasehold improvements the
amortized balance of the existing leasehold improvements is
amortized on a straight-line basis as of October&nbsp;1, 2002&#151;over the period of 6&nbsp;months ending March&nbsp;31, 2003.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">As a result of that change, in 2002, amortization expenses
increased and net income decreased by approximately NIS 7
million (approximately $ 1.5&nbsp;million) and earnings per share,
basic and diluted, decreased by NIS 0.04 ($ 0.01) compared to
the figures computed based on the amortization rates used
prior to the changes in the estimated useful life.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">5)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Computer Software Costs</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The cost of internal-use software which has a useful life in
excess of one year is capitalized in accordance with Statement
of Position (SOP)&nbsp;No.&nbsp;98-1, &#147; Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use.&#148;
Subsequent additions, modifications or upgrades to
internal-use software are capitalized only to the extent that
they allow the software to perform a task it previously did
not perform. Software maintenance and training costs are
expensed in the period in which they are incurred. Capitalized
computer software costs are amortized using the straight-line
method over a period of 5 to 7&nbsp;years.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">f.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">License and Deferred Charges:</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">License (see also a(2) above):
The license is stated at cost and is amortized by the
straight-line method over the utilization period of the
license (January&nbsp;1, 1999&#151;commencement).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Through the period ended December&nbsp;31, 2001 the license was
amortized over 9.25&nbsp;years.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Following the extensions of the license (as described in note
1a. above) the amortized balance of the Company&#146;s existing
license as well as the cost of the additional spectrum put
into service are amortized on a straight-line basis as
follows: as of January&nbsp;1, 2002&#151;over the period ending in
2017; as of April&nbsp;1, 2002&#151;over the period ending in 2022.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The costs relating to 3G band are not amortized since the
utilization period has not yet commenced.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>

    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">As a result of that change, in 2002, license amortization
expenses (included in &#147;cost of revenues&#148;) decreased and net
income increased by approximately NIS 113&nbsp;million
(approximately $ 24&nbsp;million) and earnings per share increased
by NIS 0.63 ($ 0.13)</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-12
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">compared to the figures computed based on the amortization
rates used prior to the changes in the estimated useful life.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Expenses in obtaining loans and credit which served to finance
the license fee&#151;incurred until the commencement of
utilization of the license&#151;are capitalized to cost of the
license.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">During the year 2002&#151;NIS 7&nbsp;million ($ 1.5&nbsp;million) interest
costs were capitalized to the cost of the license.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Deferred charges:</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">(a)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="90%"><FONT size="2">Costs relating to the obtaining of long-term credit
lines are amortized using the effective interest rate
stipulated for the borrowing transactions.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">(b)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="90%"><FONT size="2">Issuance costs relating to Notes payable (see note 6)
are amortized using the effective interest rate
stipulated for the Notes.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>g.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Impairment of Long-Lived Assets</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The Company has adopted Statement of Financial Accounting Standards No.
144 (FAS 144), &#147;Accounting for the Impairment or Disposal of Long-Lived
Assets&#148; effective January&nbsp;1, 2002. FAS 144 requires that long-lived
assets, to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. Under FAS 144, if the sum
of the expected future cash flows (undiscounted and without interest
charges) of the long-lived assets is less than the carrying amount of
such assets, an impairment loss would be recognized, and the assets of
written down to their estimated fair values.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The adoption of FAS 144 did not have any impact on the consolidated
financial position and results of operations.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>h.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Cash equivalents</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The Company considers all highly liquid investments, which include
short-term bank deposits (up to 3&nbsp;months from date of deposit) that are
not restricted as to withdrawal or use, to be cash equivalents.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>i.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Comprehensive income</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The Company has no comprehensive income components other than net
income (loss).</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-13
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>j.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Revenue recognition</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Revenues from telecommunication services primarily consist of charges
for airtime, roaming and value added services provided to the Company&#146;s
customers, are recognized upon performance of the services. Revenues
from pre-paid calling cards are recognized upon customer&#146;s usage of the
cards. Revenues from sale of handsets and accessories are recognized
upon delivery and the transfer of ownership to the subscriber.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>k.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Concentration of credit risks&#151;allowance for doubtful accounts</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The Company&#146;s revenues are derived from a large number of customers.
Accordingly, the Company&#146;s trade balances do not represent a
substantial concentration of credit risk.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">An appropriate provision for doubtful accounts is included in the
accounts of the Company. The allowance charged to expenses, determined
as a percentage of specific debts doubtful of collection for the years
ended December&nbsp;31, 2000, 2001 and 2002 aggregated NIS 33,001,000 NIS
14,696,000 and NIS 12,753,000 ($ 2,692,000) (see also note 13a),
respectively.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The cash and cash equivalents and security deposit as of December&nbsp;31,
2002 are deposited mainly with leading Israeli banks. Therefore, in the
opinion of the Company, the credit risk inherent in these balances is
remote.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The Company factors most of its long-term trade receivables resulting
from sales of handsets. The factoring is made through clearing
companies, on a non-recourse basis. The transfer of accounts receivable
was recorded by the Company as a sales transaction under the provisions
of Statement of Financial Accounting Standards No.140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. The resulting costs are charged to &#147;financial
expenses-net&#148;, as incurred. During the years ended December&nbsp;31, 2000,
2001 and 2002, the Company factored NIS 98,023,000, NIS 180,302,000 and
NIS 209,568,000 ($44,240,000), respectively, from long-term trade
receivables.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>l.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Handsets warranty obligations</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Until the year 2002 provision for warranty was not provided for, as the
Company&#146;s liability was covered by the handsets suppliers&#146; warranty. As
of 2002, the Company has entered into several agreements under which
the supplier does not provide any warranty but rather provides
additional handsets to satisfy its warranty obligation. In these cases,
the Company provides for</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-14
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">warranty costs at the same time as the revenues are recognized. The
annual provision is calculated at the rate of 1.5%-3.5% of these sales.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">As of December&nbsp;31, 2002, the provision for warranty and the related
expenses of the year then ended totaled NIS 2,589,000 ($ 547,000).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>m.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Advertising expenses</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Advertising expenses are charged to the statement of operations as
incurred. Advertising expenses for the years ended December&nbsp;31, 2000,
2001 and 2002 aggregated NIS 134,969,000, NIS 91,681,000 and NIS
96,061,000 ($ 20,279,000), respectively.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>n.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Deferred income taxes</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Deferred taxes are determined utilizing the asset and liability method,
based on the differences between the amounts presented in these
financial statements and those taken into account for tax purposes, in
accordance with the related tax laws. Valuation allowances are included
in respect of deferred tax assets when it is more likely than not that
no such assets will be realized (see also note 10).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>o.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Foreign currency transactions and balances</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Balances in, or linked to, foreign currency are stated on the basis of
the exchange rates prevailing at balance sheet dates. For foreign
currency transactions included in the statements of operations, the
exchange rates at transaction dates are used. Transaction gains or
losses arising from changes in the exchange rates used in the
translation of such balances are carried to financial income or
expenses.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>p.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Derivative financial instruments (&#147;Derivatives&#148;)</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The Company has adopted FAS 133 as of January&nbsp;1, 2001. FAS 133, as
amended, establishes accounting and reporting standards for
derivatives, including certain derivatives embedded in other contracts,
and for hedging activities. Under FAS 133, all derivatives are
recognized on the balance sheet at their fair value. On the date that
the Company enters into a derivative contract, it designates the
derivative, for accounting purposes, as: (1)&nbsp;hedging instrument, or (2)
non-hedging instrument. Any changes in fair value are to be reflected
as current gains or losses or other comprehensive gains or losses,
depending upon whether the derivative is designated as a hedge and what
type of hedging relationship exists. Changes in fair value of
non-hedging instruments are carried to &#147;financial
expenses&#151;net&#148;, on a
current basis.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-15
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The Company occasionally enters into commercial (foreign currency)
contracts in which a derivative instrument is &#147;embedded&#148;. This embedded
derivative is separated from the host contract and carried at fair
value when (1)&nbsp;the embedded derivative possesses economic
characteristics that are not clearly and closely related to the
economic characteristics of the host contract and (2)&nbsp;a separate,
stand-alone instrument with the same terms would qualify as a
derivative instrument.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The adoption of FAS 133 resulted in recording additional income of
approximately NIS 3.5&nbsp;million included in the statement of operations
of 2001 under &#147;cumulative effect, at beginning of year, of a change in
accounting principles&#148;, which was recorded against an asset in the
balance sheet, of the same amount. This cumulative effect reflects the
fair value of embedded derivatives (see also note 12b.) as of that
date.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Prior to the adoption of FAS 133, the Company used separate,
stand-alone derivative instruments (as apposed to embedded derivative),
for accounting purposes, as hedging and non-hedging instruments. Gains
and losses on derivatives that were hedged existing assets or
liabilities were recognized in income commensurate with the results
from those assets or liabilities.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Foreign currency derivatives, which are designated to reduce the
Company&#146;s exposure to foreign currency risks pertaining to anticipated
transactions and which do not qualify as hedging transactions, were
presented at market value in each of the reported years and the income
or losses in respect thereof are carried to &#147;financial expenses&#151;net&#148;
on a current basis, see also note 12b.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>q.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Earnings (loss)&nbsp;per share (&#147;EPS&#148;)</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Basic EPS is computed by dividing net income (loss)&nbsp;by the weighted
average number of shares outstanding during the years.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Diluted EPS reflects the increase in the weighted average number of
shares outstanding that would result from the assumed exercise of
options, calculated using the treasury-stock-method (in 2000 and 2001,
such effect was not included since it would have been anti-dilutive).</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-16
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>r.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Stock based compensation</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The Company accounts for its employee stock option plans using the
treatment prescribed by APB No.&nbsp;25, &#147;Accounting for Stock Issued to
Employees&#148; and related interpretations.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Under APB 25, compensation cost for employee stock option plans is
charged to shareholders&#146; equity, on the date of grant of the options,
under &#147;deferred compensation costs&#148; and is then amortized over the
vesting period using the accelerated method of amortization.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">FAS No.&nbsp;123 &#147;Accounting for Stock-Based Compensation&#148;, establishes a
fair value based method of accounting for employee stock options or
similar equity instruments, and encourages adoption of such method for
stock compensation plans. However, it also allows companies to continue
to account for those plans using the accounting treatment prescribed by
APB 25. The Company has elected to continue accounting for employee
stock option plans according to APB 25, and accordingly discloses pro
forma data assuming the Company had accounted for employee stock option
grants using the fair value based method as defined in FAS 123.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The weighted average fair value of options granted using the Black &#038;
Scholes option-pricing model during 2000, 2001 and 2002 is NIS 23.25
(below market value&#151;NIS 56.9, at market value&#151;NIS 18.6), NIS 18.08
and NIS16.68 ($3.52), respectively. The fair value of each option
granted is estimated on the date of grant based on the following
weighted average assumptions: weighted average dividend yield of 0%;
expected volatility of 75%, 83% and 69%, respectively; risk-free
interest rate: in dollar terms&#151;2000-6.5%; in NIS terms&#151;2000-8%,
2001-6.9%, 2002-7.7%.; weighted expected life: plan A&#151;2002, 9&nbsp;years
(2000 and 2001-8&nbsp;years); Plan B&#151;9&nbsp;years in each year.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The following table illustrates the effect on net income and earnings
per share assuming the Company had applied the fair value recognition
provisions of FAS 123 to its stock based employee compensation:</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-17
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="51%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>New Israeli Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>In thousands, except per share data</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss), as reported</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(768,775</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(303,362</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">84,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,775</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">

<TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Add: stock based employee Compensation expense, included in reported
net income (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56,618</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,699</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,957</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,891</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">

<TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deduct: stock based employee Compensation expense determined under fair
value method for all awards</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(64,064</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(59,476</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(30,029</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,339</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Pro-forma net income (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(776,221</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(342,139</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">63,126</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,327</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">

<TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Earning
(loss)&nbsp;per share&#151;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Basic&#151;as reported:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">before cumulative effect</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.30</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.72</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">cumulative effect</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.30</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.70</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Basic&#151;pro forma:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">before cumulative effect</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.34</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.93</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">cumulative effect</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.34</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.91</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Diluted&#151;as reported:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">before cumulative effect</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.30</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.72</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">cumulative effect</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.30</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.70</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Diluted&#151;pro-forma:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">before cumulative effect</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.34</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.93</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">cumulative effect</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.34</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.91</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">The Pro-forma net loss for the years ended December&nbsp;31, 2000 and 2001 should
have been NIS 776,221,000 and NIS 342,139,000 rather than NIS 769,043,000 and
NIS 303,639,000 as reported in the prior years&#146; reports, respectively. The
Pro-forma net loss per share, basic and diluted, for the years ended December
31, 2000 and 2001 should have been NIS 4.34 and NIS 1.91 rather than NIS 4.30
and NIS 1.70 as reported in the prior years&#146; reports, respectively.
</FONT>
<P align="center"><FONT size="2">Page F-18
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>s.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Recently issued accounting
pronouncements:</B></FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">FAS 143</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">In July 2001, the FASB issued FAS 143, &#147;Accounting for Asset
Retirement Obligations&#148; (&#147;FAS 143&#148;) . FAS 143
prescribes the accounting for retirement obligations associated with tangible
long-lived assets, including the timing of liability
recognition and initial measurement of the liability. FAS 143
requires that an asset retirement cost should be capitalized
as part of the cost of the related long-lived asset and
subsequently allocated to expense using a systematic and
rational method. FAS 143 is effective for fiscal years
beginning after June&nbsp;15, 2002 (January&nbsp;1, 2003 for the
company).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The Company does not expect the adoption of this standard to
have a material effect on its consolidated financial
statements.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">FAS 145</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">In April 2002, the FASB issued FAS No.&nbsp;145, &#147;Revision of FASB
Statements No.&nbsp;4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Connections&#148; (&#147;FAS 145&#148;). Among other
amendments and rescissions, FAS 145 eliminates the requirement
that gains and losses from the extinguishments of debt be
aggregated and, if material, classified as an extraordinary
item, net of the related income tax effect, unless such gains
and losses meet the criteria in paragraph 20 of Accounting
Principles Board Opinion No.&nbsp;30, &#147;Reporting the Results of
Operation&#151;Reporting the Effects of Disposal of a Segment of
a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions&#148;. FAS 145 is partially
effective for transactions occurring after May&nbsp;15, 2002 and
partially effective for fiscal years beginning after May&nbsp;15,
2002.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The Company does not expect the adoption of this standard to
have a material effect on its consolidated financial
statements.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">FAS 146</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">In June 2002, the FASB issued FAS No.&nbsp;146 &#147;Accounting for
Costs Associated with Exit or Disposal activities&#148; (&#147;FAS
146&#148;). FAS 146 addresses financial accounting and reporting
for costs associated with exit or disposal activities and
nullifies EITF 94-3 &#147;Liability Recognition for Certain
Employee Termination Benefits and other Costs to Exit an
Activity (including Certain Costs Incurred in a
restructuring)&#148;. FAS 146 required that a liability for a cost
associated with an exit or disposal activity to be recognized
when the liability is incurred. Under EITF 94-3, a liability
for an exit cost as generally defined in EITF 94-3 was
recognized at the date of the commitment to an exit plan. FAS
146 states that a</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-19
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">commitment to a plan, by itself, does not create an obligation
that meets the definition of a liability. Therefore, FAS 146
eliminates the definition and requirements for recognition of
exit costs in EITF 94-3. It also establishes that fair value
is the objective for initial measurement of the liability. FAS
146 is to be applied prospectively to exit or disposal
activities initiated after December&nbsp;31, 2002.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The Company does not expect the adoption of this standard to
have a material effect on its consolidated financial
statements.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">4)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">FAS 148</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">In December 2002, the FASB issued FAS No.&nbsp;148, &#147;Accounting for
Stock-Based Compensation&#151;Transition and Disclosure&#151;an
amendment of FASB Statement No.&nbsp;123.&#148; FAS No.&nbsp;148 amends FAS
No.&nbsp;123, &#147;Accounting for Stock-Based Compensation,&#148; to provide
alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based
employee compensation. In addition, FAS No.&nbsp;148 amends the
disclosure requirements of FAS No.&nbsp;123 to require prominent
disclosures in the financial statements about the method of
accounting for stock-based employee compensation and the
effect of the method used on reported results. The transition
guidance and annual disclosure provisions of FAS No.&nbsp;148 are
effective for financial statements issued for fiscal years
ending after December&nbsp;15, 2002. The Company elected to
continue accounting for employee stock based compensation in
accordance with APB 25 and related interpretations and has
applied the disclosure provisions in FAS No.&nbsp;148 in these
consolidated financial statements and the accompanying notes.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">5)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">FIN 45</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">In November 2002, the FASB issued FASB Interpretation No.&nbsp;45
&#147;Guarantor&#146;s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others&#148; (&#147;FIN 45&#148;). FIN 45 requires the guarantor to
recognize, at the inception of a guarantee, a liability for
the fair value of the obligation undertaken in issuing the
guarantee. It also elaborates on the disclosures to be made by
a guarantor in its financial statements about its obligations
under certain guarantees that it has issued and to be made in
regard of product warranties. Disclosures required under FIN
45 are already included in these financial statements,
however, the initial recognition and initial measurement
provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December&nbsp;31, 2002.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The Company does not expect the adoption of FIN 45 to have a
material effect on its consolidated financial statements.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-20
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">6)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">FIN 46</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">In January 2003, the FASB issued FASB Interpretation No.&nbsp;46
&#147;Consolidation of Variable Interest Entities&#148; (FIN 46). Under
this FIN entities are separated into two populations: (1)
those for which voting interests are used to determine
consolidation (this is the most common situation) and (2)
those for which variable interests are used to determine
consolidation. The FIN explains how to identify Variable
Interest Entities (VIE)&nbsp;and how to determine when a business
enterprise should include the assets, liabilities, no
controlling interests, and results of activities of a VIE in
its consolidated financial statements.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The FIN is effective as follows: for variable interests in
variable interest entities created after January&nbsp;31, 2003 the
FIN shall apply immediately, for variable interests in
variable interest entities created before that date, the FIN
shall apply&#151;for public entities&#151;as of the beginning of the
first interim or annual reporting period beginning after June
15, 2003.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The Company does not expect the adoption of this FIN to have
any effect on its consolidated financial statements.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>t.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Reclassification</B></FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Certain comparative figures have been reclassified to conform
to the current year presentation.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-21
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="left"><FONT size="2"><B>NOTE 2 &#150; INVESTMENTS IN
NON-MARKETABLE SECURITIES:</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company and its subsidiary have entered into agreements with a
number of technological companies in the early stages of development of cellular
products (hereafter&#151;the start-up companies). Under the agreements, the Group
is to supply infrastructure and support services, which the start-up companies
need to develop their products, in consideration of options and shares in those
companies. In some cases, the Group is also entitled to royalties on future
sales of the products of the start-up companies. Based on the opinion of the
financial advisors of the Group and the early stages of those companies, the
fair value of the securities granted to the Group, on the grant date and as of
December&nbsp;31, 2002, is not material.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group&#146;s holdings in the start-up companies (current and fully
diluted) do not exceed 15% of the share capital of any one of them and does not
give the Group significant influence over any one of them. Therefore, the
investments therein are presented on a cost basis.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2002, the Company has recorded an impairment loss of
approximately NIS 4.1&nbsp;million (approximately $0.9&nbsp;million)
(2001&#151;approximately
NIS 8.9&nbsp;million) in respect of the above investments, based on valuations by the
Company&#146;s financial advisor.
</FONT>
<P align="center"><FONT size="2">Page F-22
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="left"><FONT size="2"><B>NOTE 3 &#150; FIXED ASSETS:</B>
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">a.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Composition of fixed assets&#151;net, is as follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>New Israeli Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into U.S. $</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>in thousands</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Communications network</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,989,474</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,398,907</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">506,419</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Computers, hardware and software for information systems</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">370,620</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">471,079</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">99,447</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Vehicles</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,372</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">24,955</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,268</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Office furniture and equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,723</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31,641</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Leasehold improvements</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">93,393</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">140,376</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,634</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cellular telephones&#151;base stock</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,332</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,516,891</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,073,267</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">648,779</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Less&#151;accumulated depreciation and amortization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">767,839</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,208,756</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">255,173</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,749,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,864,511</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">393,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Depreciation and amortization in respect of fixed assets totaled NIS
254,992,000, NIS 361,265,000 and NIS 446,970,000 ($94,357,000) for the
years ended December&nbsp;31, 2000, 2001 and 2002, respectively.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">b.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Fixed assets include interest expenses, direct consultation and
supervision costs and other direct costs of establishing the cellular
communications network and information systems, which were capitalized
(before commencing full commercial operations) in respect of:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation into</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>New Israeli Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>in thousands</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Communications network</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">69,858</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">69,858</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,747</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Computers, hardware and software</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,566</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,566</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">85,424</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">85,424</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18,033</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">L e s s&#151;accumulated depreciation</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">38,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">51,752</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,925</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciated balance</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">46,610</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33,672</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,108</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">c.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">As to pledges on the fixed assets&#151;see note 11.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-23
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="left"><FONT size="2"><B>NOTE 4 &#150; LICENSE AND DEFERRED CHARGES:</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="61%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>New Israeli Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>in thousands</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">a. License (note 1a(2))</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,570,901</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,792,714</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">378,449</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Less&#151;accumulated amortization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">509,443</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">571,485</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">120,643</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,061,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,221,229</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">257,806</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">b. Deferred charges&#151;in respect of:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Obtaining long-term credit lines</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">52,191</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">55,996</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,821</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Notes payable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22,017</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22,017</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,648</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">74,208</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">78,013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,469</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Less&#151;accumulated amortization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22,707</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,894</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,310</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">51,501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">48,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,159</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,112,959</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,269,348</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">267,965</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;License and deferred charges amortization expenses for the years ended
December&nbsp;31, 2000, 2001 and 2002 totaled NIS 176,517,000 NIS 177,002,000 and NIS
69,229,000 ($14,615,000), respectively, see also note 1f.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The expected license amortization expenses for the next five years are
as follows:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>New</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Israeli</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>in thousands</B></FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Year ended December&nbsp;31:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">58,408</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2004</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">64,256</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,565</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2005</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">64,256</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,565</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2006</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">64,256</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,565</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2007</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">64,256</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,565</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">Page F-24
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="left"><FONT size="2"><B>NOTE 5 &#150; LONG-TERM BANK LOANS</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2002, the Company entered into an Amending Agreement in
connection with its primary secured bank credit facility, with Bank Leumi B.M.,
Bank Hapoalim B.M., Israel Discount Bank Ltd., The First International Bank of
Israel Ltd., United Mizrahi Bank Ltd., Mercantile Discount Bank Ltd. and
Citibank N.A., which amends the bank facility agreement dated August 1998
between the Company and the above mentioned banks, as amended from time to time.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amended facility is divided into three tranches: A multi-currency
term loan facility of $410&nbsp;million (&#147;Facility A&#148;), a revolving multi-currency
loan facility of $150&nbsp;million (&#147;Facility B&#148;) and a fixed-term NIS loan facility
of $150&nbsp;million (&#147;Facility C&#148;).
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The bank facility is a dollar denominated facility and it may be drawn
in different currencies, see c. below.
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">a.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Status of the facility at December&nbsp;31, 2002 is as follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Amounts</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>The total</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Amounts</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>available</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>facility</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>drawn</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>for drawing</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Dollars in millions</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Facility A</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">410</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">381</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Facility B</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">138</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Facility C</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">710</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">*519</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">191</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">Page F-25
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">b.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The amounts outstanding, classified by linkage terms and interest
rates, are as follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>&nbsp;</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>December 31,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Weighted</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>average</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>interest rates</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Amount</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>%</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>New Israeli Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>In thousands</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">In NIS&#151;linked to the Israeli consumer price
index (CPI)(1)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,076,689</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">629,056</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">132,796</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">In NIS&#151;unlinked (2)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,225,274</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,838,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">388,115</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,301,963</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,467,556</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">*520,911</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Linkage terms apply both to principal and interest.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The loans bear interest at the &#147;on-call&#148; rate (a varying inter-bank
rate in Israel), prime rate or fixed unlinked rate.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">*</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The amounts outstanding differ from the amounts drawn, due to differing
linkage terms.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">c.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Facilities A and B, may be drawn in NIS, US dollars or Euros, provided
that not less than 60% of the outstanding Facilities A and B shall, at
any time, be in NIS and that only up to 40% of the outstanding
facilities A and B may be in US dollars or Euros. Facility C, may be
drown only in NIS.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">d.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">There is a range of options as to how interest is calculated on
borrowings under the amended facility. These options include rates
based on LIBOR, the bond rate, fixed linked rate, fixed unlinked rate,
on-call rate and prime rate. The margin for facility A and B is 0.90%
per annum and can be reduced down to 0.45% on fulfillment of some terms
specified in the agreement. The margin for facility C is 1.25% per
annum and may not be reduced.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-26
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">e.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The total commitments under the Facilities will be reduced during each
of the following years to the following amounts*:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>Dollars
in millions</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>A</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>B</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>C</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">December&nbsp;31, 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">410</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">710</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">685</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2004</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">356</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">656</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2005</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">266</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">557</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2006</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">172</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">114</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">436</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2007</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">62</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">84</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2008</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">72</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">72</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">June&nbsp;30, 2009</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">*</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In April 2002, the Company&#146;s credit facility was amended to reflect the
participation of Bank Hapoalim in the credit facility on the same terms
as the other lending banks. Prior to April 2002, the portion of this
loan (NIS 483,897,000), which had been advanced to the Company was
required to be repaid on March&nbsp;31, 2002 because of the restrictions of
Bank of Israel relating to certain common ownership interests in the
bank and the Company. As a result of the above amendment, the relevant
balances owed to Bank Hapoalim under the credit facility, which were
recorded in the Company&#146;s annual financial statements for the year
ended December&nbsp;31, 2001 as short-term liabilities were classified in
the balance sheet as of December&nbsp;31, 2002 into long-term liabilities.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">f.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Facility A may be drawn through March&nbsp;31, 2003 and shall be repaid
until June&nbsp;30, 2008. Facility B may be drawn and repaid until June&nbsp;30,
2008. Facility C may be drawn through December&nbsp;31, 2004 and shall be
repaid until June&nbsp;30, 2009.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">g.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Under the amended facility the Company is required, inter alia, to
fulfill certain operational conditions and to maintain certain
financial ratios. If the Company defaults on the covenants, the banks
are entitled to demand early repayment of the credit facility&#151;in
whole or in part. The Company believes that it is in compliance with
all covenants stipulated by the amended facility. Under the amended
facility, the Company has undertaken not to transfer any amounts,
including dividends, to its shareholders, except in cases specified in
the Agreement.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">h.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">As to pledges to secure loans and liabilities and restrictions placed
with respect thereto, see note 11.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-27
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="left"><FONT size="2"><B>NOTE 6 &#150; NOTES PAYABLE:</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;10, 2000, the Company completed an offering of $175&nbsp;million
of unsecured Senior Subordinated Notes due 2010, which have been issued at their
dollar par value. The Notes have been registered under the U.S. Securities Act
of 1933. The net proceeds from the offering (approximately $170.5&nbsp;million after
deducting commissions and offering expenses) were used mainly to repay a portion
of the indebtedness under the credit facility.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Notes bear interest at the rate of 13% per annum which are payable
semi-annually on each February&nbsp;15 and August&nbsp;15, commencing February&nbsp;15, 2001.
The Company may redeem up to 35% of the aggregate principal amount of the Notes
at any time prior to August&nbsp;15, 2003, provided that immediately after giving
effect to any such redemption, at least 65% of the aggregate principal amount of
the Notes remains outstanding.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;31, 2002, the Notes closing price was 109 points.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Commission fees and offering expenses in respect of the Notes
aggregated approximately NIS 22&nbsp;million. These expenses are presented as
deferred charges and the amortization in respect thereof is included in
&#147;financial expenses, net&#148;.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is obligated to keep a restricted deposit in the amount of
one year of interest payment until December&nbsp;31, 2003, which was deposited and is
presented in the balance sheet under &#147;security deposit&#148;. The deposit is
denominated in dollars and bears an annual interest as of December&nbsp;31, 2002 of
1.3%.
</FONT>
<P align="center"><FONT size="2">Page F-28
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="left"><FONT size="2"><B>NOTE 7 &#150; LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT:</B>
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">a.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Israeli labor laws and agreements require payment of severance pay upon
dismissal of an employee or upon termination of employment in certain
other circumstances. The Company&#146;s severance pay liability to its
employees, mainly based upon length of service and the latest monthly
salary (one month&#146;s salary for each year worked), is reflected by the
balance sheet accrual under the &#147;liability for employee rights upon
retirement&#148;. The Company records the liability as if it was payable at
each balance sheet date on an undiscounted basis. The liability is
partly funded by purchase of insurance policies and the amounts funded
are included in the balance sheet under investments and long-term
receivables, as &#147;funds in respect of employee rights upon retirement&#148;.
The policies are the Company&#146;s assets and under labor agreements,
subject to certain limitations, they may be transferred to the
ownership of the beneficiary employees.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">b.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The severance pay expenses for the years ended December&nbsp;31, 2000, 2001
and 2002 were approximately NIS 16,151,000 NIS 21,113,000 and NIS
24,094,000 (approximately $ 5,086,000) respectively.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-29
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left"><FONT size="2"><B>NOTE 8 &#150; COMMITMENTS AND CONTINGENT LIABILITIES:</B>
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>a.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Commitments:</B></FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Royalty Commitments</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The Company is committed to pay royalties to the Government of
Israel on its &#147;income from cellular services&#148; as defined in
the Regulations (see below), which includes all kinds of
turnover of the licensee from the granting of Bezeq services
under the license&#151;including airtime, roaming services and
non-recurring connection fees, but excluding: bad debts,
income transferred to another holder of a communications
license or payments to another communication licensee in
respect of interconnection, payments for roaming services to
foreign operators and expenses related to the sale of end
equipment.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">On June&nbsp;18, 2001, the Knesset&#146;s Finance Committee approved the
&#147;Telecommunications (Royalties) Regulations, 2001&#148;
(hereafter&#151;the Regulations). The principal change to the old
regulations was the reduction of the percentage of royalties
payable by mobile phone companies from 8% to 5% in 2001, 4.5%
in 2002 and the further gradual reduction thereof to 3.5% in
2004. In addition, the basis in respect of which the royalties
are paid has been expanded (as described above). The amendment
is effective as from January&nbsp;1, 2001.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The royalty expenses for the years ended December&nbsp;31, 2000,
2001 and 2002 were approximately NIS 116,846,000, NIS
112,201,000 and NIS 117,281,000 (approximately $ 24,758,000),
respectively, and are included under &#147;cost of revenues&#148;.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Operating leases</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The Company has entered into operating lease agreements as
follows:</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">a)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="90%"><FONT size="2">Lease agreement for its headquarters facility in Rosh
Ha&#146;ayin for a twenty year period commencing in June 1998.
The Company has an option to shorten the lease period by
five to fifteen years. The rental payments are linked to
the Israeli CPI.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">b)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="90%"><FONT size="2">Lease agreements for service centers and retail stores for
a period of two to five years. The Company has an option to
extend the lease periods for up to twenty additional years
(including the original lease periods). The rental payments
are linked partly to the dollar and partly to the Israeli
CPI.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">c)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="90%"><FONT size="2">Lease agreements in respect of cell sites throughout Israel
are for periods of two to three years. The Company has an
option to extend the lease periods up to ten additional years (including the original lease periods).
The lease fees are partly linked to the dollar and are
partly linked to the Israeli CPI.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-30
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="90%"><FONT size="2"></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">d)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="90%"><FONT size="2">Lease agreement for additional building for the head office
in Rosh Ha&#146;ayin, for a period of 16&nbsp;years commencing in
November 2002. The Company has options to shorten the lease
period by five to ten years. The rental payments are linked
to the Israeli CPI.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">e)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="90%"><FONT size="2">The minimum projected rental payments (based upon
agreements in force as of December&nbsp;31, 2002) for the next
five years, at rates in effect at December&nbsp;31, 2002, are as
follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="74%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>New Israeli</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>In thousands</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Year ended December 31</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">101,192</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2004</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56,510</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,929</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2005</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30,818</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,506</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2006</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,097</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,509</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2007</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,586</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2008 and thereafter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,883</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,353</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">247,086</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">52,160</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">f)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="90%"><FONT size="2">The rental expenses for the years ended December&nbsp;31, 2000,
2001 and 2002 were approximately NIS 68&nbsp;million, NIS 93
million, and NIS 113&nbsp;million (approximately $ 24&nbsp;million),
respectively.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">At December&nbsp;31, 2002, the Company is committed to acquire
fixed assets for approximately NIS 41&nbsp;million (approximately $
9&nbsp;million).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">4)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">At December&nbsp;31, 2001, the Company is committed to acquire
handsets for approximately NIS 203&nbsp;million (approximately $ 43
million).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">5)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">As to the Company commitment to pay NIS 202&nbsp;million
(approximately $ 43&nbsp;million) regarding the award of the new
spectrum, see note 1a.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-31
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>b.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Contingent Liabilities:</B></FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">On October&nbsp;28, 1999, an Israeli consumer organization lodged a
claim against the Company, alleging a variety of consumer
complaints and requested that this claim be recognized as a
class action. While the amount of the claim was substantial,
the ultimate liability could not be determined because of the
considerable uncertainties that exist.
On March&nbsp;20, 2002, the Haifa District Court decided to strike
the claim, because the consumer organization lost, on December
31, 2001, a special status required under Israeli law for
consumer organizations to file class action claims.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Another claim, involving a substantial amount, which was filed
by a private consumer who had previously asked to join the
above class action, may be brought again before the court. The
court had previously frozen the proceedings of the private
consumer&#146;s claim, until a decision was made in the case filed
by the consumer organization.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">On June&nbsp;20, 2002, legal counsel representing the consumer
organization informed the Company of his intention to resume
these proceedings.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">At this stage, the Company and its legal counsel are unable to
evaluate the probability of success of the claims, if and when
re-opened, and therefore no provision has been made.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">On July&nbsp;8, 2001 a claim was filed against the Company for
alleged violation of supplier&#146;s exclusivity agreement. For
filing purposes, the claim was set at NIS 18&nbsp;million; however,
this amount can be increased by the claimant.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">At this stage, since preliminary proceedings between the
parties are yet to take place, and the claim concerns a
contract interpretation issue, the company and its legal
counsel are unable to evaluate the probability of success of
the said litigation, and therefore no provision has been made.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">On December&nbsp;31, 2001, a claim was filed against the Company
and another Israeli telecommunication companies together with
a request to approve this claim as a class action. The claim
is for air time charged in respect of calls, which were
terminated due to causes other than the termination of the
call by the parties thereto. The amount of the claim against
the Company is estimated at approximately NIS 21&nbsp;million.
On January 2003, a mutually-agreed motion to strike out the
claim against the Company was granted by the court.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">4)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">On March&nbsp;20, 2002, the Company received a demand by one of the
company&#146;s former distributors, mainly for alleged violation of
his exclusive distribution agreement.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-32
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The amount of the demand against the Company is set at NIS 130
million for filing purposes, although the claimant states that
his damages far exceed the above amount.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">To the date of these financial statements, this demand has not
been filed by the way of a legal claim.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">At this stage, the Company and its legal counsel are unable to
evaluate the probability of success of the demand if filed by
the way of legal claim, and the amount of the claim, therefore
no provision has been made.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">5)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">On April&nbsp;8, 2002, a claim was filed against the Company,
together with a request to approve this claim as a class
action, alleging a variety of consumer complaints. The amount
of the claim against the Company is estimated at approximately
NIS 545&nbsp;million plus additional significant amounts related to
other alleged damages.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">At this stage, no hearings have taken place and unless and
until the claim is certified as a class action, the Company
and its legal counsel are unable to evaluate the probability
of success of such claim, and therefore no provision has been
made.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">In addition, the Company and its legal counsel are of the
opinion that even if the request to approve this claim as a
class action is granted, and even if the plaintiff&#146;s arguments
are accepted, the outcome of the claim will be significantly
lower than the abovementioned amount.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">6)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">On May&nbsp;21, 2002, a claim was filed against the Company and
other Israeli telecommunication companies together with a
request to approve this claim as a class action. According to
the applicants, the defendants have entered into agreements
with commercial entities that offer the public various content
services via calls to cellular telephone numbers. The
applicants allege that, in fact, the calls are not carried out
by wireless but via a fixed line, an act that is in violation
of the law and the license. Accordingly, the applicants claim
that the defendants must refund the public all the amounts
that were charged in connection with said content services
agreements. The applicants do not know the amount of the class
action, but estimate it at NIS 600&nbsp;million.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">At this stage, no hearings have taken place and unless and
until the claim is certified as a class action, the Company
and its legal counsel are unable to evaluate the probability
of success of such claim, and therefore no provision has been
made. In addition, the Company and its legal counsel are of
the opinion that in light of those facts known at this early
stage, the abovementioned amount of the claim is excessive.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-33
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">7)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The Company does not have building permits for many of its
cell sites and as a result is involved in numerous legal
actions (including criminal proceedings against officers and
directors) relating to this issue. Most of these proceedings
have been settled under plea bargain arrangements, whereby the
Company has paid fines of insignificant amounts.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Management, based upon current experience and the opinion of
legal counsel, does not believe that these legal actions will
result in significant costs to the Company. The accounts do
not include a provision in respect thereof.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">8)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The Company is a party to various claims arising in the
ordinary course of its operations. Management, based upon the
opinion of its legal counsel, is of the opinion that the
ultimate resolution of these claims will not have a material
effect on the financial position of the Company. The accounts
do not include a provision in respect thereof.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-34
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="left"><FONT size="2"><B>NOTE 9 &#150; SHAREHOLDERS&#146; EQUITY (CAPITAL DEFICIENCY):</B>
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>a.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Share Capital:</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The Company&#146;s shares are traded on the London Stock Exchange (&#147;LSE&#148;)
and, in the form of American Depository Receipts (&#147;ADRs&#148;), each of
which represents one ordinary share, on the U.S. over the counter
market (&#147;Nasdaq&#151;NSM&#148;). During 2001, the company listed its shares in
the Tel-Aviv stock exchange (TASE)&nbsp;according to the dual listing
regulations. On December&nbsp;31, 2002, the closing price per ADR on the NSM
was $3.55; the shares were quoted on the LSE on that date at $3.72,
and in TASE at NIS 17.26 ($3.64).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Under the provisions of the license granted to the Company (note
1a(2)), restrictions are placed on transfer of Company shares and
placing liens thereon. The restrictions include the requirement that
the advance written consent of the Minister of Communications be
received prior to transfer of 10% or more of the Company&#146;s shares to a
third party.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">On December&nbsp;26, 2001, the Company filed a shelf registration statement
on Form&nbsp;F-3 with the United States Securities and Exchange Commission
for future offerings of its securities. Under the shelf registration,
the company can raise up to $400&nbsp;million from the issue of ordinary
shares and debt securities.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>b.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Employee Stock Option Plans:</B></FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">1)</FONT></TD>
    <TD width="3%" align="center"><FONT size="2">a.</FONT></TD>
    <TD width="93%"><FONT size="2">On March&nbsp;3, 1999, the Company&#146;s Board of Directors
approved an employee stock option plan (hereafter&#151;Plan A), pursuant to which 5,833,333 ordinary shares
were reserved for issuance upon the exercise of
5,833,333 options to be granted to key employees
without consideration of which 729,165 options were
later cancelled. Through to December&nbsp;31, 2002&#151;5,505,557 options were granted pursuant to Plan A, of
which 573,834 options have been forfeited and
2,706,334 options have been exercised.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The options will vest in five equal annual batches
over a period of five years from the beginning date
of employment of each employee, unless otherwise
provided in the grant instrument, provided the
employee is still in the Company&#146;s employ. An option
not exercised within 8&nbsp;years from the date of its
allotment shall expire. The exercise price per share
of the options granted through December&nbsp;31, 2000,
which is denominated in dollars, is $0.343. During
2002, the Company granted options under plan A in
accordance with the terms of plan B, including the
exercise price, vesting schedule and expiration date (see b. below).</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-35
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2"></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">As of December&nbsp;31, 2002&#151;172,445 options of plan A
are available for future grant to the Company&#146;s
employees. The exercise price of these remaining
options is pursuant to the terms of plan B (see b.
below) unless otherwise provided in the grant
instrument.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">b.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">In October 2000, the Company&#146;s Board of Directors
approved an employee stock option plan (hereafter&#151;Plan B), pursuant to which 4,472,222 ordinary shares
were reserved for issuance upon the exercise of
4,472,222 options to be granted to employees without
consideration. An option not exercised within 9&nbsp;years
from the date of its allotment shall expire. The
options will vest in four equal annual batches over a
period of four years from the date of grant of the
option, provided the employee is still in the
Company&#146;s employ. Through to December&nbsp;31, 2002&#151;5,317,555 options were granted pursuant to Plan A, of
which 931,833 options have been forfeited.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The exercise price, which is denominated in NIS, is
equal to the market price of the Company&#146;s shares on
the date on which the options are granted. As of
December&nbsp;31, 2002&#151;86,500 options of plan B are
available for future grant to the Company&#146;s
employees.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">c.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The ordinary shares derived from the exercise of the
options shall confer the same rights as the other
ordinary shares of the Company.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">d.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The Plans are subject to the terms stipulated by
Section&nbsp;102 of the Israeli Income Tax Ordinance.
Inter alia, the Ordinance provides that the Company
will be allowed to claim as an expense for tax
purposes the amounts credited to the employees as a
benefit, when the related tax is paid by the
employee. In December 2002, the Company signed an
agreement with the tax authorities concerning the tax
liabilities of its employees regarding the benefit
arising from the options granted to them. According
to the agreement, the individual tax rate on the
taxable income received by the employees in
connection with the benefit arising from the options
will be reduced; in exchange, the Company will defer
the deduction of such taxable income as an expense,
for a period of 4&nbsp;years from the date it commences
paying income taxes.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The agreement applies only to employees who have joined the agreement, and relates to
(1)&nbsp;options that are exercised by December&nbsp;31, 2002 and (2)&nbsp;options that vest
by</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-36
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="86%"><FONT size="2">December&nbsp;31, 2003 and are
exercised by March
31, 2004. In each case, the trustee must have held the options
for a period of 24&nbsp;months from the date on which they were
granted.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Following is a summary of the status of the plans as of
December&nbsp;31, 2000, 2001 and 2002 and the changes therein
during the years ended on those dates:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="23"><FONT size="1"><B>Year ended December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="23"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Weighted</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Weighted</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Weighted</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>average</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>average</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>average</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>exercise</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>exercise</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>exercise</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Number</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>price*</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Number</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>price*</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Number</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>price*</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>NIS</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>NIS</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>NIS</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Balance at beginning of year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,655,285</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.424</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,541,669</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,962,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.746</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Changes during the year:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Granted**</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,336,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">24.219</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,063,708</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">768,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20.976</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Exercised and paid</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,383</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(32,314</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,670,637</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.591</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Forfeited</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(446,352</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.418</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(610,828</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(448,488</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16.747</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Balance outstanding at end of year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,541,669</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,962,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.746</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,611,110</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18.001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Options exercisable at December 31</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,723,147</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,501,109</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,728,806</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.740</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">**Below market value</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">523,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">**At market value</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,813,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27.350</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,063,708</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">768,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20.976</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">*</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Includes options under plan A, the exercise price of which is weighted
based on the applicable date&#146;s exchange rate.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes information about options outstanding at
December&nbsp;31, 2002:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Options outstanding</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Options exercisable</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="14"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Weighted</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Number</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>average</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Weighted</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Number</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Weighted</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>outstanding at</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>remaining</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>average</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>exercisable</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>average</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>December 31,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>contractual</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>exercise</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>at December</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>exercise</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left" colspan="2"><FONT size="1"><B>Range of exercise price</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>life</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>price</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>31,2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>price</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left" colspan="2"><FONT size="1"><B>NIS</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Years</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>NIS</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>NIS</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1.625</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,898,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">938,795</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">17.25-22.23</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,779,208</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20.06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">258,427</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">27.35</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,933,667</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27.35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,531,584</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27.35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1.625-27.35</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,611,110</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18.001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,728,806</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.740</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>c.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Dividends</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">As to restrictions with respect to cash dividend distributions, see
note 5g.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-37
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="left"><FONT size="2"><B>NOTE 10 &#150; TAXES ON INCOME:</B>
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>a.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Measurement of Results for Tax Purposes under the Income Tax
(Inflationary Adjustments) Law, 1985</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Under this law, results for tax purposes are measured in real terms,
having regard to the changes in the Israeli CPI. The Company and its
subsidiary are taxed under this law.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>b.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Tax Rates Applicable to Income of the Company and its Subsidiary</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The income of the Company and its subsidiary are taxed at the regular
rate of 36%.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>c.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Losses Carried Forward to Future Years</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">At December&nbsp;31, 2002, the Group had carryforward losses of
approximately NIS 2,000&nbsp;million (approximately $ 422&nbsp;million). The
carryforward tax losses are linked to the Israeli CPI and can be
utilized indefinitely.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>d.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Deferred Income Taxes</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The deferred tax asset in respect of the balances of temporary
differences (mostly in respect of carryforward losses, see c. above)
and the related valuation allowance as of December&nbsp;31, 2001 and 2002,
are as follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>New Israeli Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>In Thousands</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred tax asset</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">745,703</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">823,072</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">173,754</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less&#151;valuation allowance</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(745,703</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(823,072</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(173,754</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;,&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;,&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;,&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">During the year 2002, the Company had utilized approximately NIS 100
million ($ 21&nbsp;million) of its carryforward losses to offset its taxable
income for the year.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>e.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Tax Assessments</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The Company and its subsidiary have not been assessed for tax purposes
since incorporation.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-38
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="left"><FONT size="2"><B>NOTE 11 &#150; LIABILITIES SECURED BY PLEDGES AND RESTRICTIONS PLACED IN RESPECT OF LIABILITIES</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2002, balances of liabilities of the Company in the
amount of NIS 2,468&nbsp;million ($ 521&nbsp;million), are secured by fixed charges on the
fixed assets (including leasehold rights), share capital and insurance rights,
and by floating charges on the assets. The Company has also undertaken under the
facility agreement (see note 5) not to register any further charges on its
assets, with certain exceptions.
</FONT>
<P align="left"><FONT size="2"><B>NOTE 12 &#150; FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:</B>
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>a.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Linkage of Monetary Balances:</B></FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">As follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>December 31, 2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>In or linked</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>to foreign</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>currencies</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Linked to the</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>(mainly dollars)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Israeli CPI</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Unlinked</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>In Thousands</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>NIS:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">109,467</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,095</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">533,306</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">997,492</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">634,141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,354,727</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Convenience Translation into Dollars:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23,109</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,553</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">112,583</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">210,575</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">133,870</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">497,092</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Data regarding the dollar exchange rate and the Israeli CPI:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="43%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Exchange rate</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>of one dollar</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Israeli CPI*</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>At December&nbsp;31:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">NIS 4.737</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">182.01 points</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2001</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">NIS 4.416</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">170.91 points</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2000</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">NIS 4.041</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">168.53 points</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1999</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">NIS 4.153</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">168.53 points</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Increase (decrease)
during the year:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.3</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.5</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2001</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.3</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.4</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2000</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2.7</FONT></TD>
    <TD nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.0</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">*</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Based on the index for the month ending on each balance sheet date, on
the basis of 1993 average = 100.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-39
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>b.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Derivative Financial Instrument&#151;Foreign Exchange Risk Management</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The Company enters into foreign currency forward transactions and
purchases and writes foreign currency options in order to protect
itself against the risk that the eventual dollar cash flows resulting
from the existing assets and liabilities will be affected by changes in
exchange rates. The writing of such options is part of a comprehensive
hedging strategy and is designed to effectively swap the currencies
relating to existing assets and liabilities. Each of the options
written is combined with purchase of an option for the same period and
the same notional amount. The Company does not hold or issue derivative
financial instruments for trading purposes.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The transactions are mainly designated to hedge the cash flows related
to payments of dollar interest on notes payable as well as those
related to anticipated payments in respect of purchases of handsets and
capital expenditures in foreign currency. However, these contracts do
not qualify for hedge accounting under FAS 133.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">As the counterparties to the foreign currency options and forward
transactions are Israeli banks, the Company considers the inherent
credit risks remote.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The notional amounts of foreign currency derivatives as of December&nbsp;31,
2001 and 2002 are as follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>New Israeli Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="11"><FONT size="1"><B>(In Millions)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Currency options purchased&#151;for the exchange of dollars into NIS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">91</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>



<TR valign="bottom" bgcolor="#eeeeee">

<TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Currency options written&#151;for the exchange of dollars
into NIS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">91</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Forward transactions&#151;for the exchange of:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dollars into NIS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">242</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">264</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Euros into NIS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">

<TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Embedded
derivatives&#151;Dollars into NIS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">238</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The derivatives financial instruments are for a period of up to 1.5
years. As of December&nbsp;31, 2002, the remaining contractual lives are for
periods up to 1&nbsp;year.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-40
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>c.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Fair Value of Financial Instruments</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The financial instruments of the Company as of December&nbsp;31, 2002
consist mainly of non-derivative assets and liabilities (items included
in working capital and long-term liabilities); the Company also has
some derivatives, which are presented at their fair value.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In view of their nature, the fair value of the financial instruments
included in working capital is usually identical or close to their
carrying value. The fair value of long-term loans approximates the
carrying value, since they bear interest at rates close to the
prevailing market rates.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Regarding the fair value of Notes payable see note 6.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The fair value of derivatives as of December&nbsp;31, 2002, is a liability
of approximately NIS 2.0&nbsp;million ($ approximately
0.4&nbsp;million) (2001&#151;an asset of approximately NIS 8.0&nbsp;million).</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">Page F-41
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left"><FONT size="2"><B>NOTE 13 &#150; SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:</B>
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>a.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Accounts Receivable:</B></FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="67%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>NIS</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>In thousands</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade (current and long-term)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">The item is presented after the deduction of:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred interest income*</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,355</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,040</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(220</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Allowance for doubtful accounts</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(61,869</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(74,622</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(15,753</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">*</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Long-term trade receivables (including current maturities) as of
December&nbsp;31, 2001 and 2002 in the amount of NIS 12,776,000 and NIS
4,561,000 ($963,000), respectively, bear no interest. These balances
are in respect of handsets sold in installments (mostly 36&nbsp;monthly
payments).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Income in respect of deferred interest is the difference between the
original and the current amount of the debt. The current amount is
computed on the basis of the interest rate relevant to the date of the
transaction (8.8%&#151;9.5%).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Other:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>NIS</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>In thousands</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Government institutions</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,596</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,144</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,563</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Derivatives instruments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,987</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Prepaid expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,984</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">24,040</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,075</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Sundry</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,363</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,802</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,125</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42,930</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50,986</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,763</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">Page F-42
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>b.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Accounts Payable and
Accruals&#151;Other:</B></FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>NIS</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>In thousands</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Employees and employee institutions</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">69,405</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">57,424</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,122</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provision for vacation and recreation pay</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,743</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,578</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,345</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Government institutions</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,023</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23,704</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income received in advance</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">34,613</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">40,979</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,651</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accrued interest on long-term liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">58,989</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">49,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,350</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Sundry</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,392</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,451</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,206</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">186,165</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">202,166</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42,678</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2"><B>c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial Expenses, Net:</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Year ended December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>NIS</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>In thousands</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financial income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5,980</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(19,193</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(13,354</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,819</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Exchange rate differences</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(23,180</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">82,666</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">69,797</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,734</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">CPI Linkage differences</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,683</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,893</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">35,723</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,541</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Factoring costs</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,203</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,006</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,614</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financial expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">249,883</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">306,555</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">350,377</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">73,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Less&#151;capitalized interest</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,977</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,473</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">228,609</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">400,927</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">445,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">93,979</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">Page F-43
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>d.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Diluted EPS</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Following are data relating to the net income (loss)&nbsp;and the weighted
average number of shares that were taken into account in computing the
basic and diluted EPS (the effect of the inclusion of the options for
the years 2000 and 2001 is anti-dilutive):</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>Year ended December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>New
Israeli Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B><HR size="1" noshade></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B><HR size="1" noshade></B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>in
thousands</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)&nbsp;used for the computation of basic
and diluted EPS (in thousands)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(768,775</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(303,362</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">82,698</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted average number of shares used in computation
of basic EPS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,888,888</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,909,274</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">179,984,090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">179,984,090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Add&#151;net additional shares from assumed exercise of
employee stock options</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,479,287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,593,060</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,085,304</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,085,304</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted average number of shares used in computation
of diluted EPS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">182,368,175</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">183,502,334</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">183,069,394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">183,069,394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">Page F-44
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="left"><FONT size="2"><B>NOTE 14 &#150; TRANSACTIONS AND BALANCES WITH RELATED PARTIES:</B>
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>a.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Transactions with related parties:</B></FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>Year ended December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>New Israeli Shekels</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>In thousands</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Acquisition of handsets from related party</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">273,078</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">300,024</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">185,237</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">39,104</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financial expenses, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">73,270</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">60,202</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">81,212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,144</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Selling commissions and maintenance expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25,120</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,807</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,624</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,354</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>b.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Balances with related parties:</B></FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Convenience</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>translation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>NIS</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>into dollars</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>In thousands</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,617</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">643</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">136</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">510,283</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,520</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">354,417</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">692,572</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">146,205</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>c.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Cost sharing agreement</B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The Company has entered into a Cost Sharing Agreement (&#147;The agreement&#148;)
with Hutchison Whampoa Limited and certain of its wholly own
subsidiaries (hereafter&#151;&#147;the Hutchison group&#148;). The principal purpose
of the agreement is to regulate the sharing of costs associated with
various joint procurement and development activities relating to the
future roll out and operation of a 3G Business.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The agreement sets out the basis upon which expenses and liabilities
are paid or discharged by the Hutchison group companies in connection
with the joint procurement or development activities.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Under the agreement, the Company has the right to decide, and give
notice of, which of the joint projects it wishes to participate in.
As of December&nbsp;31, 2002, the Company had given notice of its
participation in four projects. The Company&#146;s expected share in these
projects in financial terms (including its share of joint expenses and
liabilities) is not material.</FONT></TD>
</TR>
</TABLE>

<P align="center"><FONT size="2">Page F-45
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link1 "SIGNATURES" -->
<DIV align="left"><A NAME="021"></A></DIV>
<P align="center"><FONT size="2"><B>SIGNATURES</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company hereby certifies that it meets all of the requirements for
filing on Form&nbsp;20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="15%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="72%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Partner Communications Company Ltd.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
By:
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">/s/ Alan Gelman</FONT></TD>
</TR>
<TR>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">Chief Financial
Officer<BR>March 14, 2003</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
By:
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">/s/ Amikam Cohen</FONT></TD>
</TR>
<TR>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">Chief Executive Officer<BR>March 14, 2003</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link1 "CERTIFICATIONS" -->
<DIV align="left"><A NAME="022"></A></DIV>
<P align="center"><FONT size="2"><B>CERTIFICATIONS</B>
</FONT>

<P align="left"><FONT size="2">I, Amikam Cohen, certify that:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">I have reviewed this annual report on Form&nbsp;20-F of Partner
Communications Company Ltd.;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(4)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The registrant&#146;s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules&nbsp;13a-14 and 15d-14) for the registrant and
have:</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">(a)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">(b)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">evaluated the effectiveness of the registrant&#146;s disclosure
controls and procedures as of a date within 90&nbsp;days prior to
the filing date of this annual report (the &#147;Evaluation Date&#148;);
and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">(c)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(5)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The registrant&#146;s other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant&#146;s auditors and the
audit committee of registrant&#146;s board of directors (or persons
performing the equivalent function):</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">(a)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant&#146;s ability to record, process, summarize and report
financial data and have identified for the registrant&#146;s
auditors any material weaknesses in internal controls; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">(b)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant&#146;s internal controls; and</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(6)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The registrant&#146;s other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">Date: March 14, 2003
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="50%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="30%" align="center"><FONT size="2">/s/ AMIKAM COHEN<BR>
<HR size="1" noshade>
Chief Executive Officer</FONT></TD>
    <TD width="20%"><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="left"><FONT size="2">I, Alan Gelman, certify that:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">I have reviewed this annual report on Form&nbsp;20-F of Partner
Communications Company Ltd.;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(4)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The registrant&#146;s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules&nbsp;13a-14 and 15d-14) for the registrant and
have:</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">(a)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">(b)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">evaluated the effectiveness of the registrant&#146;s disclosure
controls and procedures as of a date within 90&nbsp;days prior to
the filing date of this annual report (the &#147;Evaluation Date&#148;);
and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">(c)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(5)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The registrant&#146;s other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant&#146;s auditors and the
audit committee of registrant&#146;s board of directors (or persons
performing the equivalent function):</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">(a)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant&#146;s ability to record, process, summarize and report
financial data and have identified for the registrant&#146;s
auditors any material weaknesses in internal controls; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">(b)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant&#146;s internal controls; and</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(6)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The registrant&#146;s other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">Date: March 14, 2003
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="50%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="30%" align="center"><FONT size="2">/s/ ALAN GELMAN<BR>
<HR size="1" noshade>
Chief Financial Officer</FONT></TD>
    <TD width="20%"><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">&nbsp;</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link1 "EXHIBIT INDEX" -->
<DIV align="left"><A NAME="023"></A></DIV>
<P align="center"><FONT size="2"><B>EXHIBIT INDEX</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Exhibit</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Number</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Description</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">1.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Partner&#146;s Articles of Association</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">*1.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Partner&#146;s Certificate of Incorporation</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">*1.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Partner&#146;s Memorandum of Association</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**2.(a).1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Form of Share Certificate</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**2.(a).2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Form of Deposit Agreement including Form of ADR Certificate</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">*2.(b)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Form of Indenture between Partner and The Bank of New York, as trustee, including form of note</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Relationship Agreement dated October&nbsp;10, 1999</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
License from the Israeli Ministry of Communications issued April&nbsp;8, 1998</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Bank Facility dated August&nbsp;13, 1998</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
License Agreement for use of the Orange Brand in Israel dated September&nbsp;14, 1998</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Brand Support/Technology Transfer Agreement dated July&nbsp;18, 1999</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Agreement with Ericsson Radio Systems AB dated May&nbsp;28, 1998</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">#4.(a).7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Agreement with LM Ericsson Israel Ltd. dated November&nbsp;25, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">#***4.(a).8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Dealer Agreement with SuperPharm dated February&nbsp;11, 2001</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Lease Agreement with Mivnei Taasia dated July&nbsp;2, 1998</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Interconnect Agreement with Cellcom dated February&nbsp;15, 1999</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">**4.(a).11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Interconnect Agreement with Pelephone dated May&nbsp;1, 1999</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">*4.(a).12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending and Rescheduling Agreement dated July&nbsp;9, 2000</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">4.(a).13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Supplemental Agreement dated April&nbsp;18, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment to Relationship Agreement dated April&nbsp;23, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">***4.(a).15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;1 to License from the Israeli Ministry of Communications issued May&nbsp;11, 1999</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">***4.(a).16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;2 to License from the Israeli Ministry of Communications issued September&nbsp;29, 1999</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">***4.(a).17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;3 to License from the Israeli Ministry of Communications issued October&nbsp;3, 1999</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">***4.(a).18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;4 to License from the Israeli Ministry of Communications issued June&nbsp;28, 2000</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">***4.(a).19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;5 to License from the Israeli Ministry of Communications issued September&nbsp;10, 2000</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">***4.(a).20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;6 to License from the Israeli Ministry of Communications issued March&nbsp;19, 2001</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;7 to License from the Israeli Ministry of Communications issued September&nbsp;23, 2001</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;8 to License from the Israeli Ministry of Communications issued December&nbsp;27, 2001</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;9 to License from the Israeli Ministry of Communications issued March&nbsp;13, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;10 to License from the Israeli Ministry of Communications issued April&nbsp;14, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;11 to License from the Israeli Ministry of Communications issued April&nbsp;25, 2002</FONT></TD>
</TR>
</TABLE>
</CENTER>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Exhibit</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Number</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Description</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">4.(a).27</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;12 to License from the Israeli Ministry of Communications issued June&nbsp;26, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">4.(a).28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;13 to License from the Israeli Ministry of Communications issued June&nbsp;30, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">4.(a).29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;14 to License from the Israeli Ministry of Communications issued September&nbsp;11, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">4.(a).30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;15 to License from the Israeli Ministry of Communications issued October&nbsp;24, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">4.(a).31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;16 to License from the Israeli Ministry of Communications issued November&nbsp;26, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">4.(a).32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amendment No.&nbsp;17 to License from the Israeli Ministry of Communications issued February&nbsp;2, 2003</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement dated January&nbsp;8, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement dated January&nbsp;30, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement dated February&nbsp;6, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).36</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement dated February&nbsp;28, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement dated March&nbsp;14, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement dated March&nbsp;24, 2002</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement of April 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#043;4.(a).40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement dated April&nbsp;24, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">4.(a).41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amending Agreement to the Facility Agreement dated December&nbsp;31, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">6.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
See Note 1q to our financial statements for information explaining
how earnings (loss)  per share information was calculated.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">8.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
List of Subsidiaries</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">10.(a).1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Consent of Kesselman &#038; Kesselman</FONT></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">10.(a).2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002</FONT></TD>
</TR>

</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">*</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Incorporated by reference to our registration statement on Form&nbsp;F-1 (No.
333-12340).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">**</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Incorporated by reference to our registration statement on Form&nbsp;F-1
(No.&nbsp;333-10992).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">***</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Incorporated by reference to our annual report on Form&nbsp;20-F for the fiscal
year ended December&nbsp;31, 2000.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#043;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Incorporated by reference to our annual report on Form&nbsp;20-F for the
fiscal year ended December&nbsp;31, 2001.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">#</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Confidential treatment requested.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Confidential material has been redacted and has been separately filed
with the Securities and Exchange Commission.
</FONT>

<P align="center"><FONT size="2">&nbsp;</FONT>



</BODY>
</HTML>
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e20vf
Table of Contents
As filed with the Securities and Exchange Commission on March 14, 2003
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
COMMISSION FILE NUMBER 1-14968
PARTNER COMMUNICATIONS COMPANY LTD.
(Exact name of Registrant as specified in its charter)
ISRAEL
(Jurisdiction of incorporation or organization)
8 AMAL STREET
AFEQ INDUSTRIAL PARK
ROSH-HA'AYIN 48103
ISRAEL
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of class
American Depositary Shares
Ordinary Shares*
*     Not for trading, but only in connection with the registration of American
Depositary Shares representing such ordinary shares, pursuant to the
requirements of the Securities and Exchange Commission.
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:
NONE
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:
ORDINARY SHARES OF NIS 0.01 EACH
181,595,222
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
YES
x
NO
o
Indicate by check mark which financial statement item the Registrant has
elected to follow:
ITEM 17
o
ITEM 18
x
TABLE OF CONTENTS
INTRODUCTION
FORWARD-LOOKING STATEMENTS
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. KEY INFORMATION
ITEM 4. INFORMATION ON THE COMPANY
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
ITEM 8. FINANCIAL INFORMATION
ITEM 9. THE OFFER AND LISTING
ITEM 10. ADDITIONAL INFORMATION
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12. ` DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS
ITEM 15. CONTROLS AND PROCEDURES
ITEM 16. [RESERVED]
ITEM 17. FINANCIAL STATEMENTS
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBITS
SIGNATURES
CERTIFICATIONS
EXHIBIT INDEX
Articles of Association
Agreement with LM Ericsson (Nov 25, 2002)
Supplemental Agreement (April 18, 2002)
General License for Partner Amendment # 12
General License for Partner Amendment # 13
General License for Partner Amendment # 14
General License for Partner Amendment # 15
General License for Partner Amendment # 16
General License for Partner - Amendment # 17
Amending Agreement to the Facility Agreement
List of Subsidiaries
Consent of Kesselman & Kesselman
Section 906 Certifications
Table of Contents
TABLE OF CONTENTS
Page
PART I
INTRODUCTION
2
FORWARD-LOOKING STATEMENTS
3
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
5
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
5
ITEM 3. KEY INFORMATION
6
ITEM 4. INFORMATION ON THE COMPANY
33
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
82
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
99
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
122
ITEM 8. FINANCIAL INFORMATION
136
ITEM 9. THE OFFER AND LISTING
140
ITEM 10. ADDITIONAL INFORMATION
143
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
159
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
162
PART II
162
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
162
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
162
ITEM 15. CONTROLS AND PROCEDURES
162
ITEM 16. [RESERVED]
162
PART III
162
ITEM 17. FINANCIAL STATEMENTS
162
ITEM 18. FINANCIAL STATEMENTS
163
ITEM 19. EXHIBITS
164
GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS
166
Page 1
Table of Contents
INTRODUCTION
As used herein, references to "we," "our," "us," "Partner" or the
"Company" are references to Partner Communications Company Ltd. and to its
wholly owned subsidiary, Partner Future Communications 2000 Ltd., except as the
context otherwise requires. In addition, references to our "financial
statements" are to our consolidated financial statements except as the context
otherwise requires.
In this document, references to "$," "US$," "US dollars" and "dollars" are
to United States dollars and references to "NIS" and "shekels" are to New
Israeli Shekels. This annual report contains translations of NIS amounts into
US dollars at specified rates solely for the convenience of the reader. No
representation is made that the amounts referred to in this annual report as
convenience translations could have been or could be converted from NIS into US
dollars at these rates, at any particular rate or at all. The translations of
NIS amounts into US dollars appearing throughout this annual report have been
made at the representative exchange rate on December 31, 2002 of NIS 4.737 =
US$1.00 as published by the Bank of Israel, unless otherwise specified. See
"Item 3A. Key Information—Selected Financial Data—Exchange Rate Data."
We maintain our financial books and records in shekels. Our financial
statements included in this annual report are prepared in accordance with
accounting principles generally accepted in the United States, or US GAAP, and
the accompanying discussion of the results of our operations is based on our
results under US GAAP. See "Item 18. Financial Statements" and "Item 5A.
Operating and Financial Review and Prospects—Operating Results".
Page 2
Table of Contents
FORWARD-LOOKING STATEMENTS
This annual report includes forward-looking statements within the meaning
of Section 27A of the US Securities Act of 1933, as amended, Section 21E of the
US Securities Exchange Act of 1934, as amended, and the safe harbor provisions
of the US Private Securities Litigation Reform Act of 1995. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about Partner.
Words such as "believe," "anticipate," "expect," "intend," "seek," "will,"
"plan," "could," "may," "project," "goal," "target" and similar expressions
often identify forward-looking statements but are not the only way we identify
these statements. All statements other than statements of historical fact
included in this annual report, including the statements in the sections of
this annual report entitled "Item 3D. Key Information—Risk Factors," "Item 4.
Information on the Company" and "Item 5. Operating and Financial Review and
Prospects" and located elsewhere in this annual report regarding our future
performance, plans to increase revenues or margins or preserve or expand market
share in existing or new markets, reduce expenses and any statements regarding
other future events or our future prospects, are forward-looking statements.
Because such statements involve risks and uncertainties, actual results
may differ materially from the results currently expected. Factors that could
cause such differences include, but are not limited to:
•
uncertainties about the degree of growth in the number of consumers in
Israel using wireless personal communications services and the growth in
the Israeli population;
•
the risks associated with the implementation of a third-generation
network and business strategy, including risks relating to the operations
of new systems and technologies, substantial expenditures required and
potential unanticipated costs, uncertainties regarding the adequacy of
suppliers on whom we must rely to provide both network and consumer
equipment and consumer acceptance of the products and services to be
offered;
•
the impact of existing and new competitors in the market in which we
compete, including competitors that may offer less expensive products and
services, desirable or innovative products, technological substitutes, or
have extensive resources or better financing;
•
the effects of vigorous competition in the market in which we operate,
which may decrease prices charged, increase churn and change our customer
mix, profitability and average revenue per
Page 3
Table of Contents
user;
•
the availability and cost of capital and the consequences of increased
leverage;
•
the effects of the high degree of regulation
in the telecommunications market in which
we operate;
•
fluctuations in foreign exchange rates;
•
the results of litigation filed or that may be filed against us; and
•
the possibility of the market in which we compete being impacted by
changes in political, economic or other factors, such as monetary policy,
legal and regulatory changes or other external factors over which we have
no control;
as well as the risks discussed in "Item 3D. Key Information—Risk Factors,"
"Item 4. Information on the Company" and "Item 5. Operating and Financial
Review and Prospects". In light of these risks, uncertainties and assumptions,
the forward-looking events discussed in this annual report might not occur.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Page 4
Table of Contents
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
Page 5
Table of Contents
ITEM 3. KEY INFORMATION
3A. Selected Financial Data
The following table sets forth our selected financial data as at and for
each of the years in the five-year period ended December 31, 2002 prepared in
accordance with US GAAP. The selected financial data for each of the years in
the three-year period ended December 31, 2002 and at December 31, 2002 and 2001
are derived from our consolidated financial statements set forth elsewhere in
this annual report. The selected financial data for each of the years in the
two-year period ended December 31, 1999 and at December 31, 2000, 1999 and 1998
are derived from other financial statements not appearing in this annual
report. We were incorporated in September 1997 and began full commercial
operations on January 1, 1999. The selected financial data set forth below
should be read in conjunction with "Item 5. Operating and Financial Review and
Prospects" and the financial statements and notes thereto included elsewhere in
this annual report.
Year ended December 31,
1998
1999
2000
2001
2002
2002
Convenience
translation into
New Israeli Shekels
US dollars
In thousands (except per share data)
Statement of Operations Data
Revenues, net
—
899,217
2,103,859
3,249,349
4,054,563
855,935
Cost of revenues (1998—operating
expenses, net(1))
27,289
1,483,061
2,161,507
2,719,163
3,069,458
647,975
Gross profit (loss)
(27,289
)
(583,844
)
(57,648
)
530,186
985,105
207,960
Selling and marketing expenses
46,157
265,124
327,881
292,960
308,079
65,037
General and administrative expenses
20,737
158,588
154,637
134,282
143,594
30,313
Operating profit (loss)
(94,183
)
(1,007,556
)
(540,166
)
102,944
533,432
112,610
Financial expenses, net
5,010
290,397
228,609
400,927
445,180
93,979
Loss on impairment of investments in
non-marketable securities
—
—
—
8,862
4,054
856
Net income (loss) before cumulative
effect of a change in accounting principles
(99,193
)
(1,297,953
)
(768,775
)
(306,845
)
84,198
17,775
Cumulative effect, at beginning of
year, of a change in accounting
principles
—
—
—
3,483
—
—
Net income (loss) for the year
(99,193
)
(1,297,953
)
(768,775
)
(303,362
)
84,198
17,775
Page 6
Table of Contents
Year ended December 31,
1998
1999
2000
2001
2002
2002
Convenience
translation into
New Israeli Shekels
US dollars
In thousands (except per share data)
Earnings (loss) per ordinary share and per ADS
Basic:
Before cumulative effect
(0.71
)
(8.86
)
(4.30
)
(1.72
)
0.47
0.10
Cumulative effect
—
—
—
0.02
—
—
(0.71
)
(8.86
)
(4.30
)
(1.70
)
0.47
0.10
Diluted:
Before cumulative effect
(0.71
)
(8.86
)
(4.30
)
(1.72
)
0.46
0.10
Cumulative effect
—
—
—
0.02
—
—
(0.71
)
(8.86
)
(4.30
)
(1.70
)
0.46
0.10
Weighted average number of shares
outstanding
Basic:
140,000,000
146,481,482
178,888,888
178,909,274
179,984,090
179,984,090
Diluted:
140,000,000
146,481,482
178,888,888
178,909,274
183,069,394
183,069,394
Other Financial Data
Capital expenditures, net
548,476
823,995
544,927
599,493
556,376
117,453
EBITDA(2)
(95,336
)
(581,959
)
(58,741
)
656,369
1,052,240
222,132
Statement of Cash Flows Data
Net cash provided by (used in)
operating activities
(71,198
)
(835,949
)
(353,272
)
422,548
682,191
144,013
Net cash used in investing activities
(1,901,833
)
(690,396
)
(809,731
)
(629,061
)
(815,968
)
(172,254
)
Net cash provided by financing
activities
1,989,543
1,924,930
748,775
210,916
129,865
27,415
Balance Sheet Data (at year end)
Current assets
109,824
774,242
588,545
631,148
816,416
172,348
Investments and long-term
receivables
—
8,112
119,524
140,969
45,991
9,709
Fixed assets, net
546,295
1,216,765
1,507,045
1,749,052
1,864,511
393,606
License and deferred charges, net
1,613,914
1,436,949
1,289,933
1,112,959
1,269,348
267,965
Total assets
2,270,033
3,436,068
3,505,047
3,634,128
3,996,266
843,628
Current liabilities(3)
931,380
571,261
583,243
1,194,704
735,153
155,194
Long-term liabilities(3)
1,435,526
2,063,815
2,832,964
2,633,200
3,357,497
708,781
Total liabilities
2,366,906
2,635,076
3,416,207
3,827,904
4,092,650
863,975
Shareholders' equity (capital
deficiency)
(96,873
)
800,992
88,840
(193,776
)
(96,384
)
(20,347
)
Total liabilities and shareholders'
equity (net of capital
deficiency)
2,270,033
3,436,068
3,505,047
3,634,128
3,996,266
843,628
Page 7
Table of Contents
Year ended December 31,
1998
1999
2000
2001
2002
2002
Convenience
translation into
New Israeli Shekels
US dollars
In thousands
Reconciliation Between Operating
Cashflows and EBITDA
Net cash provided by (used in)
operating activities
(71,198
)
(835,949
)
(353,272
)
422,548
682,191
144,013
Liability for employee rights upon
retirement
(447
)
(9,583
)
(11,581
)
(18,736
)
(18,632
)
(3,933
)
Accrued interest, exchange and
linkage differences on long-term
liabilities
—
(141,663
)
13,214
(54,522
)
(91,027
)
(19,216
)
Amount carried to deferred charges
—
—
7,489
22
3,805
803
Accrued interest, exchange and
linkage differences on security
deposit
—
—
2,574
6,590
6,925
1,462
Sundry
(5,000
)
(2,560
)
181
—
—
—
Increase (Decrease) in accounts
receivable:
Trade
4,146
204,732
197,308
55,944
56,638
11,957
Other
22,060
17,180
(23,970
)
14,235
8,056
1,701
Decrease (Increase) in accounts
payable and accruals:
Trade
(76,044
)
(133,238
)
(93,499
)
(57,271
)
(31,909
)
(6,736
)
Shareholder—current account
(629
)
16
(20
)
2,230
—
—
Other
(26,915
)
(8,063
)
(84,685
)
(68,068
)
(14,796
)
(3,124
)
Increase (Decrease) in inventories
53,681
43,921
65,614
(36,859
)
12,996
2,744
Financial Expenses(4)
5,010
283,248
221,906
393,739
437,993
92,461
Cumulative effect, at beginning of
year and change in accounting principles
—
—
—
(3,483
)
—
—
EBITDA
(95,336
)
(581,959
)
(58,741
)
656,369
1,052,240
222,132
(1)
After deduction of incidental revenues amounting to NIS 4.7 million.
(2)
EBITDA represents earnings (loss) before interest, taxes, depreciation,
amortization, exceptional items and capitalization of intangible assets.
EBITDA is presented because it is a measure commonly used in the
telecommunications industry and is presented solely to enhance the
understanding of our operating results. EBITDA, however, should not be
considered as an alternative to operating income or income for the year as
an indicator of our operating performance. Similarly, EBITDA should not be
considered as an alternative to cash flows from operating activities as a
measure of liquidity. EBITDA is not a measure of financial performance
under generally accepted accounting principles and may not be comparable
to other similarly titled measures for other companies. EBITDA may not be
indicative of our historic operating results; nor is it meant to be
predictive of potential future results. The EBITDA figures presented above
are substantially the same as those resulting from the calculation of
Consolidated Adjusted EBITDA pursuant to US GAAP as required under the
indenture governing our 13% senior subordinated notes due 2010.
Page 8
Table of Contents
(3)
See Notes 5, 6 and 7 to our consolidated financial statements for
information regarding long-term liabilities and current maturities of
long-term bank loans. With respect to our loans from Bank Hapoalim, see
"Item 5B. Operating and Financial Review and Prospects—Liquidity and
Capital Resources."
(4)
Financial expenses excluding any charge for the amortization of
pre-launch financial costs.
Selected Operating Data
At December 31,
2000
2001
2002
Industry Data
Estimated population of Israel (in thousands)(1)
6,347
6,500
6,650
Estimated Israeli mobile telephone subscribers (in thousands)(2)
4,003
5,470
6,333
Estimated Israeli mobile telephone penetration(3)
63%
84%
95%
Year ended December 31,*
Three months ended
March 31,
June 30,
Sept. 30,
Dec. 31,
1999
2000
2001
2002
2002
2002
2002
2002
Partner Data
Subscribers (000's) (at period end)(4)
355
834
1,458
1,837
1,596
1,703
1,758
1,837
Prepaid
389
540
453
502
514
540
Postpaid (private)
829
1,004
888
933
966
1,004
Postpaid (business)
240
293
255
268
278
293
Share
of total Israeli
subscribers (at
period
end)(5)
13%
21%
27%
29%
27%
28%
28%
29%
Average monthly usage per subscriber
(mins.)(6)
456
392
318
280
284
284
279
272
Average monthly revenue per subscriber
including inroaming (NIS)(7)
393
306
214
183
184
185
187
178
Prepaid
151
127
127
129
131
120
Postpaid (private)
192
167
167
169
172
161
Postpaid (business)
354
343
337
344
347
343
Churn rate(8)
6.8%
5.5%
5.8%
10.9%
1.3%
1.6%
4.7%
2.9%
Subscriber acquisition costs per
subscriber (NIS)(9)
1,464
819
458
470
443
463
495
482
Estimated coverage of Israeli
population (at period end)(10)
96%
97%
97%
97%
97%
97%
97%
97%
Number of operational base stations
(at period end)
846
1,355
1,882
2,035
1,901
1,950
1,986
2,035
Page 9
Table of Contents
Year ended December 31,*
Three
months ended
March 31,
June 30,
Sept. 30,
Dec. 31,
1999
2000
2001
2002
2002
2002
2002
2002
Partner Data
Number of microsites out of total
number of operational base stations
(at period end)(11)
46
347
703
726
690
703
710
726
Number of employees (full time
equivalent) (at period end)(12)
1,453
2,131
2,523
2,685
2,469
2,564
2,648
2,685
*
Until the end of 1998 we were mainly engaged in planning and
establishing our cellular network. We launched our commercial services in
January 1999.
(1)
The estimated population of Israel at December 31, 2000 and 2001 is
published by the Central Bureau of Statistics in Israel. The figures for
2002 are the Company's estimates.
(2)
We have estimated the total number of Israeli mobile telephone
subscribers from information contained in published reports issued by, and
public statements made by, Pelephone and Cellcom or by their shareholders
and from Partner subscriber data at December 31, 2000, 2001 and 2002. The
figure for MIRS 2001 is the Company's estimate. As MIRS received a general
license on February 5, 2001 their subscribers have not been included in
the Israeli subscriber count in prior years. MIRS's entire subscriber base
has been included in the Israeli subscriber count from the date on which
MIRS received its license.
(3)
Total number of estimated Israeli mobile telephone subscribers expressed
as a percentage of the estimated population of Israel. This includes
dormant subscribers as well as other subscribers who are not included in
the Israeli population figures, such as Palestinians, new immigrants, and
foreign workers.
(4)
In accordance with general practice in the mobile telephone industry, we
use the term "subscriber", unless the context otherwise requires, to
indicate a telephone, rather than either a bill-paying network customer,
who may have a number of telephones connected to the network, or a mobile
telephone user who may share a single telephone with a number of other
users. "Subscriber" includes our prepaid customers. Our prepaid service
was launched on June 29, 2000. References to the number of subscribers are
stated net of subscribers who leave or are disconnected from the network,
or who have not generated revenue for the Company for a period of over six
consecutive months ending at a reporting date.
(5)
Total number of Partner subscribers expressed as a percentage of the
estimated total number of Israeli subscribers.
(6)
We have calculated Partner average monthly usage per subscriber by (i)
dividing, for each month in such period, the total number of minutes of
usage, excluding in-roaming usage, during such month by the average of the
number of Partner subscribers, and (ii) dividing the sum of such results
by the number of months in the relevant period.
(7)
We have calculated Partner average monthly revenue per subscriber by (i)
dividing, for each month in such period, the Partner revenue during such
month, excluding revenue from equipment sales and including revenue from
foreign Global System for Mobile Communications, or GSM, network operators
for
Page 10
Table of Contents
calls made by their roaming customers while in Israel using our network, by
the average of the number of Partner subscribers, and (ii) dividing the sum
of such results by the number of months in the relevant period. We have
presented the amounts in NIS.
(8)
We define the "churn rate" as the total number of subscribers who
disconnect from our network, either involuntarily or voluntarily, in a
given period expressed as a percentage of the average of the number of
our subscribers at the beginning and end of such period. From June
2001, our churn rate has also included subscribers who have not generated
revenue for the Company for a period of the last six consecutive months
ending at a reporting date. Involuntary churn includes disconnections due
to non-payment of bills or suspected fraudulent use, and voluntary churn
includes disconnections due to subscribers switching to a competing mobile
telephone network or terminating their use of our services. In the
quarter ended September 30, 2002, we refined our reporting procedures for active
subscribers. This change caused a reduction in the reported number of
active subscribers for the third quarter of 2002 of 41,000 subscribers. Some of the additional churn provided for, related to
periods prior to the third quarter of 2002.
(9)
Subscriber acquisition costs (SAC) include mainly handset and car kit
costs, net of revenues received from sales of handsets, referred to as
"handset subsidies", and commissions paid to dealers, distributors and
sales personnel. Subscriber acquisition costs per subscriber are
calculated by dividing the subscriber acquisition costs incurred during

the reporting period by the number of subscribers acquired in the
reporting period.
The aforementioned components of SAC are included in our consolidated
financial statements as follows: handset and car kit costs—in "cost of
revenues"; commissions paid to dealers, distributors and sales personnel—in
"selling and marketing expenses"; and revenues received from sales of
handsets—in "revenues, net".
(10)
We measure coverage using computerized models of our network, radio
propagation characteristics and topographic information to predict signal
levels at two meters above ground level in areas where we operate a cell
site. According to these coverage results, we estimate the population
serviced by our network and divide this by the estimated total population
of Israel. Estimates are published by the Central Bureau of Statistics in
Israel.
(11)
We did not begin to record data on the number of microsites until the
second quarter of 1999.
(12)
A full-time employee is contracted
to work a standard 186 hours per month.
Part-time employees are converted to full-time equivalents by dividing
their contracted hours per month by the full-time standard. The result is
added to the number of full-time employees to determine the number of
employees on a full-time equivalent basis.
Page 11
Table of Contents
Exchange Rate Data
The following table sets forth, for the years indicated, exchange rates
between the shekel and the US dollar, expressed as shekels per US dollar and
based upon the daily representative rate of exchange on the last day of each
year as published by the Bank of Israel.
1998
1999
2000
2001
2002
Average(1)
3.800
4.140
4.077
4.220
4.736
High
4.367
4.288
4.198
4.416
4.994
Low
3.536
4.013
3.967
4.067
4.437
End of period
4.160
4.153
4.041
4.416
4.737
(1)
Calculated based on the average of the exchange rates on the last
day of each month during the relevant period.
September
October
November
December
January
February
2002
2002
2002
2002
2003
2003
High
4.890
4.862
4.756
4.791
4.898
4.924
Low
4.679
4.738
4.634
4.632
4.769
4.810
On March 12 2003, the exchange rate was NIS 4.832 per US dollar as published by
the Bank of Israel.
Changes in the exchange rate between the shekel and the US dollar could
materially affect our financial results.
3B. Capitalization and Indebtedness
Not applicable.
3C. Reasons for the Offer and Use of Proceeds
Not applicable.
Page 12
Table of Contents
3D. Risk Factors
We expect our growth to slow,
because Israel's mobile telephone market is
highly penetrated, making it difficult to obtain new subscribers.
Although we have experienced substantial subscriber growth since our
commercial launch in 1999, we expect the growth of the Israeli market for
mobile telephones to slow because the market is highly penetrated. The
population of Israel at December 31, 2002 was approximately 6.7 million. At
December 31, 1998, prior to our full commercial launch, approximately 35% of
the Israeli population had mobile telephones. At December 31, 2002, that
percentage is estimated to be 95%, although this includes dormant subscribers
as well as other subscribers who are not included in the Israeli population
figures, such as Palestinians, new immigrants, and foreign workers. Because the
Israeli market for mobile telephones is highly penetrated, future demand for
our services may not develop at the same rate as it has in the past, and
depends largely on our ability to retain existing subscribers in our network
and to attract subscribers from the other mobile telephone network operators.
While our market share, based on internal estimates, has increased from
approximately 13% of Israeli mobile subscribers at December 31, 1999 to
approximately 29% at December 31, 2002, we expect our market share growth to
slow down in 2003.
A continuing deterioration in the
economic conditions in Israel may adversely
affect our financial condition and results of operations.
We are incorporated and based in, and currently derive almost all our
revenues from markets within, the State of Israel. Primarily due to the global
economic downturn and Israel's security and political situation, the Israeli
economy has slipped into recession. The rate of unemployment is rising,
consumer spending has decreased and many businesses are experiencing financial
difficulties. A continuing deterioration in the economic conditions in Israel
may adversely affect usage patterns of our services and the ability of our
customers to pay for our services, which would adversely affect our financial
condition and results of operations. Such continuing deterioration may also
cause us to delay our future investments and our launch of Universal
Mobile Telecommunications System, or UMTS third generation,
technology, also known as Wideband Code
Division Multiple Access, or W-CDMA technology. In addition, if
the economic deterioration in Israel continues, it may also affect the ability
of Israeli banks to provide us with financing under our current credit facility
and additional financing on reasonable terms and conditions, should we need it
in the future.
Page 13
Table of Contents
The political and military
conditions in Israel may adversely affect our
financial condition and results of operations.
The political and military conditions in Israel directly influence us.
Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors. Hostilities
involving Israel, the interruption or curtailment of trade between Israel and
its trading partners, political instability within Israel or its neighboring
countries and changes in Israeli laws and regulations, including taxation, are
likely to cause our revenues to fall and harm our business.
Since October 2000, there has been a substantial deterioration in the
relationship between Israel and the Palestinians, which has resulted in
increased violence, and the situation has recently worsened due to the
possibility of an Iraqi attack against Israel in response to an attack by the
United States and its allies against Iraq. The future effect of this
deterioration and violence on the Israeli economy and our operations is
unclear. Ongoing violence between Israel and its Arab neighbors and
Palestinians may have a material adverse effect on our business, financial
condition or results of operations. Due to the substantial deterioration in the
political situation in Israel, we have already experienced and may continue to
suffer from a decrease in incoming roaming services.
Some of our directors, officers and employees are currently obligated to
perform annual reserve duty. Additionally, all such reservists are subject to
being called to active duty at any time under emergency circumstances. We
cannot assess the full impact of these requirements on our workforce and
business if conditions should change, and we cannot predict the effect on us of
any expansion or reduction of these obligations. Under emergency circumstances,
the government also has the right to revoke temporarily some of the spectrum
granted to us, to protect the security of the State of Israel or to ensure the
provision of necessary services to the public. This may materially harm our
ability to provide services to our subscribers in such emergency circumstances.
We cannot assure you that we are fully prepared for every disaster or
emergency situation, or that we could recover fully from such an occurrence,
and we cannot predict the effect on us of any such circumstances.
Increased competition from existing competitors may affect our market share and
require us to reduce our tariffs in the future, may increase our subscriber
acquisition costs and customer retention costs and may continue to increase our
churn rate.
We compete primarily with Cellcom, which launched its services in 1994,
and Pelephone, which launched its services in 1986, two of the other mobile
telephone network operators in Israel. Although we were once the only GSM
network operator in Israel, Cellcom began providing GSM 1800 services during
the second half of 2002, and we expect competition to intensify as it will be
much
Page 14
Table of Contents
easier than before for Cellcom to attract new subscribers, including those who
are currently our subscribers. As a result, we may face an increase in our
churn rate and may be forced to increase our customer retention costs,
including subsidies towards upgrades of subscribers' handsets, in order to
retain our subscribers. Moreover, we have lost and do not expect to regain a
material part of our revenues from roaming services offered to GSM subscribers
visiting from abroad. These developments may adversely affect our market share
and financial condition and results of operations.
According to public reports, Cellcom also intends to launch a technology
called Enhanced Data Rates for GSM Evolution, or EDGE, enabling the transfers
of data at rates of up to approximately 380 Kbps. Additionally, Pelephone is
adding an overlay to its existing CDMA network, which is called CDMA-1x, a
technology that enables the transfer of data at speeds of up to approximately
300 Kbps. If Cellcom or Pelephone successfully launch these new advanced
technologies before we launch UMTS third generation technology, or if any of our
competitors successfully launches third generation services, before we do,
we will be at a competitive disadvantage.
Pelephone also recently launched a new brand called "ESCAPE", or "ESC",
which is primarily aimed at young subscribers, which we believe are a very
important target market of ours. Pelephone is investing heavily in promoting
its new brand. However, we cannot predict at this stage the impact of the
launch of this new brand on our ability to retain our subscribers and attract
new subscribers from the other mobile telephone network operators.
We also
compete with an Enhanced Specialized Mobile Radio, or "trunking",
network known as MIRS. MIRS was granted a general license to operate as a
mobile telephone operator on February 5, 2001. As a result of the general
license, the use of MIRS's network has grown and may continue to grow
significantly, and this growth could adversely affect our market share.
To the extent that fixed-line telephones are used instead of mobile
telephones, we also compete with Bezeq, which owns 50% of Pelephone and is the
only incumbent public fixed-line operator in Israel. We also may face
competition from new fixed-line operators. Additional fixed-line telephone
service licenses may be granted in the future. If any of our competitors is
granted such a license, we may be at a competitive disadvantage relative to
those existing mobile telephone operators who are able to offer combined
packages of fixed-line and mobile telephone services.
In addition, the Palestine Telecommunication Co. Ltd., or Paltel, operates
a GSM mobile telephone network under the name "Jawwal" in the Palestinian
Authority administered areas of the
Page 15
Table of Contents
West Bank and Gaza Strip, as well as a fixed-line network. Paltel's GSM network
competes with our network in some border coverage overlap areas.
Competition may require us to increase our subscriber acquisition costs
and customer retention costs. Competition may also limit our ability in the
future to increase tariffs, or cause us to reduce tariffs. We experienced a
material increase in churn in 2002 and expect a further material increase in
churn in 2003. For more information, see "Item 5A. Operating Results—Churn".
Competition may further increase our expected level of churn. The impact of
increased competition could have a material adverse effect on our business,
financial condition or results of operations.
Risks and uncertainties in connection with UMTS third generation technology
mean that we may not make an economic return on our investment in acquiring
UMTS third generation spectrum, establishing a UMTS third generation network,
or developing UMTS third generation services.
The technology for new UMTS third generation services has not yet been
fully developed by the limited number of suppliers of the handsets, network
equipment and software to be used by us and our competitors in providing UMTS
third generation services. If these suppliers do not provide reasonably priced
devices, technologically proven network equipment and software with sufficient
functionality or speed or if they experience delays in the delivery or
functional deployment of such devices and related network equipment or
software, our ability to develop our UMTS third generation network, and our
customers' ability to access it, will be impaired. We also rely on applications
developers to develop services that will stimulate demand for our UMTS third
generation network, although we cannot predict whether customer demand will
develop as expected. If applications developers fail to develop such services,
or experience delays in their development of such services, our ability to
generate revenues from our UMTS third generation networks will be adversely
affected.
UMTS third generation technology is newer and has less mature standards
than second generation technology. We may not be able to roll-out or operate
new technologies to perform as expected or favorably when compared to existing
or emerging competing communications technologies, such as second generation
technology, as well as technologies in connection with UMTS third generation
mobile communications services that are being or will be developed around the
world. Competing communications technologies also include those discussed
below, in "—The telecommunications industry is subject to rapid and
significant changes in technology which could reduce the appeal of our
services." See also "—Increased competition from existing competitors may
affect our market share and require us to reduce our tariffs in the future, may
increase our subscriber acquisition costs and customer retention costs and may
continue to increase our churn rate."
Page 16
Table of Contents
Consequently, the UMTS third generation network and services that we intend to
establish and develop through investing substantial capital resources may not
gain market acceptance. As well, testing UMTS third generation networks in live
environments has been limited, and it is not yet clear how large-scale usage
will affect the capacity and functionality of UMTS third generation networks
and therefore what the optimal network density, which determines the cost of
our network roll-out, will be. Furthermore, it is not yet clear if customers
will adopt UMTS third generation services, how widespread the usage of these
new services will be, how many customers will be willing to pay for such
services and devices and whether the revenue generated from these services will
justify the costs involved in establishing and operating our UMTS third
generation network. For these reasons, we cannot be certain that our UMTS third
generation-related investments will provide an economic return.
The telecommunications industry is subject to rapid and significant changes in
technology which could reduce the appeal of our services.
We may face competition from technologies currently in development or that
will be developed in the future, including fixed-line and cordless
technologies, satellite-based personal communications services, private and
shared radio networks, and other communications services that have the
technical capability to handle mobile telephone calls including interconnection
to the fixed-line telephone network. The effect of emerging and future
technological changes on the viability or competitiveness of our network cannot
be accurately predicted. We cannot assure you that the technologies we employ
or intend to employ, including UMTS third generation technology, will not
become obsolete or subject to competition from new technologies in the future.
We operate in a highly regulated telecommunications market which limits our
flexibility to manage our business. In particular, the regulator's decisions,
including those relating to tariffs, may materially adversely affect our
results of operations.
Our business is subject to government regulation regarding licensing,
competition, frequency allocation and costs and arrangements pertaining to
interconnection and leased lines. Our business and operations could be
adversely affected by changes in laws, regulations or government policy
affecting our business activities, such as decisions by the regulator
increasing the rate of royalties to be paid to the State of Israel, enlarging
the types of revenues which the royalties apply to, setting policies and
imposing new regulations governing electronic trade and M-Commerce, or further
reducing call or SMS termination tariffs, as well as the amendment or
revocation of our license. For example, as of January 1, 2003, the Ministry of
Communications reduced the call termination tariffs to mobile telephone
Page 17
Table of Contents
networks from NIS 0.50 per minute to NIS 0.45 per minute. For more information, see "Item 4B. Business
Overview-Interconnection". According to our
estimation, this reduction in call termination tariffs will have a major
adverse impact on our revenues and results of operations.
Had the call termination tariffs been reduced to NIS 0.45 per minute for
all of 2002, the proforma negative impact on our revenues and net income would
have amounted to approximately NIS 110 million and NIS 62 million,
respectively, as a result of the reduction in the call termination tariffs that
we would have collected and paid, together with the related royalties. The
Ministry of Communications has also recently indicated that it may further
reduce call and SMS termination tariffs.
As well, the Ministry of Communications has started an inquiry into SMS
termination tariffs. The Antitrust Authority has also been reviewing SMS
interconnection agreements and has informed us preliminarily that the SMS
interconnection arrangements are in restraint of trade. The Antitrust Authority
has indicated that it will refrain from action for the time being to allow the
Ministry of Communications to resolve the matter. The result of either of these
two inquiries could be the reduction or elimination of SMS termination tariffs,
which would adversely affect our results of operations.
During an emergency, including a major communications crisis in Israel's
national communications network, a natural disaster, or a special security
situation in Israel, control of our network may be assumed by a lawfully
authorized person in order to protect the security of the State of Israel or to
ensure the provision of necessary services to the public. During such extreme
circumstances, the government also has the right to withdraw temporarily some
of the spectrum granted to us.
We may be unable to obtain necessary financing to support our network expansion
and enhancement plans.
Operating a mobile telephone network like ours requires high levels of
capital investment and marketing expenditures. From January 1, 1998 to December
31, 2002 we made cumulative net capital expenditures of approximately NIS 3,073
million ($649 million), and paid license fees and associated costs totaling
approximately NIS 1,793 million ($378 million).
In an auction process completed on December 18, 2001, the Ministry of
Communications awarded us the two bands of spectrum for which we had submitted
bids: one band of 1800 MHz spectrum, which is GSM compatible, or GSM 1800
spectrum, and one band of UMTS third generation spectrum. The cost of the
license fees is NIS 180 million (approximately $38 million) for the GSM 1800
spectrum, payable in two installments, and NIS 220 million (approximately $46
million) for the
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UMTS third generation spectrum, payable in six installments. To date, we have
paid NIS 108 million and NIS 100 million for the GSM 1800 spectrum and the UMTS
third generation spectrum, respectively. For more information, see "Item 5B.
Operating and Financial Review and Prospects—Liquidity and Capital Resources."
We will incur additional substantial capital expenditures in building out
our UMTS third generation network and increasing the capacity of our existing
network. We estimate that capital expenditures in connection with building out
our UMTS third generation network will be approximately $300 million over the
three to five years from the beginning of the network build-out, with
approximately $150 million in capital expenditures required in the first twelve
months of the build-out. The network build-out is expected to begin towards the
end of 2003 or the beginning of 2004. Although at present we believe we have a
fully funded business plan, including the support necessary for our UMTS third
generation operations, we may require additional funding for capital
expenditures in connection with building out our UMTS third generation network.
We may also be forced to incur additional debt or raise additional equity
to meet such costs and any unanticipated requirements. This may include
entering into additional credit arrangements or issuing debt or other
securities, which may require consents under our credit agreement and indenture
and under the terms of our license. As well, any offering of more than 10% of
our currently outstanding ordinary shares would require the approval of the
Ministry of Communications, pursuant to the terms of our license. See "—Our
telecommunications license imposes certain restrictions on who can own our
shares. If these restrictions are breached, we could lose our license." If for
any reason adequate financing is not available as needed, our business,
financial condition or results of operations could be materially adversely
affected.
In addition, there is a risk that we have underestimated our future
capital requirements or overestimated our future revenues and operating profits
in the build-out and operation of a third generation network. If so, our future
business, financial condition and results of operations could be materially
adversely affected.
Our credit facility and our indenture each contain a number of restrictions and
obligations that limit our operating and financial flexibility.
Our credit facility and the indenture governing our 13% senior
subordinated notes due 2010 each contain a number of financial, operating and
other obligations that limit our operating and financial flexibility. These
covenants, among other things, restrict our ability to pledge our assets, enter
into certain types of lease financing, dispose of assets, make loans or give
guarantees, make
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certain acquisitions or engage in mergers or consolidations, incur borrowing
(other than permitted borrowings), make any substantial change to the nature of
our business or engage in any other business. Permitted borrowings include
shareholders loans and subordinated debt (including notes) and an aggregate
amount in loans and credits, performance guarantees and letters of credit of up
to a maximum of $50 million, provided that the aggregate amount of loans and
credits alone do not exceed $25 million. Our subsidiaries may incur borrowings
provided they maintain a defined debt to equity ratio, and we may make
acquisitions with the proceeds of certain debt and equity offerings.
In addition, we may not pay dividends or similar payments on our ordinary
shares or repay principal or interest on shareholders' loans or principal on
subordinated debt, or make payments to shareholders generally by way of return
or repurchase of capital, other than by way of a permitted distribution. A
permitted distribution means an amount not exceeding, in the aggregate, 50% of
the excess cash flow arising in the previous financial year, and is subject to
our compliance with additional conditions, including that an actual or
potential event of default does not exist, that we are able to meet outstanding
operating expenditure requirements, that we have repaid (and cannot re-borrow)
at least 50% of the total bank commitments under the credit facility, that such
distribution is made no earlier than December 31, 2005, and that we comply with
certain minimum coverage ratios. Payments of interest on our notes are
restricted in the event amounts due under the credit facility are unpaid or an
event of default has occurred.
Our credit facility contains covenants regarding achieving certain levels
of financial ratios during each of the ratio periods (semi-annual or annual
periods) during the term of the credit facility. These ratios include:
•
Fixed Charge Coverage Ratio (EBITDA divided by the sum of debt
service, capital expenditures and tax payments), which has to be not less
than 83% by the end of 2002, and not less than 105% by the end of June
2008.
•
Facility Debt Coverage Ratio (EBITDA divided by the aggregate advances
made under the credit facility), which has to be not less than 33% by the
end of 2002 and not less than 65% by the end of June 2008.
•
Total Debt Coverage Ratio (EBITDA divided by Total Debt (as defined in
the credit facility)), which has to be not less than 25% by the end of
2002, and not less than 45% by the end of 2008.
•
ADSCR (EBITDA divided by Debt Service (as defined in the credit
facility)), which has to be not less than 200% by the end of 2002, and not
less than 165% by the end of 2008.
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Deviation of up to 5% is permitted in ADSCR and in any one of the other
three covenants in each ratio period, provided such deviation is not repeated
in any of the three immediately following ratio periods.
Our ability to continue to comply with these and other obligations depends
in part on the future performance of our business. There can be no assurance
that such obligations will not materially adversely affect our ability to
finance our future operations, or the manner in which we operate our business.
In particular, any non-compliance with performance-related covenants and other
undertakings of our credit facility or indenture could result in an
acceleration of our outstanding debt under the credit facility and the
indenture and restrict our ability to draw additional funds, which could have a
material adverse effect on our business, financial condition or results of
operations.
Our substantial leverage could adversely affect our financial health.
We are highly leveraged. At December 31, 2002, our total long-term
indebtedness was approximately NIS 3,297 million ($696 million).
This debt represents approximately 103% of our total capitalization (bank
loans plus notes payable net of capital deficiency) at December 31, 2002. Our
credit facility and the indenture governing our notes permit us to incur
additional indebtedness subject to some limitations. The indenture does not
place a limit on the amount of indebtedness that we may incur in financing the
acquisition of network assets, including licenses, equipment and inventory, or
for capital expenditures and working capital for our business.
Our substantial debt could adversely affect our financial health by, among
other things:
•
increasing our vulnerability to adverse economic conditions or
increases in prevailing interest rates, particularly if any of our
borrowings are at variable interest rates;
•
limiting our ability to obtain the additional finance we need to
operate, develop and expand our business;
•
requiring us to dedicate a substantial portion of our cash flow from
operations to service our debt, which reduces the funds available for
operations and future business development; and
•
exposing us to the effects of foreign exchange fluctuations on our
obligations under our notes, which are denominated in US dollars.
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We may not be able to make our debt payments in the future.
Our ability to meet our debt obligations will depend on whether we can
successfully implement our strategy, as well as on financial, competitive,
legal and technical factors, including some factors that are beyond our
control. If we are unable to generate sufficient cash flow from operations to
meet principal and interest payments on our debt, we may have to refinance all
or part of our indebtedness.
We cannot ensure that any such refinancing would be possible on terms that
we could accept or that we could obtain additional financing. If refinancing
were not possible or if additional financing were not available, we may have to
sell our assets under circumstances that might not yield the highest prices, or
default on our debt obligations, including the notes, which would permit our
noteholders and holders of other outstanding indebtedness to accelerate their
maturity dates.
Our business may be impacted by the
shekel exchange rate fluctuations and
inflation.
Substantially all of our revenues and a majority of our operating expenses
are denominated in shekels. However, through December 31, 2002, a substantial
amount of our operating expenses were linked to non-shekel currencies. These
expenses related mainly to the acquisition of handsets where the price paid by
us is based on various foreign currencies. In addition, a substantial majority
of our capital expenditures are incurred in, or linked to, non-shekel
currencies, and our notes are denominated in US dollars and require US dollar
interest payments. Thus, any devaluation of the shekel against the dollar (or
other foreign currencies), will increase the shekel cost of our non-shekel
denominated or linked expenses and capital expenditures. Such an increase may
have an adverse impact on our results, which may be material. In addition, we
expect that we will make investments in our UMTS third generation network
predominately in foreign currency. Material changes in exchange rates may cause
the amounts that we must invest to increase materially in shekel terms. We
hedge some of our foreign currency commitments, but we do not currently hedge
the principal payable on our notes. As of December 31, 2002, the notional
amounts of our foreign currency derivatives were approximately $249 million.
Our derivative transactions are mainly designed to hedge the cash flows related
to the payments of dollar interest on our notes and those related to anticipated
payments in respect of purchases of handsets and fixed assets in foreign
currency. The transactions are primarily foreign currency transactions and
purchases and sales of currency options. See Note 12(b) to our consolidated
financial statements.
Our bank credit facility borrowings are primarily in shekels, and some of
our shekel bank borrowings are linked to the Israeli consumer price index, or
CPI. We may not be permitted to raise our tariffs pursuant to our license in a
manner that would fully compensate for any increase in the
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Israeli CPI. Therefore, an increase in the rate of inflation may also have a
material adverse impact upon us by increasing our financial expenses without an
offsetting increase in revenue.
Historically, we have experienced substantial operating and net losses.
Although, for the first time, in 2002 we experienced net income, we cannot
assure you that we will continue to do so, or that future net income will
offset our cumulative losses.
To date, the launch and development of our business have required
substantial capital, operating and marketing expenditures. These expenditures
have historically resulted in net cash outflows, negative EBITDA and
substantial operating and net losses. For the years ended December 31, 1999 and
2000, we had negative EBITDA of approximately NIS 582 million and NIS 59
million, respectively. Although we generated positive EBITDA of approximately
NIS 656 million and NIS 1,052 million ($222 million) for the years ended
December 31, 2001 and 2002, respectively, and net income of approximately NIS 84
million ($18 million) in 2002, we may experience net losses and continue to
have net cash outflows in the next few years while we continue to expand our
network and build and maintain our subscriber base.
Operating a mobile telecommunications network involves the inherent risk of
fraudulent activities and potential abuse of our services, which may cause loss
of revenues and non-recoverable expenses.
There is
an inherent risk in operating a mobile telecommunications network
with regard to potential abuse by individuals, groups, businesses or
other organizations who use our mobile telecommunications services and avoid paying for them. The effects of such fraudulent
activities may be, among others, the loss of revenue due to us and out of
pocket expenses which we will have to pay to third parties in connection with
those services, such as interconnect fees, payments to international operators
or to operators overseas and payments to content providers. Such payments may
be non-recoverable. Although we are taking measures in order to prevent
fraudulent activities, we have suffered in the past, and may suffer in the
future, from these activities. The financial impact of fraudulent activities
that have occurred in the past has not been material. However, we cannot assure
you that future fraudulent activities, if they occur, will not materially
affect our financial condition and results of operations.
We have had difficulties obtaining some of the permits for which we have
applied, and have not yet applied for other permits that are required for the
erection of our antenna sites. These difficulties could continue and therefore
affect our ability to erect or maintain antenna sites. This could have an
adverse effect on the extent, quality and capacity of our network
coverage
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which could prevent us from achieving or maintaining the network coverage and
quality requirements contained in our license and adversely affect our
business.
In order to establish our mobile telephone network and achieve the
coverage required by our license, we have undertaken the rapid deployment of
antenna sites throughout Israel. In addition, in order to adapt our network for
GSM 1800 and UMTS third generation technology, we will be required to erect
additional antennas and make modifications to our existing antennas. The
erection and operation of these antenna sites require building permits from
local or regional zoning authorities, as well as a number of additional permits
from governmental and regulatory authorities, including:
•
erection and operating permits from the Ministry of the Environment;
•
permits from the Civil Aviation Authority, in certain cases; and
•
permits from the Israeli Defense Forces.
Like our competitors, we have experienced difficulties in obtaining some
of these consents and permits, especially from local building authorities. Our
ability to maintain and improve the extent and quality of our network coverage
depends in part on our ability to obtain appropriate sites and approvals to
install our network infrastructure, including antenna sites. In addition, as
part of our UMTS third generation network build out, we are erecting additional
antenna sites and making modifications to our existing antenna sites, for which
we require new consents and approvals. If we continue to experience difficulty
in obtaining approvals for the erection of antenna sites, this could adversely
affect our existing network and delay the erection of additional antenna sites
to our network. This difficulty could have an adverse effect on the extent,
quality and capacity of our network coverage and on our ability to continue to
market our products and services effectively. Our inability to resolve these
issues in a timely manner could also prevent us from achieving or maintaining
the network coverage and quality requirements contained in our license.
It has been our policy not to operate an antenna site until we have
received the required permits from the Ministry of the Environment, the Civil
Aviation Authority and the Israeli Defense Forces, or at least until all third
party environmental testing necessary for those permits has been successfully
completed. We believe that all of our antenna sites meet the International
Radiation Protection Agency's standards.
The Ministry of the Environment will issue permanent permits for antenna
sites only after required local or regional building permits are obtained. As a
result, approximately 36% of our antenna sites are operating without permits
from the Ministry of the Environment, although all
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environmental testing necessary for those permits has been successfully
completed by third parties authorized to conduct such testing by the Ministry
of the Environment. Many of these antenna sites are commonly referred to as
microsites, which are small antenna devices that emit low levels of radiation

comparable to those emitted by our handsets. Additionally, as required by the
Ministry of the Environment, an authorized third party annually verifies that
each of our antenna sites complies with the International Radiation Protection
Agency standards adopted by the Ministry of the Environment.
In addition, a small percentage of antenna sites are operating without
permits from the Civil Aviation Authority and the Israeli Defense Forces. Also,
some local and regional building authorities have caused a number of
administrative delays to the granting of building permits for the erection of
antenna sites, which has resulted in delays in obtaining local building
permits. As a result, we, like other mobile telephone operators in Israel, have
erected antenna sites without the issuance of a building permit from the
relevant local or regional authority. As of December 31, 2002, 50% of our
antenna sites are operating without local building permits. A substantial
portion of these are microsites. Applications have been submitted to the
relevant local or regional authority and are at various stages of the approval
process for approximately 20% of our antenna sites, and the application process
has not been commenced for approximately 30% of our sites. We believe
that a portion of the sites for which the application process has not been commenced do not
require local building permits under the Planning and Building Law.
The erection of an antenna site without a required local building permit
is a violation of the Planning and Building Law, 1965 and, in some cases, has
resulted in a demolition order being imposed on us and in the filing of
criminal charges and civil proceedings against us and our officers and
directors. To date, we have been largely successful in avoiding or delaying the
execution of demolition orders. So far, settlements have resulted in the
imposition of demolition orders for the relevant sites, execution of which has
been stayed for a period of time to allow us to obtain the necessary permits or
to relocate the relevant antenna site. These settlements have not involved any
admission of guilt by our officers and directors. We are facing greater
difficulty in reaching these settlements. Therefore, we cannot assure you that
we will continue to be successful in this regard or that we will not be faced
with demolition orders and criminal charges, including against our officers and
directors. In addition, we, like the other mobile telephone operators in
Israel, may be required to dismantle antenna sites for which we have not yet
obtained the required consents and permits.
In addition, we, like the other mobile telephone operators in Israel,
provide repeaters, also known as bi-directional amplifiers, to subscribers
seeking an interim solution to weak signal reception within specific indoor
locations. These repeaters, which we install at the subscribers' premises upon
their request, consist of an indoor box attached to a small outdoor antenna of
between 40 and 70 cm
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(approximately one to two feet), receive signals from a network antenna site
and amplify them within a specific room or rooms. The radiation emission from
these outdoor antennas is comparable to that of the handset whose signal it is
transmitting. In light of the lack of a clear policy of the local planning and
building authorities, and in light of the practice of the other mobile
telephone operators, we have not requested permits under the Planning and
Building Law for the repeaters. However, we have received from the Ministry of
Communications a type approval for the repeaters. A type approval is an
approval given by the Israeli Minister of Communications, pursuant to the
relevant provisions of the Communications Law (Telecommunications and
Broadcasting), 1982, for a specific type of user equipment in order to enable
the owner of a general license to connect this equipment to the owner's
communications network. We have also approached the Ministry of the
Environment, asserting that no permits are necessary for the repeaters, based
on the Ministry's previous advice that permits are not necessary for devices
with comparable levels of emission called "Fixed Cellular Terminals". If the
local planning and building authorities determine that permits are necessary
for the installation of these devices, it could have a negative impact on our
ability to obtain permits for our antenna sites.
National Building Plan No. 36 was recently approved by the Israeli
government, after the National Committee removed from the draft a provision
which would have required notification to owners of adjoining assets of an
intention to erect an antenna site in a residential area. The plan has been
published in the "Reshumot" (the official gazette of the State of Israel), and
has been in effect since June 2002.
To date, we have been subject to minimal monetary penalties. There is no
certainty that future penalties will be in the same amounts, but we believe
that the total amount of these penalties would not have a material effect on
our business and/or financial condition.
We are dependent upon our ability to interconnect with other telecommunications
carriers. We also depend on Bezeq for transmission services. The failure of
these carriers to provide these services on a consistent basis could have a
material adverse effect on us.
Our ability to provide commercially viable mobile telephone services
depends upon our ability to interconnect with the telecommunications networks
of existing and future fixed-line, mobile telephone and international operators
in Israel in order to complete calls between our customers and parties on the
fixed-line or other mobile telephone networks. All fixed-line, mobile telephone
and international operators in Israel are legally required to provide
interconnection to, and not to discriminate against, any other licensed
telecommunications operator in Israel. We have signed interconnection
agreements with Pelephone, Cellcom and MIRS, the other mobile telephone network
operators in Israel, and with Bezeq International and Barak, two of the three
international operators in
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Israel, and we have an operating arrangement with the third Israeli
international operator, Golden Lines. We have no control over the quality and
timing of the investment and maintenance activities that are necessary for
these entities to provide us with interconnection to their respective
telecommunications networks. The failure of these or other telecommunications
providers to provide reliable interconnections to us on a consistent basis
could have a material adverse effect on our business, financial condition or
results of operations.
We currently lease most of our transmission capacity from Bezeq, and we
lease additional capacity from other suppliers, primarily Cellcom. We have no
control over the quality and timing of the investment and maintenance
activities that are necessary for these suppliers to provide us with
transmission services. Disruptions, stoppages, strikes and slowdowns
experienced by them may significantly affect our ability to provide mobile
telephone services. In particular, Bezeq has experienced labor disputes with

its employees, including stoppages, notably in recent years as the
privatization of Bezeq and liberalization of the telecommunications market in
Israel have developed. The failure by our suppliers to provide reliable
transmission services to us on a consistent basis could have a material adverse
effect on our business, financial condition or results of operations.
We may be required in the future to offer access to our network infrastructure
to other operators. This may lower the entry barriers for potential new
competitors and adversely affect our financial condition and our ability to
provide services to our subscribers.
Under
the Communications Law (Telecommunications and Broadcasting), 1982,
the Ministry of Communications has the power to require us, like the other
telephone operators in Israel, to offer access to our network infrastructure to
other operators, although the Ministry of Communications has not required us to
do so yet. Our amended license also requires us, upon demand by the Minister of
Communications, to permit other operators to provide telecom services using our
network. This will lower the entry barriers for potential new competitors and
increase the likelihood of additional new competitors entering the mobile
telephone market in Israel. Our capacity is limited, and if we are required to
allocate capacity to other operators, the services to our subscribers may be
harmed. If we fail to agree with new operators that are given access to our
network regarding the tariffs for the usage of our infrastructure, the Ministry
of Communications may determine those tariffs. If the Ministry of
Communications sets those tariffs too low, this may adversely affect our
financial condition.
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We can only operate our business for as long as we have a license from the
Ministry of Communications.
We conduct our operations pursuant to a general license granted to us by
the Ministry of Communications on April 7, 1998. Our original license was valid
until 2008. As a result of our obtaining additional spectrum in the December
2001 spectrum auction in Israel, our license has been extended until February
2022. Our license may be extended for an additional six-year period upon our
request to the Ministry of Communications and a confirmation from the Ministry
that we have met certain performance requirements, and we may request renewal
of our license for successive six-year periods thereafter, subject to
regulatory approval. We cannot be certain that our license will not be revoked,
will be extended when necessary, or, if extended, on what terms an extension
may be granted.
Additionally, although we believe that we are currently in compliance with
all material requirements of our license, the interpretation and application of
the technical standards used to measure these requirements, including the
requirements regarding population coverage and minimum quality standards, and
other license provisions may not be certain, and disagreements have arisen and
may arise in the future between us and the Ministry of Communications. We have
provided a bank guarantee to the Ministry of Communications in the amount of
$20 million to guarantee our performance under our license. For more
information, see "Item 5B. Operating and Financial Review and
Prospects—Liquidity and Capital Resources." If we are found to be in material
breach of our license, the guarantee may be forfeited and our license may be
revoked.
Our marketing strategy is based
upon the international Orange Brand. If our license
agreement terminates or is revoked, we will lose one of our main competitive
strengths.
Our marketing strategy is based upon the international Orange Brand. We
can operate our business under the Orange Brand only if we have the right to
use it under the brand license agreement with Orange International Developments
Limited, a subsidiary of Orange plc, described in "Item 4B.
Business Overview—Intellectual Property." Under this license agreement, we are required to comply
with the Orange Brand guidelines established by Orange International. We have
the right to use the Orange Brand as long as we are able and legally eligible
under the laws of Israel to offer telecommunications services to the public in
Israel. However, the brand license agreement may be terminated by mutual
agreement, or at our discretion, or by Orange International if a court
determines that we have materially misused the brand and we continue to
materially misuse the brand after such determination of material misuse. If we
lose the right to use the Orange Brand, our financial condition and results of
operations may be materially adversely affected.
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Our telecommunications license imposes certain restrictions on who can own our
shares. If these restrictions are breached, we could lose our license.
As with other companies engaged in the telecommunications business in
Israel, our license requires that, at a minimum, 20% of the economic and voting
interest, and certain other defined means of control, of our company be owned
by Israeli citizens and residents. In addition, no transfer or acquisition of
10% or more of any of such means of control, or the acquisition of control of
our company, may be made without the consent of the Ministry of Communications.
Our license also restricts cross-ownership and cross-control among competing
mobile telephone operators, including the ownership of 5% or more of the means
of control of both our company and of a competing operator, without the consent
of the Ministry of Communications, which may limit certain persons from
acquiring our shares. Shareholdings in breach of these limits could have two
consequences. First, the shares that are in excess of the limits will be
converted into "dormant" shares, with no rights other than the right to receive
dividends or other distributions to shareholders, and to participate in rights
offerings. Second, the breach of the limits could be the basis for revoking our
license unless our principal shareholders, who currently hold an aggregate of
approximately 75% of our ordinary shares, continue to hold an aggregate of at
least 51% of our ordinary shares.
We depend on a limited number of suppliers for our network equipment. Our
results of operations could be adversely affected if our suppliers fail to
provide us with adequate supplies of network equipment or maintenance support
on a timely basis.
We purchase our network equipment, such as switching equipment, base
station controllers and base transceiver stations and network software, from
Ericsson and from Nokia. Although our network utilizes standard equipment that
is produced by several suppliers, we cannot be certain that we will be able to
obtain equipment from one or more alternative suppliers on a timely basis in
the event that either Ericsson or Nokia is unable to satisfy our equipment
requirements in a timely manner, especially if the growth in demand for mobile
telephone network equipment exceeds the ability of suppliers of this equipment
as a whole to meet such demands. Our results of operations could be adversely
affected if Ericsson, Nokia or an alternative supplier fails to provide us with
adequate supplies of equipment, as well as ongoing maintenance support, in a
timely manner. In addition, our results of operations could be adversely
affected if the price of network equipment rises significantly. In our
experience, suppliers from time to time extend delivery times, limit supplies
and increase the prices of supplies due to their supply limitations and other
factors.
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There are alleged health risks related to antenna sites and the use of mobile
telecommunications devices, including handsets, which could expose us to
liability and lead to reduced usage of mobile phones or increased difficulties
in obtaining sites or permits to erect sites for base stations.
We are aware of recent allegations that there may be health risks
associated with the effects of electromagnetic signals from antenna sites and
from mobile telephone handsets and from other mobile telecommunications
devices. In the construction and operation of our base stations we observe the
standards established by the International Radiation Protection Agency, which
sets guidelines for the safe exposure level for all uses of radio spectrum.
These standards have been adopted by the Ministry of the Environment.
We have received type approval from the Ministry of Communication for all
of the handsets and other terminal equipment we sell. The Ministry of the
Environment also has authority to regulate the sale of handsets in Israel.
However, in accordance with the current practice among mobile telephone
operators in Israel, we have not obtained approvals or exemptions from the
Ministry of the Environment for the handsets we provide because, to date,
neither the Ministry of the Environment nor the Ministry of Health has issued
standards for the permitted level of radiation emissions from handsets.
However, as of June 15, 2002, we have been required to provide information to
purchasers of handsets on the Specific Absorption Rate, or SAR, of the handset,
as well as its compliance with certain standards pursuant to a regulation
promulgated by the Ministry of Industry and Trade under the Consumer Protection
Law. In the event that new standards for permitted radiation emission levels
from handsets are issued, we will be obliged to comply with them.
While there is currently no substantiated link between exposure to
electromagnetic signals at the level transmitted by our base transceiver
stations and our mobile telephone handsets and long-term damage to health, the
actual or perceived health risks of mobile telephone communications devices
could adversely affect us through a reduction in subscribers, reduced usage per
subscriber, increased difficulty in obtaining sites for base stations, and
exposure to potential liability. Furthermore, we are unable to obtain insurance
with respect to such liability.
Our company is controlled by a small number of shareholders.
At December 31, 2002, our principal shareholders, comprising our founding
shareholders Hutchison Whampoa Limited, Matav-Cable Systems Media Ltd., and
Elbit Limited, together with the former limited partners of our founding
shareholder Tapuz Cellular Systems Limited Partnership, collectively held
approximately 75% of our shares. At December 31, 2002, Hutchison Whampoa
Limited indirectly owned approximately 42.6% of our shares, Elbit Limited owned
approximately 12.2%, Matav-Cable Systems Media Ltd. indirectly owned
approximately 7.4%, and the former limited partners in Tapuz Cellular Systems
Limited Partnership, Eurocom Communications Ltd. (and its wholly owned
subsidiary, Tapuz Cellular Systems Ltd.) and Polar Communications Ltd., owned
approximately 9.9% and 2.4%, respectively.
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Each of the principal shareholders directly holding Partner shares and
Elbit.COM Limited, Elbit's wholly owned subsidiary, is a party to a
relationship agreement relating to its investment in our company which governs
their collective relationship as shareholders of Partner. This relationship
agreement sets forth, among other things, each of these parties' rights and
obligations among themselves with respect to the composition of our Board of
Directors, the transfer of shares and other material issues pertaining to their
investment in our company.
These principal shareholders together have the ability to influence our
business through their ability as a group to control all actions that require
shareholder approval and through their representatives on our Board of
Directors. They are not obligated, however, to provide us with financial
support or to exercise their rights as shareholders in our best interests or
the best interests of our minority shareholders and noteholders, and they may
engage in activities that conflict with such interests. If the interests of
these principal shareholders conflict with the interests of our other
shareholders, those shareholders could be disadvantaged by the actions that
these principal shareholders choose to pursue. In addition, our principal
shareholders may cause our business to pursue strategic objectives that may
conflict with the interests of our other shareholders.
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Our share price has been and may continue to be volatile in response to
conditions in the global securities markets generally and in the communications
and technology sectors in particular.
Our share price has been subject to significant volatility, in part due to
highly volatile securities markets generally, particularly for communications
and technology companies' shares. Factors other than our results of operations
that may affect our share price include, among other things, low trading
volume, market expectations of our performance and projected growth in the
mobile communications market. In addition, our share price may be affected by
factors such as the Israeli economy and the political situation and the level
of business activity or perceived growth (or the lack thereof) in the market in
general, the performance of other mobile telecommunications companies,
announcements by or the results of operations of our competitors, customers and
suppliers, potential litigation and regulation involving ourselves or our
industry, and announcements concerning the success of UMTS third generation
mobile networks, products and services, as well as general market volatility.
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ITEM 4. INFORMATION ON THE COMPANY
4A. History and Development of the Company
We were incorporated in Israel under the laws of the State of Israel on
September 29, 1997 as Partner Communications Company Ltd. Our products and
services are marketed under the Orange Brand. Our principal executive offices
are located at 8 Amal Street, Afeq Industrial Park, Rosh Ha'ayin 48103, Israel
(telephone: 972-67-814-888). Our website address is www.orange.co.il.
Information contained on our website does not constitute a part of this annual
report. Our agent for service in the United States is CT Corporation, 111
Eighth Avenue, New York, New York 10011.
In our short history, we have achieved a number of important milestones:
•
In April 1998, we received our license to establish and operate a
mobile telephone network in Israel.
•
In August 1998, we finalized our long-term credit facility to support
our network and business roll out.
•
By October 1998, we completed our
initial network roll out with
approximately 77% coverage of the Israeli population, enabling us to
commence the soft launch of our services to a test market of targeted
customers.
•
By January 1999, we had launched full commercial operations with
approximately 88% population coverage, established a nationwide
distribution network and were offering full services with an extensive
media campaign.
•
In October 1999, we completed our initial public offering of ordinary
shares in the form of American Depositary Shares, and received net
proceeds of approximately NIS 2,092 million, with the listing of our
American Depositary Shares on NASDAQ and the London Stock Exchange. We
used part of these net proceeds to repay approximately NIS 1,494 million
in indebtedness to our principal shareholders, and the remainder to
finance the continued development of our business.
•
In February 2000, we introduced post-paid tariff plans, which we
branded "orange to go," and which allowed subscribers to pay only for
airtime usage without a minimum subscription period and without any
minimum usage commitment. At December 31, 2002, we had approximately
890,000 subscribers to our "orange to go" plans, or approximately 48% of
our total subscriber base.
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•
In April 2000, we formed a wholly owned subsidiary, Partner Future
Communications 2000 Ltd. to cooperate with and invest in start-up and high
technology companies developing new GSM wireless applications.
•
In June 2000, we introduced our prepaid subscriber plan, known as "Big
Talk." At December 31, 2002, we had 540,000 subscribers, or approximately
29% of our total subscriber base, in this plan.
•
in July 2000, we amended our long-term credit facility, increasing the
amount available to up to $750 million.
•
In August 2000, we completed an offering, registered under the US
Securities Act of 1933, as amended, of $175 million (approximately $170.5
million after deducting commissions and offering expenses) 13% unsecured
senior subordinated notes due 2010.
•
In January 2001, we received accreditation for the ISO 9002 standard
from the Israeli Institute of Quality and Control.
•
In March 2001, we received a special license issued by the Ministry of
Communications, allowing us to provide internet services.
•
On March 31, 2001, we had over 1,000,000 subscribers.
•
In July 2001, we registered our ordinary shares for trading on the Tel
Aviv Stock Exchange.
•
In an auction process completed on December 18, 2001, the Ministry of
Communications awarded us the two bands of spectrum for which we had
submitted bids: one band of GSM 1800 spectrum and one band of UMTS third
generation spectrum.
•
On December 26, 2001, we filed a shelf registration statement under
the US Securities Act of 1933, as amended, registering $400 million of
debt securities and ordinary shares for possible offer and sale during the
next two years.
•
On January 28, 2002, we had over 1,500,000 subscribers.
•
In June 2002, our license was extended until February 2022.
•
In June 2002, we launched "orange obox" services, which enable the
downloading of rich applications and content. These services are based on
the virtual machine platforms, Java to microeditions (J2ME) and
proprietary General Virtual Machine (GVM).
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•
In October 2002, we launched "orange oklik" services, which enable the
transfer of photos, multimedia and animation, based on Multimedia Message
Service, or MMS.
•
On December 31, 2002, we entered into an amending agreement to our
senior credit facility in order to tailor it to our future business
plan.
•
On December 31, 2002, we had 1,837,000 subscribers.
For information on our capital expenditures, see "Item 5B Liquidity and
Capital Resources—Commitments and Contractual Obligations".
4B. Business Overview
We were the first GSM mobile telephone network operator in Israel. We
received our mobile telephone license in April 1998 and commenced full
commercial operations of our digital GSM 900 mobile telephone network in
January 1999. Since then we have expanded rapidly and at December 31, 2002 we
had 1,837,000 subscribers, representing an estimated 29% of total Israeli
mobile telephone subscribers at that date. During 2002, we increased our
customer base by approximately 26%, an increase of approximately 379,000
subscribers. At December 31, 2002 our network covered approximately 97% of the
Israeli population. We had constructed and installed 2,035 base transceiver
stations (including microsites) by December 31, 2002, with 153 of those
stations installed in 2002. At December 31, 2002, most of our subscribers had
post-paid tariff plan contracts with us, approximately 29% of our subscribers
were in prepaid subscriber plans, and approximately 16% of our subscribers were
business subscribers.
We market our services by capitalizing on the strong international Orange
Brand and the experience of our principal shareholders and their affiliates,
primarily Hutchison Whampoa Limited. The Orange Brand, which is licensed to us,
has been used successfully in other markets to promote mobile telephone
services. Market surveys show that we have achieved strong brand awareness in
Israel.
We currently operate in the 900 MHz and the 1800 MHz band. Our services
include standard and enhanced GSM services, as well as value added services and
products such as voice mail, voice messaging, Color Picture Messaging, icon,
ringtone and game downloads, information services, High Speed Circuit Switched
Data, General Packet Radio Services, or GPRS, which enables the packet transfer
of data in an "always on" mode at a speed of up to 20-30 Kbps, personal
numbering and data and fax transmission services. We also offer our subscribers
the ability to roam using their mobile
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phones outside Israel. At December 31, 2002, we offered international roaming
through 250 operators covering 104 countries.
We have set forth in the following table an estimate of each operator's
share of total subscribers in the Israeli cellular market at December 31, 1999,
2000, 2001 and 2002:
Market share*
1999
2000
2001
2002
Partner
13
%
21
%
27
%
29
%
Cellcom
48
%
46
%
41
%
39
%
Pelephone
39
%
33
%
28
%
28
%
MIRS**
—
—
4
%
4
%
*
Based on information contained in published reports issued by, and
public statements made by, Pelephone and Cellcom or by their shareholders and
from Partner subscriber data at December 31, 1999, 2000, 2001 and 2002. The
figures for MIRS in 2001 and 2002 are the Company's estimates.
**
As MIRS received a general license at February 5, 2001 their
subscribers have not been included in the Israeli subscriber count in
prior years. MIRS's entire subscriber base has been included in the
Israeli subscriber count from the date on which MIRS received its license.
We operate in one business segment, GSM mobile telephony and related
services, and one geographic segment, Israel.
Overview of mobile telecommunications industry in Israel
There are currently four mobile telephone network operators in Israel:
Partner, Pelephone, Cellcom and MIRS. Pelephone is an Israeli corporation owned
by Bezeq, the public fixed-line operator in Israel (50%) and by Pelephone
Holdings, LLC (50%), a Delaware corporation owned by Shamrock Holdings. Bezeq
has a four-year call option to purchase the shares owned by Shamrock Holdings.
Pelephone currently operates nationwide mobile telephone networks in Israel
using both the N-AMPS analog and the CDMA digital system and is in the process
of upgrading its network to CDMA1x. The major beneficial shareholders of
Cellcom are BellSouth, the Safra Group and Discount Investment Corporation Ltd.
Cellcom operates a nationwide mobile telephone network based on D-AMPS digital
technology, and it began providing GSM services in the DCS 1800 band in the
second half of 2002. Recent published reports state that Cellcom is considering
launching EDGE technology. MIRS is an Enhanced Specialized Mobile Radio, or
"trunking," iDEN network. MIRS's major shareholders are Motorola Communications
(Israel) Ltd. (66.7%) and Ampal Israel Ltd. (25%).
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In addition, the Palestine Telecommunication Co. Ltd., or Paltel, operates
a GSM mobile telephone network under the name "Jawwal" in the Palestinian
Authority administered areas of the West Bank and Gaza Strip, as well as a
fixed-line network. Paltel's GSM network competes with our network in some
border coverage overlap areas.
Mobile telephones were first introduced in Israel in 1986. For the first
eight years of operation the growth of mobile telephone services in Israel was
slow. There was a single operator, Pelephone, offering analog service, and
prices were relatively high. It was not until the end of 1994, and the launch
of the second mobile telephone operator Cellcom, that growth in mobile phone
usage in Israel increased significantly. Within two years, subscriber numbers
had increased by more than seven times.
Since the end of 1996, there has been continued strong growth in the
Israeli mobile telephone market. Market data from industry sources indicates
that the total market size was approximately 6.3 million subscribers at
December 31, 2002, representing nearly 95% of the Israeli population.
In an auction process completed on December 18, 2001, the Ministry of
Communications awarded us the two bands of spectrum for which we had submitted
bids: one band of GSM 1800 spectrum and one band of UMTS third generation
spectrum. Cellcom was also awarded a band of GSM 1800 spectrum in the auction
and began providing GSM 1800 services in the second half of 2002. For more
information, see "Item 3D. Risk Factors—Increased competition from existing
competitors may affect our market share and require us to reduce our tariffs in
the future, may increase our subscriber acquisition costs and customer
retention costs and may increase our churn rate." Cellcom and Pelephone were
also each awarded one band of UMTS third generation spectrum in the auction.
The following are some of the special characteristics that we believe
differentiate the Israeli market from other developed mobile telecommunications
markets:
•
HIGH MOBILE PHONE USAGE. Israeli usage of mobile phones is relatively
high compared to Western Europe.
•
CALLING PARTY PAYS. In Israel, only the party originating a telephone
call pays for the airtime (except for 1-800 numbers). Mobile telephone
network operators do not charge subscribers to receive calls on their
handsets, except while roaming. This encourages higher rates of mobile
telephone usage.
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•
HIGH MOBILE TELEPHONE PENETRATION. Since Cellcom's launch in 1994, the
market has sustained a rapid annual rate of growth from a 2.6% penetration
rate at year-end 1994 to an estimated penetration rate in Israel at
December 31, 2002 of 95%, representing approximately 6.3 million
subscribers, although this may include subscribers, dormant subscribers
and subscribers to multiple networks as well as other subscribers who are
not included in the Israeli population figures, such as Palestinians, new
immigrants, and foreign workers.
•
FIVE DIFFERENT MOBILE TELEPHONE TECHNOLOGIES. The four mobile
telephone licensees in Israel have systems based on five technologies.
Pelephone uses both the N-AMPS analog and the CDMA digital systems and
Cellcom uses D-AMPS and GSM systems. MIRS uses an iDEN system. We are
currently one of two network operators using a GSM digital system. GSM is
an advanced, internationally accepted technology used by over 790 million
people worldwide as of December 31, 2002.
•
FAVORABLE GEOGRAPHY. Israel covers an area of approximately 8,000
square miles (20,700 square kilometers) and its population tends to be
centered in a small number of densely populated areas. In addition, the
terrain of Israel is relatively flat. These factors facilitate the roll
out of a cellular network in a cost effective manner.
•
STRONG POTENTIAL FOR VALUE ADDED SERVICES. Published market data shows
that the relatively young Israeli population has a propensity to accept
and use high technology products. We believe that this characteristic of
the Israeli population will facilitate further growth in the Israeli
mobile telecommunications market as well as the acceptance of new value
added services as they become available on our network.
Strategy
Our mission is to continue and maintain our position as a leading provider
of quality and innovative mobile communications solutions in Israel and to
promote the Orange Brand into a leading consumer brand in Israel. In order to
achieve our mission, we are implementing strategies designed to:
•
Provide high quality customer service to subscribers.
•
Ensure that our subscribers enjoy high quality network with nationwide
coverage.
•
Promote the Orange Brand through a broad-based marketing campaign.
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•
Offer packages of innovative voice and data services and unique tariff
structures that are responsive to the needs of the various target customer
segments in Israel.
•
Develop applications tailored to the needs of various subscriber segments.
•
Deliver content and information services to subscribers through our
network, taking into consideration the different segments in the market.
•
Further develop dedicated, wide-reaching sales and distribution
channels for all targeted market segments.
Competitive Strengths
We believe that the following competitive strengths differentiate us from
our competitors and will assist us in achieving our mission and implementing
our strategies:
•
HIGH QUALITY NETWORK. We believe that we set high standards for
network quality. We also believe that our EFR voice coding technology
produces high sound quality. In addition, we believe that our use of
sophisticated network planning and optimization tools and techniques and
our investment in dense base station coverage have produced a high quality
network. Moreover, the additional spectrum granted to us as a result of
our success in the December 2001 spectrum auction in Israel will further
improve the capacity and quality of our network.
•
DATA SERVICES AND APPLICATIONS LEADERSHIP. We believe that we are a
leader in the development and provision of mobile data and content
services in Israel. Our content services may be viewed in three ways.
First, we provide our subscribers with a wide range of information
services under the brand "SIM center" that can be accessed from their
handsets. The combination of services available to a subscriber depends
upon the subscriber's handset type and tariff plan. Second, our present
and planned content services may be divided along applications lines:
entertainment; location-based; information services and community
services. Third, we presently provide our services using the following
interfaces: interactive voice response, or IVR; short messages service, or
SMS; and Wireless Application Protocal, or WAP. We have rolled out
WAP-enabled services and GPRS services, orange obox services and orange
oklik services. In addition, we have signed agreements with several
content providers to expand the variety of content services available to
our subscribers.
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•
INTERNATIONAL ROAMING. We believe that we provide the most convenient
and comprehensive roaming services available to Israelis traveling abroad
and to visitors to Israel using their own GSM phones.
•
STRONG AND EXPERIENCED SHAREHOLDER. One of our principal shareholders,
Hutchison Whampoa Limited, is a global leader in the mobile
telecommunications market. It has a substantial interest in 3G operating
companies in Austria, Australia, Denmark, Hong Kong, Ireland, Italy,
Sweden and the United Kingdom. We benefit from the knowledge and
experience of Hutchison Whampoa Limited. In addition, we have signed a
cost sharing agreement with Hutchison Telecommunications Limited and
certain of its subsidiaries, for the joint acquisition and development of
information technology platforms and software solutions, hardware, content
and other services in connection with the 3G business. For more
information see "Item 7B. Related Party Transactions — Transactions with
Affiliates".
•
STRONG BRAND IDENTITY. Since the launch of full commercial operations,
we have made a substantial investment in promoting the Orange Brand in
Israel to represent quality, innovation and customer service. Our
broad-based domestic marketing campaign has resulted in a rapid wide-scale
recognition of the Orange Brand in Israel. The Orange Brand is currently
used in countries that include the UK, Hong Kong, Australia, France,
India, Switzerland and Denmark.
•
STRONG AND MOTIVATED MANAGEMENT TEAM. We have been able to attract a
number of Israeli senior managers from the telecommunications, high-tech
and consumer products industries. All senior managers are highly
incentivized through our stock and performance based incentive packages.
We believe that the performance-based incentive package aligns the
interests of senior management with those of our investors.
Marketing and brand
We believe that a focused marketing strategy is critical to support our
goal of sustaining our position as a leading provider of quality and innovative
mobile communications solutions in Israel. Our marketing strategy is based upon
the strong international Orange Brand and emphasizes network quality, feature
rich services, innovation and customer service. In carrying out this strategy
we have made a substantial effort in promoting the Orange Brand in Israel as a
vehicle for differentiating our services from those of our competitors. We
believe the brand, which is licensed to us, has been a significant factor in
our success. Independent research shows that unaided awareness of the cellular
operators in Israel including the Orange Brand is very high, although we are a
much more recent entrant into the Israeli market.
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Our marketing strategy is based on the concept of high value for money,
introducing advanced services for subscribers. In order to carry out our new
strategy, we offer our subscribers tariffs which are generally at the level of
those charged by our competitors, and technologies and services that we believe
are more advanced, such as our advanced information and content services. In
July 2000 we began offering our WAP mobile services. These services enable our
subscribers to access our mobile portal, all through WAP-enabled handsets. In
December 2000, we launched High Speed Circuit Switched Data, or HSCSD, which
enables the transmission of data at a speed of up to 43 Kbps. In September
2002, we launched GPRS services on our network.
In addition, during 2002 we launched orange obox services and orange oklik
services. We consider both orange obox services and orange oklik services as
our major platforms for future growth in usage.
In order to promote our advanced new services and to increase awareness of
these services, we are taking many promotional steps, using a broad range of
advertising media. We also intend to maintain our advertising presence in the
media in order to maintain high exposure for our brand and advanced
technologies.
Our marketing also focuses on promoting our services to the various
segments of the Israeli population. We advertise our services in several
languages. We also target campaigns to the large Orthodox Jewish community. In
addition to traditional media, we promote our services by sponsoring cultural
and community programs, including the International Film Festival which takes
place every year in Jerusalem, and which is a major cultural event in Israel,
attracting interest both in Israel and abroad. We use the distinctive Orange
Brand logo in all our promotional activities and advertising and all mobile
phones sold to our subscribers bear the logo.
At December 31, 2002, approximately 16% of our subscribers were business
subscribers. We are continually developing tailored value added services to
meet the special needs of business subscribers.
We have a license to use the Orange Brand. Under the brand license
agreement, we have the right to use the Orange Brand in connection with
promoting our network services in Israel for as long as we hold a license to
operate a mobile telephone system in Israel. See "Item 4B. Information on the
Company—Business Overview—Intellectual Property." The Orange Brand is
currently used by mobile telecommunications operators in countries that include
the UK, Hong Kong, Australia, France, Switzerland, Denmark and India.
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Services and products
Our principal business is the provision of mobile telephone services in
Israel. Our goal is to offer our subscribers a wide range of sophisticated and
easy to use services based upon the latest proven technology. In addition to
our standard and enhanced GSM services, including international dialing and
roaming, we offer our customers value added services, including voice mail,
short message services, intelligent network services, content based on our
mobile portal, data and fax transmission and other services. Our use of High
Speed Circuit Switched Data and GPRS Technologies enable high speed data
transmission. Our orange obox service enables the downloading of rich
applications and content, and our orange oklik services enable subscribers to
send photos, multimedia and animation from handset to handset and from handset
to web, using our MMS platform. We also offer 24-hour, seven days a week
customer service, as well as handset repair and replacement services, to
subscribers who acquire these services.
Additionally, in January 2001, we received the accreditation of the ISO
9002 Standard from the Israeli Institute of Quality and Control. ISO 9002 is a
quality management system specification whose requirements are aimed primarily
at achieving customer satisfaction by preserving standardization at all stages,
and throughout company processes.
Tariff plans
Since the beginning of our full commercial operations, we introduced
tariff plans aimed at bringing innovation to the Israeli mobile communications
market. Our original tariff plans were based on one or more of the following
basic elements:
•
Rewarding high usage with decreasing marginal airtime charges as more
airtime is used each month. The per minute tariff rates paid by a
subscriber under these tariff plans decline as the number of minutes used
in a month by that customer increases.
•
Charging fees based on airtime usage. These tariff plans do not
include an additional fixed monthly fee or interconnect charges imposed by
other mobile and fixed-line providers for calls made by our subscribers
that terminate on third party networks.
•
Charging for value added services on a usage basis with no fixed
monthly fee.
•
Providing discounts for calls to designated numbers within a
subscriber's calling circle.
•
Some of our rates are related to the time of day that a call is placed.
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In February 2000, we introduced the first post paid tariff plans without a
minimum monthly fee, which we branded "orange to go." Our orange to go plans
are based on the following basic elements:
•
No monthly payment charge.
•
No commitment for minimum usage.
•
No contractual obligations for a minimum subscription period.
•
Limited handset subsidies.
The elements of the orange to go tariff plans are applied, packaged and
marketed in various ways to create tariff packages designed to appeal primarily
to the private sector and target markets, including families, soldiers,
Orthodox Jewish, Arab and Russian communities, young adults (b.u.) and students.
Since May 2000, on most of our orange to go tariff plans, the customer
pays a fixed rate per minute in addition to call termination tariffs depending
on the network on which the call terminates.
Many of our subscribers sign up to the orange family plan. Under this
plan, two to four individuals, and from 2003 two to five individuals, who
subscribe as a group are given large discounts on calls made to each of the
other family members' orange phones. For our orange family subscribers under
the orange to go tariff plan, we offer a fixed rate for calls made to other
family members' orange phones.
We offer our orange b.u. subscribers who are under the orange to go tariff
plan a monthly refund, which is given against voice and SMS usage.
As of December 31, 2002, our new orange soldiers and orange students
tariff plans, as well as our main tariff plan for the Jewish Orthodox
community, include a uniform airtime tariff for all calls made in Israel, both
for calls within our network and for calls originating on our network and
terminating on a Bezeq fixed-line network or other cellular networks.
Under our original tariff plans for business customers, which are still
available, we offer lower airtime tariffs, which vary according to the size of
the business, and extra discounts for calls between employees of the business.
To date, we have a wide range of tariff plans for our business customers,
based on one or more of the following elements:
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•
Monthly minimum payment including a bundle of minutes.
•
Discounts on airtime tariffs between users who are registered under
one business customer.
•
Monthly minimum payment for unlimited calls between users who are
registered under one business customer.
•
Uniform tariff for all calls in Israel, both for calls within our
network and for calls originating on our network and terminating on Bezeq
fixed-line network or other cellular networks.
•
Rewarding high usage with a decreasing marginal airtime charge as more
airtime is used each month. The per minute tariff rates decline as the
number of minutes used in a month by a customer increases.
Our prepaid plan, known as "Big Talk," was launched on June 29, 2000.
Under the plan, our subscribers purchase a handset and a nationally distributed
phone charge card, available in fixed denominations. Upon purchase of the phone
card or prepaying by credit card, customers can use our network, including some
of our value added services, without the need to register with us or enter into
any contract. Under this plan, there are some reduced tariffs for certain hours
with no obligation to use our network for a minimum period of time and no
monthly subscription fee or monthly bill. Since December 2002, we offer our
prepaid customers a limited roaming service, which includes incoming calls and
SMS only, provided that the customer is registered for this service. Our
prepaid plan enables us to compete in the growing prepaid mobile services
market. Certain prepaid customers receive handset subsidies. These subsidies
are lower than those received by other subscribers.
In addition, we have a few GPRS, WAP and orange obox services packages,
which include a monthly payment for these services.
We developed several retention and churn prevention plans to retain our
subscribers. Some of these plans are based on a subscriber's ranking according
to financial and economic parameters. In addition, we have developed tools to
predict a subscriber's potential to churn from our network, thus enabling us to
proactively approach the subscriber with an attractive offering.
We believe that the combination of our tariff plans and our advanced
technology and content services provides attractive value in the Israeli mobile
telephone market and that our pricing strategy has facilitated subscriber
growth.
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International roaming
Israelis are frequent travelers. According to the Israel Central Bureau of
Statistics, in 2002, more than 3.27 million overseas departures of Israelis
were recorded, and more than 862,000 people visited Israel during 2002. Roaming
allows a mobile phone subscriber to place and to receive calls while in the
coverage area of a network to which he does not subscribe and to be billed for
such service by his home network. Unique among mobile telephone technologies,
facilitating international roaming was a primary design goal of the GSM system
from its inception. A GSM roamer can therefore expect to enjoy substantially
the same services, features and security while traveling as he does at home. We
consider international roaming to be a significant source of revenue.
Our roaming service was created within the framework of the GSM technical
standard and the policies and procedures set forth by the GSM Association. A
bilateral relationship is created between two GSM operators by signing a
roaming agreement based upon the GSM Association's general template, modified
as appropriate for the particular circumstances. After technical and billing
tests are successfully concluded, the connection is opened commercially and
each party's subscribers may use the other party's network. At December 31,
2002, we had open commercial roaming relationships with 250 operators in 104
countries or jurisdictions. Creating roaming relationships with multiple
operators in each country increases potential incoming roaming revenue for us
and gives our subscribers more choice in coverage, services and prices in that
country.
Since we operate on the 900 MHz band, which is the most widely-used among
GSM operators worldwide in terms of handsets, all of our subscribers may roam
to all but three of the 90 countries where we have roaming capability using
their own handsets without modification. GSM networks in those three countries,
the United States, Canada and Chile, use the 1900 MHz band. Our subscribers who
own dual- or tri-band handsets that work on GSM 1900 as well as GSM 900 may
also use their own handsets in those three countries. Other subscribers who
advise us of their intention to visit those countries are lent free-of-charge a
compatible handset into which they insert their SIM, thus retaining their own
phone number, phone book and all other regular features.
Since 900 MHz is the most widely-used GSM band, most GSM handsets in the
world are already compatible with our network. GSM networks operating on 1800
or 1900 MHz who offer international roaming to their subscribers generally make
some arrangement for their subscribers to receive or rent a 900 MHz-compatible
handset. Most GSM subscribers worldwide who roam are therefore capable of using
our network immediately upon their arrival in Israel. Since we launched our GSM
1800 network, subscribers with GSM 1800 handsets are able to use our network
even without having to obtain a 900 MHz-compatible handset.
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If Paltel's GSM network is successful in attracting customers and the
Palestinian economy remains closely linked to that of Israel, we have the
potential to increase the roaming income derived from Palestinians who commute
daily to or through Israel or visit frequently.
Cellcom was awarded a band of GSM 1800 spectrum in the December 2001
auction for additional spectrum in Israel. It began providing GSM 1800 services
in the second half of 2002. Cellcom offers international roaming services
through its commercial roaming agreements to some destinations and to others
through an agreement with a third party. At present Pelephone subscribers
cannot use their Israeli handsets for roaming on any GSM network, and there are
no networks in Western Europe using technologies or frequencies compatible with
Pelephone's CDMA network and Cellcom's TDMA network. Pelephone and Cellcom
rent, lend or give their subscribers GSM handsets that contain a SIM from a GSM
network that provides service in its own country and roaming to GSM
networks elsewhere.
In addition, Pelephone and Cellcom's TDMA subscribers traveling to North
America may have a US cellular identification and number added to their
existing Israeli phone or may rent or be lent a different phone. Cellcom also
offers its subscribers automatic roaming with limited coverage in the US and
Canada through a major D-AMPS carrier operating in the US. Pelephone and
Cellcom subscribers who find themselves using analog (AMPS) networks are
subject to the same call interception and phone duplication risks as
subscribers of those networks. Also, since in order to prevent fraud, many AMPS
networks in the United States do not permit international direct dialing, some
Pelephone and Cellcom subscribers using those networks are required to use a
calling or credit card to call back to Israel or elsewhere overseas. MIRS
offers its subscribers an automatic roaming service on Nextel's network in the
United States and in South America.
Charges to Pelephone or Cellcom's TDMA customers appear on the customer's
bill, and arrangements can be made to forward or transfer calls received at
their Israel mobile number onward to the local cellular number overseas.
Handsets and services relating to roaming are provided to the customers either
directly by Pelephone and Cellcom or through agents.
Value added services
In addition to standard GSM value added services, including call waiting,
call forwarding, caller identification and conference calling, we currently
offer and are developing a variety of additional value added services. Value
added network services are important to our business as they create
differentiating factors and increase customer usage and satisfaction. We follow
all major market developments regarding value added network services, and we
intend to implement and offer those
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services that are likely to be popular with customers and which would add value
to our business. Some of the value added services that we offer are available
only to subscribers who have certain handset models. The value added services
we currently offer include the following:
•
VOICE MAIL. Our voice mail offers what we believe are among the most
advanced features available today, such as SMS notification of messages
received, including time of day and caller identification, and call
return.
•
SHORT MESSAGE SERVICE (SMS). Subscribers can type, send, receive,
reply to and forward text messages using any handset we sell.
•
VOICE MESSAGING. Our voice messaging service allows subscribers to
send voice messages to lists of more than 400 people, with prioritization
and receipts requested.
•
FAX MAIL. Subscribers can receive, store, and forward fax messages
through their handsets, freeing them from the need to own their own fax
machine or to be near a particular fax machine.
•
CALLING SERVICES. These services include conference calls, caller
identification, call waiting, conditional call forwarding, and calls to
one of our numbers that rings two phones—one handheld and the other a car
phone.
•
WORLD WIDE WEB-SMS GATEWAY. This service enables subscribers to
receive messages on their handset from people who visit our web site.
•
ACCOUNT BALANCE. All subscribers can request and receive current
information on their Partner account balance and air time usage directly
on their handset display.
•
DATA SERVICES. We currently provide our subscribers data transfer
capability at a rate of 14.4 Kbps. This capability enables our subscribers
to browse the internet, access their intranet data, send and receive
e-mails and other data transfer applications. This functionality is mainly
accessed through WAP enabled handsets and Personal Digital Assistants,
such as hand held computers and laptop computers, linked to standard
handsets.
•
HIGH SPEED CIRCUIT SWITCHED DATA (HSCSD). This infrastructure
development enables the transmission of data at a speed of up to 43.2
Kbps, which is higher than the 14.4 Kbps speed previously available on GSM
networks.
•
ELECTRONIC BILL PRESENTATION. This service enables our subscribers to
view, analyze and compare their private Partner accounts.
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•
INFORMATION AND CONTENT SERVICES. We provide voice and text-based
information and content services. The voice-based information services are
provided through Interactive Voice Response platforms, which include
interactive information services and radio programs. Text based
information services are provided through our current SMS and WAP
technologies. We have expanded our information services to SIM-tool kit
applications. Interactive information services include services such as:
stock quotes, personal stock portfolio management, stock indices, currency
exchange rates, news headlines, sport news and results, lottery results,
weather reports in Israel and abroad (for our roaming subscribers), daily
horoscopes, travel and leisure deals, entertainment tickets information,
TV listings and airlines information. For purposes of these services we
have relationships with content providers.
•
GENERAL PACKET RADIO SERVICE (GPRS). This technology enables the
packet transfer of data in an "always on" mode, at speeds of up to 20-30
KBps.
•
WAP SERVICES. We have WAP technology that enables WAP-related
services. WAP services create a significant incremental
demand for content services and increase usage of our network.
•
RADIO BU 99 FM INTERACTIVE ACTIVITIES. We provide our subscribers with
the ability to participate in Radio bu 99 FM programs, games, quizzes, to
vote, to chat and to participate in other interactive activities, using
SMS, such as sending advance notification of a certain band upon
subscriber request. This FM radio station is well positioned among
12-24-year olds, and is associated with our "orange b.u." plan.
•
ORANGE OKLIK. These services enable subscribers to send photos,
multimedia and animation from handset to handset and from handset to web,
based on Multimedia Message Services (MMS) platform.
•
ORANGE OBOX. This service enables the downloading of rich applications
and content, including games, interactive screensavers, karaoke and 16
poly ringtones, combined with a unique range of handsets. This service is
based on the virtual machine platforms, Java to Micro Editions
(J2ME) and proprietary General Virtual Machine (GVM).
•
DOUBLE RING. Double Ring enables our subscribers to receive calls made
to their mobile telephone on either their mobile or their fixed-line
telephone.
•
VIRTUAL PRIVATE NETWORK. User groups are able to be formed in multiple
layers, and the members can then reach each other through short dialing
codes, like extension numbers.
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•
SHORT CODE DIALING FOR ROAMERS. This service allows foreign GSM users
roaming in Israel to use their home services dialing codes during their
stay in Israel and allows our subscribers while roaming abroad to use the
short dialing codes available on our network.
•
FIELD PERSONNEL MANAGEMENT. This service provides a comprehensive
system for businesses to manage their field personnel via our network,
including dispatching, scheduling, task assignment by real time location
and confirmation back to the customer.
•
PERSONAL VOICE MAIL GREETINGS. This service enables subscribers to
personalize their voice mailbox greetings by easily applying professional,
customizable pre-recorded messages.
•
INTERNATIONAL SAVING. This service enables our subscribers to reduce
their costs of international calls while roaming.
•
ORANGE PAGES. This service enables subscribers to receive information
about a nearby business or service (such as a taxi service) through IVR
and to connect to that business or service immediately.
Entertainment accessories
•
ICONS. This service enables subscribers to download icons from our
website and save them on their handsets. Subscribers can also design their
own icons and send them to friends.
•
RING TONES. This service enables subscribers to personalize the ring
tones heard upon receiving an incoming call. Subscribers can also compose
their own ringtones and send them to friends. We also offer our
subscribers an innovative extension to this service, which enables them to
receive a whole song as a ring tone.
•
4 U. This service enables subscribers to "send" a recorded greeting,
accompanied by a song or a joke selected by the subscriber, to another
subscriber (on any Israeli network) at a predetermined time.
•
PICTURE MESSAGING. This service enables subscribers to send and
receive pictures.
•
ORANGE GAMEZ. This service is a games platform which enables
subscribers to play various interactive games via WAP, the internet, SMS
and IVR.
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Handsets
We provide handsets to our contract subscribers at discounts of up to 100%
when they first become subscribers. The price at which the handset is provided
depends upon the tariff package and special promotions. When subscribers under
our "orange to go" and "Big Talk" plans receive handset subsidies, such

subsidies are significantly lower than those received by our subscribers who
sign 36-month contracts. Since October 2001, subscribers who return the handset
of a competing network are entitled to discounts, depending on their actual
monthly bill and the type of handset purchased.
We currently offer a range of different handset models supplied by a
number of manufacturers, all of which are branded with the Orange logo. We
offer handsets to satisfy our subscribers' roaming needs in the 900 MHz, 1800
MHz and 1900 MHz bands. We evaluate the technical features of every new mobile
handset and, if we decide to make it available to subscribers, we obtain a type
approval from the Ministry of Communications for such handset. We advise our
sales representatives and dealers on compatibility and technical issues. All
our handsets are EFR compatible to provide high voice quality. Most of our
handset models have Hebrew language displays. Because of the wide international
acceptance of GSM technology, handset manufacturers generally make their latest
model handsets available for use on GSM networks before networks based on other
technology. Recently, we have begun selling some innovative handsets with
enhanced applications, including multicolor screens, 16 poly ringtones and MMS
capabilities.
Customer service
We aim to provide the best quality customer service in Israel through
quick, simple and reliable handling of all customer needs and interactions. We
invest in both state of the art technology and training of customer service
skills in order to achieve this goal. At December 31, 2002, approximately 1,421
employees, on a full-time equivalent basis, worked in our customer service
division. Our customer service division consists of both call center services
and face-to-face service centers. Call center services are divided into
different centers—general, finance, network, international roaming, business,
data and prepaid—in order to provide focused and professional responses to our
customer inquiries in four languages 24 hours a day, seven days a week.
Our face-to-face customer service consists of 32 service points serving
the customer as a one-stop-shop in both sales and service areas.
In addition, we give our customers various self-service channels: IVR,
Web-Based service and service via SMS.
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On January 1, 2003, we merged our customer service division and our sales
division into an integrated Customer Division.
Customer contracts, credit policy, billing bad debt and disconnection
Part of our subscriber contracts for customers on our original tariff
plans provide for a 36-month term. Under the terms of these contracts,
customers who terminate their contracts prior to the expiration of the 36-month
term and have purchased their handset from us or our dealers can be charged by
us for payment of the residual price of their handset. This charge reflects the
difference between the price they paid for the handset, if any, and the list
price, adjusted for the number of months that the customer has been a
subscriber. Subscribers are billed monthly in arrears for airtime charges and
charges per services. We outsource the printing and sending of bills to third
parties. Most of our business customers have signed 36-month contracts.
Most of our individual subscribers subscribe and pay for their services by
credit card. All credit card accounts are subject to an initial maximum credit
limit each month, which varies depending upon the type of credit card and for
which we obtain prior approval from the card issuer. When a subscriber account
reaches this limit, we may seek approval from the card issuer. If the approval
is not granted by the card issuer, we may require the customer to provide other
means of payment or arrange an increase in the approved limit from his credit
card issuer. If this does not occur, the customer's usage may be limited or
suspended until we receive a cash deposit or guarantee from the customer.
All business subscribers and some of our individual subscribers can
subscribe and pay for their services by credit card or direct debit. Customers
acquiring more than fifteen handsets (or eight through our dealers) are subject
to a credit scoring review performed by outside credit agencies. All customers
are subject to a monthly maximum credit limit. When the monthly limit is
exceeded, usage may be limited. Roaming access for direct debit subscribers is
subject to credit scoring by outside credit agencies and may require additional
guarantees or credit checks.
Subscribers are subject to periodic credit risk reviews, taking into
consideration payment history, disconnection history and new circumstances. If
payment for a subscriber's monthly bill is not received within 27 days of the
issue of the bill, roaming and international call service is suspended. After
31 to 36 days, all outgoing call service is suspended. After 45 days, all
services are suspended, after 60 days, we begin legal proceeding regarding the
debt collection and ultimately, after 150 days, all services are disconnected.
If the subscriber does not reinstate service after being disconnected, we may
require him to pay the residual value of his handset.
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Distribution
As the third entrant into a competitive market, we recognize that
effective distribution channels are a key success factor for our business. We
have developed and are executing a multi-channel approach to target the various
segments of the market and to coordinate our sales strategy. We distribute our
services primarily through:
•
direct sales through Partner-owned sales centers and business sales
representatives; and
•
indirect sales through traditional networks of specialist dealers and
non-traditional networks of retail chains and stores, which account for a
majority of our sales.
Direct sales
Orange sales and service centers
We currently operate six Orange Brand stores which focus on sales to
individual customers. These stores are sales and service centers with a uniform
design, typically 1,100 square feet (100 square meters) in size, and offer high
service standards. The Orange Brand stores are conveniently located in highly
visible locations, such as shopping malls, in the Tel Aviv area, Jerusalem,
Haifa and Be'er Sheva. These stores serve as flagship stores to help introduce
the Orange Brand and our services to the Israeli market and to generate a high
level of repeat business and referrals. In the future, we also expect these
stores to become involved in the sale of advanced data services and other
technologically sophisticated applications. We have built three new Orange
sales and service centers, each approximately 5,500-9,000 square feet (500-800
square meters) in size, located in the outskirts of Tel Aviv, Jerusalem and
Haifa. Our new centers serve as "one-stop shops" for direct customer service,
in which our representatives will demonstrate the use of new products and
services. In addition, we have opened 23 service centers, each approximately
2,152 square feet (200 square meters) in size. These centers offer our
customers various services, including handset maintenance services.
Direct sales force
At December 31, 2002, we had a sales force comprised of sales
representatives, account managers and area managers, targeting business
clients. We primarily focus on small- and medium-sized enterprises which tend
to use more airtime and yield higher margins. Small to medium-sized businesses
are serviced by a team of regional representatives and customer account
managers located in five regional offices. Large corporate customers are
serviced by a team of national representatives and customer account managers.
Prominent individuals are served by national VIP
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representatives. We provide our sales force with regular training to ensure
that they are capable of selling advanced solutions such as mobile data,
intranet extension and connectivity, virtual private networks and other value
added services that appeal to corporate customers. Our direct sales force is
supported by an outsourced telemarketing department which makes initial contact
with prospective customers and makes appointments for the sales
representatives. The telemarketing department is another channel for direct
sales by phone.
Indirect sales
Traditional dealer networks
At December 31, 2002, we had agreements with 46 traditional dealers
providing 94 points of sale, consisting of specialists selling a range of our
products. The private dealer network is an important distribution channel
because of its ability to attract existing cellular users to our network. Our
dealer network focuses primarily on sales to individual customers and, to a
lesser extent, small business customers. Our dealers are highly professional
and some of them have previous experience selling cellular services in Israel.
One of our dealers has a workforce of approximately 100 salesmen for
"door-to-door" sales. In addition, we have specific dealers that target the
Jewish Orthodox, Arab, Russian communities, as well as other segments of the
Israeli population with the appropriate style, language and locations. We
provide regular training to employees of our dealers to update them on our
products and services. We believe that the ongoing sales success of our
existing distribution channels will continue to attract dealers to our network.
Our dealer managers visit dealers on a regular basis to provide information and
training, answer questions and solve any problems that may arise in the
activation process. We pay our dealers competitive commissions and provide
handset subsidies to them. However, dealers are not entitled to commissions for
any customers that terminate their service within 60 days of activation.
Non-traditional dealer networks
Non-traditional dealers consist of generalist retailers or specialist
stores that sell related products. This distribution channel is not common in
the Israeli cellular market today, and we believe that it provides us with a
competitive advantage over and differentiates us from our competitors.
We have a contract with Super-Pharm, the largest drug store chain in
Israel, to sell our network services in their stores. At December 31, 2002, our
services were sold in 107 Super-Pharm stores nationwide in a variety of
formats, including Partner shop-in-shops, kiosks, wall-unit displays and at
front counters. In 2002, approximately 17.5% of our new subscribers were
recruited through
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sales by Super-Pharm. Under our agreement with Super-Pharm, in addition to
Super-Pharm continuing to sell our network services in their stores, we are
cooperating with them in a new chain of stores that Super-Pharm has
established, called Super-Link, and that is dedicated to selling communications
services and equipment. Six such stores have been opened to date, and the
intention is to open 10 more. This agreement replaces our previous agreement
with Super-Pharm, which expired in December 2000. The initial term of
our current agreement was until December 31, 2001, and the term of the agreement is
renewable each year for an additional one year unless one of the parties
chooses to notify the other party 180 days before its termination of its
willingness to terminate the agreement. Currently the term of the agreement is
until December 31, 2003.
In addition, we are developing our distribution network with other
non-traditional dealers, such as the Ituran chain, which sells, installs and
maintains car security and tracking systems in approximately 46 locations
throughout Israel. They also sell and install our car kits in these sites.
Another non-traditional dealer is Eurocom Communications Ltd. See "Item 7.
Major Shareholders and Related Party Transactions." We provide regular training
to the employees of our non-traditional dealers to update them on our products
and services.
Our network
We believe that we have built an extensive, resilient and advanced mobile
network system in Israel, allowing us to offer our services with extensive
coverage and consistent high quality. Through December 31, 2002, we have made
net capital expenditures of NIS 2,399 million ($506 million) in our network
infrastructure and other related fixed assets.
Overview
The "first generation" of wireless communications, based on analog
technology, provides simple voice telephony. The "second generation" of
wireless communications, such as the digital GSM standard, provides additional
data facilities ranging from short messaging services to narrow band data,
which is sufficient for the basic data services offered by network operators,
but cannot support high resolution video or multimedia applications.
New
types of services are made possible by the roll out of technological
developments that will increase the speed and efficiency of existing GSM
networks such as GPRS, which is a 2.5G technology. 2.5G technology network
operators are able to deliver multimedia and high speed services before third
generation services are introduced.
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Third generation wireless communications, which are expected to offer full
interactive multimedia capabilities at data rates of up to 2 Mbits per second,
are expected to bring wirefree networks significantly closer to the
capabilities of fixed line networks. Improvements in coding and data
compression technology will provide better voice quality and more reliable data
transmission. UMTS is the global standard adopted for the implementation of
third generation wirefree telecommunications.
Infrastructure
At December 31, 2002, our GSM network consisted of 1,309 macrobase
transceiver stations and 726 microbase transceiver stations, all linked to 29
base station controllers. The base station subsystem is controlled by 11 mobile
switching centers. Base transceiver stations, mobile switching centers and base
station controllers are interconnected by approximately 3,900 transmission
links. In addition, our network is interconnected with the public switched
telephone network operated by Bezeq in several locations across Israel. Our
network is also directly connected to the mobile networks of Pelephone, Cellcom
and the three Israeli international operators, Bezeq International, Barak and
Golden Lines, and indirectly to MIRS and the fixed and mobile telephone
networks of Paltel. During 2002, our network was directly connected to the
mobile networks of Pelephone and Cellcom for the purpose of bilateral transfer
of SMS's. In February 2003, we added an SMS direct connection to MIRS. See
"Item 4B. Information on the Company—Business Overview—Interconnection."
Ericsson and Nokia supply our base station controller and base transceiver
station sites for our network in Israel.
Our transmission network is made up of leased lines from Bezeq, Cellcom
and Pelephone and our own microwave links. Currently most of our transmission
network consists of leased lines. As our network currently covers approximately
97% of the Israeli population, we are now selectively expanding the capacity
and quality of our network primarily in urban areas by adding infrastructure to
improve outdoor and indoor coverage. We plan to continue increasing the
capacity and quality of our network in order to accommodate the anticipated
growth in the number of our customers.
Network Design
Our primary design objective is to build a mobile telephone network
engineered to provide excellent voice quality, call reliability, high capacity
and high coverage quality and to maintain technical advantages over our
competitors. In formulating our network design objectives, we have been guided
by our business strategy to build the highest quality network. We work to
quality standards which exceed those set forth in our license. The quality
parameters that we seek to satisfy
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are those that we believe are important to mobile phone users: voice quality,
low "blocked call" rate, low "dropped call" rate and deep indoor penetration,
especially in densely populated areas or areas of special commercial interest.
Blocked calls are calls that fail because access to the network is not possible
due to insufficient network resources. Dropped calls are calls that are
involuntarily terminated.
With these quality parameters in mind, we have rolled out an advanced
radio network, using macrocellular and microcellular base transceiver stations
and advanced frequency planning software in very high density metropolitan
areas in order to provide "deep" indoor coverage and sufficient capacity for
latent demand. This technology is designed to maximize spectrum utilization and
enhance service quality. Our transmission network design confers the following
benefits: (i) necessary bandwidth for GSM services; (ii) resilience; (iii) use
of high transmission rate back-bone routes based on Synchronous Digital
Hierarchy; and (iv) the ability to utilize a new generation of sophisticated
technology to optimize the system and increase capacity where necessary. Our
switching architecture is based on two transit switches connected to all of our
systems and platforms, which improves reliability and facilitates expansion. We
are optimizing our network with an advanced radio method called Synthesized
Frequency Hopping. This method is increasing the capacity of our network and
improving the quality of the performance we supply our subscribers. Because our
network was planned with our key quality parameters in mind, we believe that we
will be able to continually upgrade the quality of our network as our business
develops.
Spectrum allocation and
capacity
Spectrum availability is limited and is allocated by the Ministry of
Communications through a licensing process. Pursuant to the terms of our
license and subsequent allocations, we were allocated 2x10.4 MHz in the 900 MHz
frequency band, of which 2x2.4 MHz are shared with Paltel in the West Bank and
the Gaza Strip. We also have an agreement to use an additional 2x2.4 MHz of
spectrum in the 900 MHz frequency band on a shared basis with Paltel. Under
this agreement, which has been endorsed by the Ministry of Communications, we
are permitted to use this additional spectrum in Israel so long as we do not
cause interference in areas where Paltel operates.
In the December 2001 spectrum auction in Israel, the Ministry of
Communications awarded us the two bands of spectrum for which we had submitted
bids: 2 x 10 MHz of GSM 1800 spectrum and 2 x 10 MHz and 1 x 5 MHz of UMTS
third generation spectrum. During 2002, we started deploying GSM 1800 MHz band
base transceiver stations to enhance the capacity of our GSM 900 MHz network,
and to further improve our GSM 900 MHz network's quality.
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We seek to optimize the use of our current spectrum allocation by adding
more base transceiver stations in combination with advanced design and
operation techniques. We have experienced in the past, and may experience in
the future, interference in the GSM 900 spectrum allocated to us. We intend to
continually enhance the quality of our coverage and capacity in response to
changing consumer demands.
Dropped Calls
Dropped calls are calls that fail to complete when dialed or are
terminated involuntarily. Since the launch of full commercial
operations, our dropped call rate has steadily improved. Our monthly
dropped call rate has declined from 3.50% for January 1999 to 1.71% for
December 1999, to 1.44% for December 2000, to 1.3% for December 2001 and to
1.15% for December 2002.
Other systems
Our Home Location Register, or HLR, stores details of our subscribers and
their location. We have installed a special purpose HLR which prevents a single
point of failure in our network from affecting the service to all our
subscribers. Our Authentication Center automatically verifies each SIM's
authenticity by performing an encrypted transaction when the mobile telephone
is switched on. Our Short Message Service Center handles short messages sent by
our subscribers to other mobile telephones. The Voice Mail System takes
messages for subscribers and allows them to retrieve and forward messages and
faxes after being notified by short message of the receipt and source of the
voice message. The Partner Information Hub that we launched in January 2000
enables all our subscribers to receive data information services on their
handsets using SMS technology. During 2000, we increased our SMS Center
capacity four-fold. The system is used for mobile originated, SMS information
services and other monitor and control systems based on SMS. We also extended
our information services with an IVR system by CTware Ltd., which allows voice
access to many information services. Dozens of such services are currently
available including news, games, entertainment, jokes, radio and others. We
have purchased Ericsson's Mobile Positioning System (MPS) platform. This is a
technology platform which enables us to provide location-based services to a
large number of subscribers. A system which enables location-based services has
been launched in 2001. During 2002, we launched orange oklik services, which
are based on Multimedia Messaging Service Center (MMSC), an Ericsson platform.
In addition, we have developed with Samsung (Korea) a system which enables the
downloading of rich applications and content. These services, which are branded
"orange obox", are based on GVM, a technology which was originally developed in
Korea on CDMA-1x technology and has been implemented on our GSM network. We
intend to offer our subscribers in 2003 downloads of video clips through our
MMSC platform and will enable subscribers
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to prepare their own personal photo album on the web with a direct connection
to a paper development photo laboratory. Our "test bed" laboratory enables
start-up companies to develop and evaluate new GSM services without interfering
with the operation of our network. Since September 2000, we have also offered
foreign GSM users roaming in Israel, and our subscribers while roaming abroad,
the ability to use some of their home services' dialing codes during their stay
in Israel with a system developed by star*home.
We have also enhanced the authentication ability in our network, in order
to strengthen the protection of our network against fraud and interception.
On June 29, 2000, we installed and launched an Ericsson prepaid system. In
May 2002, we upgraded the Ericsson platform in order to support our larger
prepaid subscriber base and to allow us to offer a wider range of services.
Also in June 2000, we launched WAP services based on a platform designed by
Exalink (now Comverse), an Israeli provider of internet-based services over
wireless devices. We have chosen Ericsson to provide us with a GPRS system that
will enable the high speed packet transfer of data in an "always on" mode. The
WAP over GPRS system will allow our subscribers to have mobile internet
services on line in the future.
We have completed the national deployment of our GPRS network and have
launched a variety of supported services in 2002. As part of our GPRS service,
we are using mainly Cisco's IP Core System. The IP Core System is the first
step towards new advanced services, and can be used on third-generation UMTS
networks as well.
In 2001, we upgraded our basic data transmission capability to allow a
14.4 Kbps rate over the entire network, an improvement over the previous rate
of 9.6 Kbps.
Site procurement
Once a new coverage area has been identified, our technical staff
determine the optimal base station location and the required coverage
characteristics. The area is then surveyed to identify antenna sites. In urban
areas, typical sites are building rooftops. In rural areas, masts are usually
constructed. Technical staff also identify the best means of connecting the
base station to the network, for example, via leased or owned and operated
microwave links or wired links leased from Bezeq. Once a preferred site has
been identified and the exact equipment configuration for that site decided, we
begin the process of obtaining necessary approvals.
The erection of these antennas require building permits from local or
regional authorities, as well as a number of additional permits from
governmental and regulatory authorities, including:
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•
erection and operating permits from the Ministry of the Environment;
•
permits from the Civil Aviation Authority, in certain cases; and
•
permits from the Israeli Defense Forces.
See "Item 4B. Information on the Company—Business Overview—Regulation"
for a description of the approvals that are required for the erection and
operation of antenna sites.
Suppliers
Our network utilizes standard equipment, which is available from a limited
number of suppliers. One of our major GSM equipment suppliers is Ericsson and
its affiliates, which supply us with mobile switching centers, base station
controllers, base transceiver stations, transit transmission centers, operation
support systems and transmission systems equipment. Ericsson is also our major
supplier of GPRS network equipment, including GPRS support nodes and gateway
GPRS support nodes. Nokia also supplies us base station controllers, base
transceiver stations and network management system equipment. See "Item 3D. Key
Information—Risk Factors—We depend on a limited number of suppliers for our network
equipment. Our results of operations could be
adversely affected if our suppliers fail to provide us with adequate supplies
of network equipment or maintenance support on a timely basis." We have
agreements with Baran Raviv, Bintech and H. Mer, all Israeli engineering
companies, for the construction of our sites. We continue to purchase certain
network components from various other key suppliers. We believe that our
network suppliers price structure is competitive with industry standards.
Interconnection
All telecommunications providers with general licenses in Israel have
provisions in their licenses requiring them to allow interconnection of their
networks with all other telecommunications networks in Israel. Currently, our
network is connected to all other telecommunications networks operating with
general licenses in Israel. Our network is directly interconnected to the
networks of Bezeq, Cellcom, Pelephone, MIRS, Bezeq International, Barak and
Golden Lines. Our network is indirectly interconnected to the networks of
Paltel through the Bezeq network for the purpose of bilateral transfer of
calls. During 2002, our network was connected to the networks of Cellcom and
Pelephone for the purpose of bilateral transfer of SMSs, and in February 2003,
we connected our network to the network of MIRS.
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In December 2002, we entered into an agreement with Matav-Cable Systems
Media Ltd., one of our principal shareholders. The agreement enables our
subscribers to send an SMS to the TV screen of Matav's digital subscribers and
vice versa. See "Item 7B. Related Party
Transactions—Transactions with Affiliates".
We are currently operating without any formal interconnection agreements
with Bezeq. We are not aware of any interconnect agreement that Cellcom,
Pelephone or MIRS has signed with Bezeq. Our day-to-day arrangements with Bezeq
substantially conform to a draft interconnect agreement negotiated with Bezeq.
The interconnect rates charged by Bezeq are set by Israeli legislation and
Bezeq is required by law not to discriminate against any licensed
telecommunications operator in Israel with respect to the provision of
interconnect services. As of March 1, 2000, Bezeq began calculating
interconnect (call termination) fees due to us based on fees actually collected
by Bezeq from its subscribers and imposing an additional collection fee on us.
Until that time, interconnect fees were calculated on the basis of actual
usage. We were not successful in challenging Bezeq's position in court (a
ruling which we are appealing). In October 2000, a new Interconnect Regulation
became effective, stating that interconnect fees among cellular and fixed line
operators should be based upon actual usage. Nevertheless, Bezeq continued
calculating interconnect fees due to us based on fees actually collected from
its subscribers and imposing an additional collection fee on us. At the end of
2001, following a complaint by us and another mobile operator, the Ministry of
Communications rejected Bezeq's fee calculation method, stating that the
appropriate basis for calculating interconnect fees due to us is actual usage.
The Ministry of Communications declared that for the period from October 2,
2000 until December 31, 2002, Bezeq may withhold a certain percentage from the
interconnect fees due to us. As an interim settlement and until we reach an
agreement, if any, with Bezeq, the Minister of Communications has decided to
permit Bezeq to withhold 2.5% of the amounts due us. The Minister of
Communications also indicated that with no agreement between the parties he may
set a different rate at his discretion. In addition, the Minister of
Communications indicated that he would consider applying new rules from January
1, 2003.
Recently, since the operators were unable to reach an agreement, the
Ministry of Communications considered a settlement, according to which Bezeq
would deduct 1.1% of the amounts due to us for the period commencing October 2,
2000 until December 31, 2002. For the period commencing January 1, 2003, Bezeq
would pay amounts due to us according to actual usage without any deduction. In
addition, the Ministry of Communications suggested, subject to court approval,
that a deduction of 1.1% of amounts due us would be in effect also for the
period of March 2000 to September 2000.
As of February 2003, following comments it received from the operators,
and since the official committee nominated by the Ministry of Communications to
examine Bezeq's tariffs had not
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concluded its work, the Ministry of Communications decided upon an additional
interim settlement, pursuant to which Bezeq would withhold 1.1% of the amounts
due us for the period commencing January 1, 2003 until April 30, 2003.
We currently pay Bezeq an interconnection fee based on a tariff structure
that came into force on May 1, 2000. The table below illustrates these
interconnection tariffs.
Bezeq interconnection tariffs (not including VAT)
Local call
Tariff for calls
Time of day
tariff
between area codes
Sunday through Thursday
08:00 a.m.-6:00 p.m.
and Friday 08:00 a.m.-1:00 p.m.
NIS 0.055
NIS 0.115
Sunday through Thursday
6:00 p.m.-10:00 p.m.
NIS 0.035
NIS 0.035
Sunday through Thursday
10:00 p.m.-08:00 a.m.
and Friday 1:00 p.m.-Sunday 08:00 a.m.
NIS 0.024
NIS 0.024
We have formal interconnection agreements with Cellcom, Pelephone and
MIRS. The agreements have one-year terms and are renewable for an unlimited
number of additional one-year terms. The agreements can be terminated on 90
days' written notice by either party. The interconnection agreements with
Cellcom, Pelephone and MIRS do not contain any pricing terms. The
interconnection tariffs charged by Cellcom, Pelephone and MIRS are set by a
Ministry of Communications regulation that, coupled with a change to the mobile
telephone operators' licenses, imposes a uniform call termination tariff for
all mobile telephone operators. The uniform tariff, originally set at NIS 0.54
per minute fell to NIS 0.50 on January 1, 2001. The uniform tariff was to fall
further to NIS 0.46 on January 1, 2002 and finally to NIS 0.42 per minute on
January 1, 2003. In addition, these regulations impose a uniform call
termination tariff for incoming international calls to cellular networks of NIS
0.25 per minute. In response to legal proceedings brought by Pelephone against the Ministry of Communications, the Ministry
of Communications agreed that the uniform tariff should remain at NIS 0.50 per
minute until January 1, 2003, at which point it has been reduced to NIS 0.45
per minute, rather than at the levels contemplated by the regulations. The
tariffs accepted by the Ministry of Communications have since been formally
adopted by an amendment to the call termination tariff regulations, which were
published by the Ministry of Communications. Because we transfer and receive
all traffic to and from the MIRS (until February 2003) and Paltel networks
through the Bezeq network, we pay Bezeq a transit fee for each call.
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We have a written interconnection agreements with Bezeq International and
Barak. We currently have an operating arrangement with the other international
operator, Golden Lines. As noted already, the Ministry of Communications
regulation and the change to the mobile telephone operators' licenses discussed
above also impose a uniform call termination tariff for incoming international
calls of NIS 0.25 per minute. We have notified the Ministry of Communications
of our objection to this rate.
Competition
There are currently four mobile telephone network operators in Israel:
Partner, Cellcom, Pelephone and MIRS. The major beneficial shareholders of
Cellcom are BellSouth, the Safra Group and Discount Investment Corporation Ltd.
Cellcom operates a nationwide mobile telephone network based on D-AMPS digital
technology. Cellcom was awarded spectrum in the DCS 1800 band in the December
2001 spectrum auction in Israel and began providing GSM services in the second
half of 2002. For more information, see "Item 3D. Risk Factors—Increased
competition from existing competitors may affect our market share and require
us to reduce our tariffs in the future, may increase our subscriber
acquisition
costs and customer retention costs and may continue to increase our churn
rate". Our second competitor is Pelephone. Pelephone is an Israeli corporation
owned by Bezeq, the public fixed-line operator in Israel (50%) and by Pelephone
Holdings, LLC (50%), a Delaware corporation owned by Shamrock Holdings. Bezeq
has a four-year call option to purchase the shares owned by Shamrock Holdings.
Pelephone currently operates nationwide mobile telephone networks in Israel
using both the N-AMPS analog and the CDMA digital system. Our third competitor
is MIRS, an Enhanced Specialized Mobile Radio, or "trunking," network, which
was granted a general license to operate as a mobile telephone operator on
February 5, 2001. MIRS's major shareholders are Motorola Communications
(Israel) Ltd. (66.7%) and Ampal Israel Ltd. (25%).
According to the Company's estimate, at December 31, 2002 Cellcom had an
estimated 2,470,000 customers, representing approximately 39% of the Israeli
mobile telecommunications market. Pelephone had approximately 1,761,000 paying
customers at December 31, 2002, representing approximately 28% of the Israeli
mobile telecommunications market. MIRS is estimated to have had over 265,000
users at December 31, 2002, representing approximately 4% of the Israeli mobile
telecommunications market. We compete with Cellcom, Pelephone and MIRS
principally on the basis of telecommunications service quality, brand identity,
variety of handsets, tariffing, value added services and the quality of
customer services.
To the extent that mobile telephones are used in lieu of fixed telephones,
we also compete with Bezeq.
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In addition, the Palestine Telecommunication Co. Ltd., or Paltel, operates
a GSM mobile telephone network under the name "Jawwal" in the Palestinian
Authority administered areas of the West Bank and Gaza Strip, as well as a
fixed-line network. Paltel's GSM network competes with our network in some
border coverage overlap areas.
Information technology
We depend upon a wide range of information technology systems to support
network management, subscriber registration and billing, customer service and
marketing and management functions. These systems execute critical tasks for
our business, from rating and billing of calls, to monitoring our points of
sale and antenna sites, to managing highly segmented marketing campaigns. As
our subscriber base has grown, we have devoted significant resources to
expanding and enhancing our information technology systems and adopting and
implementing new systems, including updating our financial management and
accounting system. We believe these systems have been an important factor in
our achievements since our commercial launch.
While many of our systems have been developed by third-party vendors, all
of them have been modified and refined to suit our particular needs. In certain
instances, we have developed critical information technology systems internally
to meet our specific requirements. For example, significant segments of our
customer service system and business information infrastructure were developed
internally and were designed to integrate our customer service outreach with
our overall sales and marketing effort. In other cases, conversely, we have
outsourced responsibility for certain systems to third parties.
SchlumbergerSema—Sema S.p.a (formerly LHS Verwaltungs GmbH & Co.), for
example, provides and maintains our billing system. We have completed upgrading
our billing system to increase our flexibility to offer new tariff packages and
to support data packet switching services for 2.5 generation and for third
generation in the future. In addition, during 2002 we upgraded our enterprise
resources planning and our customer relations management systems.
Intellectual property
We are the registered owners of the trademark "Partner" in Israel with
respect to telecommunications-related devices and services as well as
additional trademarks. We have also registered several internet Web domain
names, including, among others: www.partner.co.il, www.orange.co.il and
www.partnergsm.co.il.
We have entered into a brand license agreement with Orange International
Developments Limited, a subsidiary of Orange plc. Under this agreement, Orange
International appointed us as a
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permitted user of its trademarks in Israel. Under this license agreement, we
have the exclusive right to use the Orange Brand in advertising and promotional materials in Israel. The term of the brand license
began on July 1, 1998. The trademark license is royalty-free for the first 15
years of its term. 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 again
consider the royalties to be paid for an additional five-year term beginning
July 1, 2018. Under this license agreement, we are required to comply with the
Orange Brand guidelines established by Orange International. We have the right
to use the Orange Brand as long as we are able and legally eligible under the
laws of Israel to offer telecommunications services to the public in Israel.
However, the license agreement may be terminated by mutual agreement, or at our
discretion, or by Orange International if a court determines that we have
materially misused the brand and we continue to materially misuse the brand
after such determination of material misuse.
We have also entered into a brand support/technology transfer agreement
with Orange Personal Communications Services Limited. Under this agreement,
Orange Personal will provide us with information and expertise to support the
Orange Brand in Israel at an agreed cost for a minimum of five years beginning
December 1, 1998. We may also request additional, optional support from Orange
Personal at a daily rate. From May, 2003, either party may terminate the
agreement effective as of November 30 of a particular year by giving written
notice in May of that year. See "Item 3D. Risk Factors—Our marketing strategy
is based upon the international Orange Brand. If our license agreement
terminates or is revoked, we will lose one of our main competitive strengths."
In addition, we are a full member of the GSM Association. In conjunction
with the promotion and operation of our GSM network, we have the right to use
their relevant intellectual property, such as the GSM trademark and logo,
security algorithms, roaming agreement templates, and billing transfer
information file formats. We are eligible to remain a member of the GSM
Association for as long as we are licensed to provide GSM service.
Regulation
Overview
We operate within Israel primarily under the Communications Law
(Telecommunications and Broadcasting), 1982 (the "Telecommunications Law"), the
Wireless Telegraphy Ordinance (New Version), 1972 (the "Wireless Telegraphy
Ordinance"), the regulations promulgated by the Ministry of Communications and
our license. The Ministry of Communications issues the licenses which grant the
right to establish and operate mobile telephone service in Israel, and sets the
terms by which such mobile telephone service is provided. The Israeli
telecommunications market is in a state of transition,
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moving to a more liberalized environment in which various markets, such as the
mobile, international services, and domestic markets and infrastructure, are
gradually being opened to competition and in which government-owned monopolies
are being privatized. As a result, there is a possibility that changes may take
place in the regulatory framework described below.
The Israeli regulatory framework
The regulatory framework under which we operate consists primarily of the
Telecommunications Law and related laws and the general license awarded to us
by the Ministry of Communications. The Wireless Telegraphy Ordinance governs
wireless telegraphy transmissions and equipment. At times, the Ministry of
Communications issues policy papers and correspondence regarding issues not
addressed in the law or the general license or details concerning issues
addressed only generally in the law or the general license. These policy papers
and correspondence also influence the regulatory environment. The regulatory
framework under which we operate consists also of the Planning and Building
Law, 1965 and the Consumer Protection Law, 1981. Additional areas of Israeli
law may be relevant to our operations, including antitrust law, specifically
the Restrictive Trade Practices Law, 1988, and administrative law.
Telecommunications Law
The principal law governing telecommunications in Israel is the
Telecommunications Law and related regulations. The Telecommunications Law
prohibits any person, other than the State of Israel, from providing public
telecommunications services without a license issued by the Ministry of
Communications. "Telecommunications" is defined broadly to include
broadcasting, transmission or reception of symbols, signals, signs, text,
visual forms, voice or data by means of wire, wireless systems, optical systems
or other electro-magnetic systems. For telecommunications, the
Telecommunications Law provides for the granting of two types of licenses:
•
special licenses, which are limited to a particular type of activity
or service, and
•
general licenses, which relate to telecommunications activities over a
public network or for the granting of nationwide services or international
telecommunications services.
General licenses have been awarded to Bezeq, to the four mobile telephone
operators, Pelephone, Cellcom, Partner and MIRS, and to the three international
operators, Barak, Bezeq International and Golden Lines. Special licenses have
been awarded for a variety of services and activities including internet
service provision, telefax (store and forward) services, satellite transmission
services and other value-added services. In addition, the Ministry of
Communications
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may issue additional mobile telephone operator licenses in the future. The
Telecommunications Law also provides for the granting of licenses for
broadcasting in the area of cable and satellite television.
The Ministry of Communications has the authority to amend the terms of any
license. The grounds to be considered in connection with such an amendment are
government telecommunications policy, public interest, the suitability of the
licensee to perform the relevant services, the promotion of competition in the

telecommunications market, the level of service and changes in technology. The
Ministry of Communications may also make the award of certain benefits,
such as new spectrum, conditional upon the licensee's consent to a license
amendment. The Ministry of Communications also has the authority to revoke,
limit or suspend a license at the request of the licensee or when the licensee
is in breach of a fundamental condition of the license, when the licensee is
not granting services under the license or is not granting services at the
appropriate grade of service or when the licensee has been declared bankrupt or
an order of liquidation has been issued with respect to the licensee. Public
interest may also be grounds for the rescission or suspension of a license.
The Ministry of Communications, with the consent of the Minister of
Finance, may also promulgate regulations to determine interconnect tariffs, or
formulae for calculating such tariffs. Moreover, the Ministry of Communications
may, if interconnecting parties fail to agree on tariffs, or if regulations
have not been promulgated, set the interconnect tariff based on cost plus a
reasonable profit, or based on each of the interconnecting networks bearing its
own costs.
The Ministry of Communications has promulgated regulations that, coupled
with a change effected in the mobile telephone operators' licenses, impose a
uniform call termination tariff. For more information, see
"—Interconnection".
The Telecommunications Law also includes certain provisions which may be
applied by the Ministry of Communications to general licensees, including
rights of way which may be accorded to general licensees to facilitate the
building of telecommunications networks or systems and a partial immunity
against civil liability which may be granted to a general licensee, exempting
the licensee, inter alia, from tort liability with the exception of direct
damage caused by the suspension of a telecommunications service and damage
stemming from intentional or grossly negligent acts or omissions of the
licensee. The Ministry of Communications has applied the partial immunity
provisions to us, including immunity in the event that we cause a mistake or
change in a telecommunication message, unless resulting from our intentional
act or gross negligence.
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Royalties. Pursuant to the Telecommunication (Royalties) Regulations,
2001, we must pay royalties to the State of Israel every quarter based on our
chargeable revenues, as defined in the regulation, from mobile telephone
services (including airtime, monthly subscription fees, roaming services and
non-recurring), on a cumulative basis, excluding value added tax. Revenues for
purposes of royalty calculation also exclude revenues transferred to other
telecommunications license holders, bad debts, payments for roaming services to
foreign mobile telephone operators and certain other revenues. The regulation
currently provides a rate of 5% of our chargeable revenues in 2001, 4.5% in
2002, 4% in 2003 and 3.5% from 2004.
Fair Competition and Antitrust Law
Provisions protecting Partner from anti-competitive practices can be found
in our license and in the licenses of the other telecommunications operators,
in the various telecommunications regulations and in the Restrictive Trade
Practices Law. Our license emphasizes the principle of granting users equal
access to the systems of each of the operators upon equitable terms. The
Telecommunications Law also provides certain protection against disruption of
service by Bezeq, whose interconnection and transmission services are necessary
in order for us to be able to provide certain services.
The Restrictive Trade Practices Law is the principal statute concerning
restrictive practices, mergers and monopolies. This law prohibits a monopoly
from abusing its market position in a manner that might reduce competition in
the market or negatively affect the public. The law empowers the Commissioner
of Restrictive Trade Practices to instruct a monopoly abusing its market power
to perform certain acts or to refrain from certain acts in order to prevent the
abuse. Bezeq has been declared a monopoly in certain markets, a ruling it is
challenging. For more information see "Item 3D. Risk Factors—We operate in a
highly regulated telecommunications market which limits our flexibility to
manage our business."
Judicial review of
administrative actions
Decisions made by the Ministry of Communications as well as by any other
governmental authority may be reviewed by a court upon petition of an affected
party. Traditionally, this review has been granted mainly to the Supreme Court
of Israel sitting as the High Court of Justice. In recent years, the
jurisdiction of the district courts to review administrative action has been
broadened, and many petitions regarding administrative actions are brought
before the district courts, particularly those involving complex questions of
fact. The grounds for court intervention in administrative decisions include,
among others, gross unreasonableness.
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Our license
On April 7, 1998, the Ministry of Communications granted to us a general
license to establish and operate a mobile telephone network in Israel for which
we paid a license fee and associated costs totaling approximately NIS 1,571
million, including an amount of approximately NIS 12 million as a license fee
adjustment to reflect changes in the Israeli CPI from the time we submitted a
bid for our license until the time our license was granted by the Ministry of
Communications. We paid this additional fee under protest and requested a
refund of the fee from the Ministry of Communications. As a result of the
rejection of our request by the Ministry of Communications, we filed a suit in
the Jerusalem District court.
In the December 2001 spectrum auction in Israel, we were awarded
additional spectrum (GSM (1800 MHz) spectrum and UMTS third generation (1900
MHz and 2100 MHz) spectrum). Following the award of this spectrum, our license
was amended and extended through 2017. During June 2002, the Minister of
Communications amended and extended the license through 2022.
The cost of the license fees is NIS 180 million (approximately $38
million) for the GSM 1800 spectrum, payable in two installments and NIS 220
million (approximately $46 million) for the UMTS third generation spectrum,
payable in six installments. To date, we have paid NIS 108 million and NIS 100
million for the GSM 1800 spectrum and the UMTS third generation spectrum,
respectively. For more information, see "Item 5B. Operating and Financial
Review and Prospects—Liquidity and Capital Resources."
Under the terms of the amended license, we have provided a $20 million
guarantee to the State of Israel to secure the Company's adherence to the terms
of the license. For more information, see "Item 5B. Operating and Financial
Review and Prospects—Liquidity and Capital Resources."
Term.
Our license authorizes us on a non-exclusive basis to establish and
operate a mobile telephone network in Israel. A mobile telephone network is a
wireless telephone network through which mobile telephone service is provided
to the public. Our license allocates to us specified frequencies and telephone
numbers. Our license was originally valid for a period of ten years (until
April 2008). As described above, we were granted an amended license as a result
of our success in the December 2001 auction for additional spectrum in Israel.
Among other changes, the amendment extended our license for 20 years from
February 1, 2002.
The license may be extended for an additional six-year period upon our
request to the Ministry of Communications, and a confirmation from the Ministry
of Communications that we have met the following performance requirements:
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•
observing the provisions of the Telecommunications Law, the Wireless
Telegraphy Ordinance, the regulations and the provisions of our license;
•
acting to continuously improve our mobile telephone services, their
scope, availability, quality and technology, and that there has been no
act or omission by us harming or limiting competition in the mobile
telephone sector;
•
having the ability to continue to provide mobile telephone services of
a high standard and to implement the required investments in the
technological updating of our system in order to improve the scope of such
services, as well as their availability and quality; and
•
efficient use of the spectrum allocated to us, compared to alternative
applications.
At the end of this additional six-year period, we may request renewal of
our license for successive six-year periods thereafter, subject to regulatory
approval.
Contracting
with customers
. Pursuant to our license, our standard
agreement with customers must receive Ministry of Communications approval. We
have submitted our standard agreement to the Ministry of Communications for
approval pursuant to our license. The agreement is still under review by the
Ministry of Communications.
Tariffs
. Our license requires us to submit to the Ministry of
Communications our tariffs (and any changes in our tariffs) before they enter
into effect. Our license allows us to set and change our tariffs for outgoing
calls without approval of the Ministry of Communications. However, the Ministry
of Communications may intervene in our tariffs if it finds that our tariffs
unreasonably harm consumers or competition.
Payments
. Our license specifies the payments we may charge our
subscribers. These include one-time installation fees, fixed monthly payments,
airtime fees, payments for the use of other telecommunication systems, payments
for handset maintenance and payments for additional services. In most of our
tariff plans we have chosen to charge only for airtime and use of services. See
"Item 4B. Information on the Company—Business Overview—Services and
Products—Tariff Plans."
Interconnection
. Like the licenses of Pelephone, Cellcom and MIRS, our
license requires that we interconnect our mobile telephone network to other
telecommunications networks operating in Israel, including that of Bezeq, the
other mobile telephone operators and the international operators.
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Conversely, Partner must allow other network operators to interconnect to its
network. See "Item 4B. Information on the Company—Business
Overview—Interconnection."
Service approval
. The Ministry of Communications has the authority to
require us to submit for approval details of any of our services (including
details concerning tariffs). In addition, we are required to inform the
Ministry of Communications 30 days prior to the activation of any service on a
specified list of services.
Access
to infrastructure
. The Ministry of Communications has the power to
require us, like the other telephone operators in Israel, to offer access to
our network infrastructure to other operators. We may also be required to
permit other operators to provide value-added services using our network.
Universal
service
. We are required to provide any third generation service
with the same coverage as our existing network within 24 months from the
commercial launch of each such service.
Territory
of license
. Our license authorizes us to provide mobile
telephone services within the State of Israel. In May 2000, we were also
granted a license from the Israeli Civil Administration, which is responsible
for administering the territories of the West Bank and Gaza that are not under
the administration of the Palestine Authority.
License
conditions
. Our license imposes many conditions on our conduct. We
must at all times be a company registered in Israel. Our license may not be
transferred, mortgaged or attached without the prior approval of the Ministry
of Communications. We may not sell, lease or mortgage any of the assets which
serve for the implementation of our license without the prior approval of the
Ministry of Communications, other than in favor of a banking corporation which
is legally active in Israel, and in accordance with the conditions of our
license.
Our license provides that no direct or indirect control of Partner may be
acquired, at one time or through a series of transactions,
and no means of control may be transferred in a manner which results in a
transfer of control, without the consent of the Ministry of Communications.
Furthermore, no direct or indirect holding of 10% or more of any means of
control may be transferred or acquired at one time or through a series of
transactions, without the consent of the Ministry of Communications. In
addition, no shareholder of Partner may permit a lien to be placed on shares of
Partner if the foreclosure on such lien would cause a change in the ownership
of 10% or more of any of Partner's means of control unless such foreclosure is
made subject to the consent of the Ministry of Communications. For purposes of
our license, "means of control" means any of:
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•
voting rights in Partner;
•
the right to appoint a director or managing director of Partner;
•
the right to participate in Partner's profits; or
•
the right to share in Partner's remaining assets after payment of
debts when Partner is wound up.
Each of our ordinary shares and ADSs grants its holder means of control in
Partner.
In addition, Partner, any entity in which Partner is an Interested Party,
as defined below, an Office Holder, as defined below, in Partner or an
Interested Party in Partner or an Office Holder in an Interested Party in
Partner may not be a party to any agreement, arrangement or understanding which
may reduce or harm competition in the area of mobile telephone services or any
other telecommunications services.
Our license also provides that a foreign mobile radio telephone operator,
as defined below, or its controlling corporation, must hold during the five
year period commencing on the date our license was granted by the Ministry of
Communications, 25% of the voting rights and of the rights to appoint directors
or the general manager of Partner. The foreign mobile radio telephone operator
must also provide us all with the information in its possession required for
the establishment of a mobile telecommunications system and for the provision,
marketing and sale of mobile telecommunications services. Accordingly, no
transfer may occur if as a result the foreign mobile radio telephone operator,
or a controlling corporation, will hold less than 25% of the voting rights or
the right to appoint directors or the general manager in Partner. After such
five-year period, this holding may be reduced with the approval of the Ministry
of Communications.
In connection with our initial public offering, our license was amended to
provide that our entering into an underwriting agreement for the offering and
sale of shares to the public, listing the shares for trading, and depositing
shares with the depositary or custodian will not be considered a transfer of
any means of control, as defined below. Pursuant to the amendment, if the ADSs
(or other "traded means of control," that is, means of control which have been
listed for trade or offered through a prospectus and are held by the public)
are transferred or acquired in breach of the restrictions imposed by the
license with respect to transfer or acquisition of 10% or more of any means of
control, we must notify the Ministry of Communications and request the
Minister's consent within 21 days of learning of the breach. In addition,
should a shareholder, other than a founding shareholder, breach these ownership
restrictions, or provisions regarding acquisition of control or cross-ownership
or cross-control with other mobile telephone operators or shareholdings or
agreements which may
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reduce or harm competition, its shareholdings will be converted into dormant
shares, as long as the Minister's consent is required but not obtained, with no
rights other than the right to receive dividends and other distributions to
shareholders, and to participate in rights offerings.
The dormant shares must be registered as dormant shares in our share
registry. Any shareholder seeking to vote at a general meeting of our
shareholders must notify us prior to the vote, or, if the vote is by deed of
vote, must so indicate on the deed of vote, whether or not the shareholder's
holdings in Partner or the shareholder's vote requires the consent of the
Ministry of Communications due to the restrictions on transfer or acquisition
of means of control, or provisions regarding cross-ownership or cross-control
with other mobile telephone operators or shareholders. If the shareholder does
not provide such certification, his instructions shall be invalid and his vote
not counted.
The existence of shareholdings which breach the restrictions of our
license in a manner which could cause them to be converted into dormant shares
and may otherwise provide grounds for the revocation of our license will not
serve in and of themselves as the basis for the revocation of our license so
long as:
•
the principal shareholders of Partner continue to hold in the
aggregate at least 51% of the means of control of Partner;
•
our Articles of Association include the provisions described in this
paragraph;
•
we act in accordance with such provisions;
•
our Articles of Association provide that an ordinary majority of the
voting power at the general meeting of Partner is entitled to appoint all
the directors of Partner.
The amendment of our license providing for the dormant share mechanism
does not apply to our principal shareholders.
The provisions contained in the amendment to our license are also
contained in our Articles of Association. In addition, our Articles of
Association contain similar provisions in the event the holdings of shares by a
shareholder breaches the Israeli and foreign mobile radio telephone operator
ownership limits contained in our license. The principal shareholders have
informed us that they intend to seek a change to the 51% ownership threshold.
Revoking,
limiting or altering our license
. Our license contains several
qualifications that we are required to meet. These conditions are designed
primarily to ensure that we maintain at least a
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specified minimum connection to Israel and that we benefit from the experience
of a foreign mobile radio telephone operator. Other eligibility requirements
address potential conflicts of interest and cross-ownership with other Israeli
telecommunications operators. The major eligibility requirements are set forth
below. A failure to meet these eligibility requirements may lead the Ministry
of Communications to revoke, limit or alter our license, after we have been
given an opportunity and have failed to remedy it.
•
Citizens and residents of Israel, as determined by Israeli law, must
hold at least 20% of each of Partner's means of control.
•
The majority of our directors, and our general manager, must be
citizens and residents of Israel.
•
Neither the general manager of Partner nor a director of Partner may
continue to serve in office if he has been convicted of certain legal
offenses.
•
The foreign mobile radio telephone operator, or a controlling
corporation, must hold at least 25% of the voting rights and of the right
to appoint directors or the General Manager of Partner, during at least
the five year period commencing on the date our license was granted by the
Ministry of Communications.
•
No trust fund, insurance company, investment company or pension fund
that is an Interested Party in Partner may: (a) hold, either directly or
indirectly, more than 5% of any means of control in a competing mobile
radio telephone operator without having obtained a permit to do so from
the Ministry of Communications, or (b) hold, either directly or
indirectly, more than 5% of any means of control in a competing mobile
radio telephone operator in accordance with a permit from the Minister,
and in addition have a representative or appointee who is an Office Holder
in a competing mobile radio telephone operator, unless it has been legally
required to do so, or (c) hold, either directly or indirectly, more than
10% of any means of control in a competing mobile radio telephone
operator, even if it received a permit to hold up to 10% of such means of
control.
•
No trust fund, insurance company, investment company or a pension fund
that is an Interested Party in a competing mobile radio telephone operator
may: (a) hold, either directly or indirectly, more than 5% of any means of
control in Partner, without having obtained a permit to do so from the
Ministry of Communications; or (b) hold, directly or indirectly, more than
5% of any means of control in Partner in accordance with a permit from the
Ministry of Communications, and in addition have a representative or
appointee who is an Office Holder in Partner, unless it has been legally
required to do so; or (c) hold, either directly or indirectly, more than
10% of any means of control in Partner, even if it received a permit to
hold up to 10% of such means of control.
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•
Partner, an Office Holder or Interested Party in Partner, or an Office
Holder in an Interested Party in Partner does not control a competing
mobile radio telephone operator, is not controlled by a competing mobile
radio telephone operator, by an Office Holder or an Interested Party in a
competing mobile radio telephone operator, by an Office Holder in an
Interested Party in a competing mobile radio telephone operator, or by a
person or corporation that controls a competing mobile radio telephone
operator.
Our license may also be revoked, limited or altered by the Ministry of
Communications if we have failed to uphold our obligations under the
Telecommunications Law, the Wireless Telegraphy Ordinance or the regulations,
or have committed a substantial breach of the license conditions. Examples of
the principal undertakings identified in our license in this connection are:
•
We have illegally ceased, limited or delayed any one of our services;
•
Any means of control in Partner or control of Partner has been
transferred in contravention of our license;
•
We fail to invest the required amounts in the establishment and
operation of the mobile radio telephone system in accordance with our
undertakings to the Ministry of Communications;
•
We have harmed or limited competition in the area of mobile radio
telephone services;
•
A receiver or temporary liquidator is appointed for us, an order is
issued for our winding up or we have decided to voluntarily wind up; or
•
Partner, an Office Holder in Partner or an Interested Party in Partner
or an Office Holder in an Interested Party of Partner is an Interested
Party in a competing mobile radio telephone operator or is an Office
Holder in a competing mobile radio telephone operator or in an interested
party in a competing mobile radio telephone operator without first
obtaining a permit from the Ministry of Communications to do so or has not
fulfilled one of the conditions included in such permit. See "Item 4B.
Information on the Company—Business Overview—Regulation—Our Permit
Regarding Cross Ownership."
In addition, our amended license, like the licenses of our competitors,
provides that if we participate in a future tender for a mobile
telecommunications license, we may be required by the terms of a new tender, if
we win such tender, to transfer our network to another operator according to
terms which the Minister of Communications may decide upon and to cease
providing mobile telephony services.
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Change
in license conditions
. Under our license, the Ministry of
Communications may change, add to, or remove conditions of our license if
certain conditions exist, including:
•
A change has occurred in the suitability of Partner to implement the
actions and services that are the subject of our license.
•
A change in our license is required in order to ensure effective and
fair competition in the telecommunications sector.
•
A change in our license is required in order to ensure the standards
of availability and grade of service required of Partner.
•
A change in telecommunications technology justifies a modification of
our license.
•
A change in the electromagnetic spectrum needs justifies, in the
opinion of the Ministry of Communications, changes in our license.
•
Considerations of public interest justify modifying our license.
•
A change in government policy in the telecommunications sector
justifies a modification of our license.
•
A change in our license is required due to its breach by Partner.
During a period of an emergency, control of Partner's mobile radio
telephone system may be assumed by any lawfully authorized person for the
security of the State of Israel to ensure the provisions of necessary service
to the public, and some of the spectrum granted to us may be withdrawn. In
addition, our license requires us to supply certain services to the Israeli
defense and security forces. Furthermore, certain of our senior officers are
required to obtain security clearance from Israeli authorities.
For the purposes of this discussion, the following definitions apply:
•
"OFFICE HOLDER" means a director, manager, company secretary or any
other senior officer that is directly subordinate to the general manager.
•
"CONTROL" means the ability to, directly or indirectly, direct the
activity of a corporation, either alone or jointly with others, whether
derived from the governing documents of the corporation, from an
agreement, oral or written, from holding any of the means of control in
the corporation or in another corporation, or which derives from any other
source, and excluding the ability derived
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solely from holding the office of director or any other office in the
corporation. Any person controlling a subsidiary or a corporation held
directly by him will be deemed to control any corporation controlled by such
subsidiary or by such controlled corporation. It is presumed that a person or
corporation controls a corporation if one of the following conditions exist:
(1) such person holds, either directly or indirectly, fifty percent (50%) or
more of any means of control in the corporation; (2) such person holds,
either directly or indirectly, a percentage of any means of control in the
corporation which is the largest part in relation to the holdings of the
other Interested Parties in the corporation; or (3) such person has the
ability to prevent the taking of business decisions in the corporation, with
the exception of decisions in the matters of sale or liquidation of most
businesses of the corporation, or fundamental changes of these businesses.
•
"CONTROLLING CORPORATION" means a company that has control, as defined
above, of a foreign mobile radio telephone operator.
•
"FOREIGN MOBILE RADIO TELEPHONE OPERATOR" means an operator of a
mobile telephone system abroad, through which mobile telephone services
are provided to at least 500,000 subscribers.
•
"INTERESTED PARTY" means a person who either directly or indirectly
holds 5% or more of any type of means of control, including holding as an
agent.
Our permit regarding cross ownership
Our license generally prohibits cross-control or cross-ownership among
competing mobile telephone operators without a permit from the Ministry of
Communications. In particular, Partner, an Office Holder or an Interested Party
in Partner, as well as an Office Holder in an Interested Party in Partner may
not control or hold, directly or indirectly, 5% or more of any means of control
of a competing mobile radio telephone operator. Our license also prohibits any
competing mobile radio telephone operator or an Office Holder or an Interested
Party in a competing mobile radio telephone operator, or an Office Holder in an
Interested party in a competing mobile radio telephone operator or a person or
corporation that controls a competing mobile radio telephone operator from
either controlling, or being an Interested Party in us.
However, our license, as amended on April 14, 2002 also provides that the
Ministry of Communications may permit an Interested Party in Partner to hold,
either directly or indirectly, 5% or more in any of the means of control of a
competing mobile radio telephone operator if the Ministry of Communications is
satisfied that competition will not be harmed, and on the condition that the
Interested Party is an Interested Party in Partner only by virtue of a special
calculation described in
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the license and relating to attributed holdings of shareholders deemed to be in
control of a corporation.
An indirect shareholder of Elbit, Discount Investment Company Ltd., is
deemed to be an Interested Party in both Partner and Cellcom by virtue of the
special calculation described above. Accordingly, we applied for and received a
permit from the Ministry of Communications which authorized Discount's indirect
ownership of equity in both Partner and Cellcom. Our permit was also amended
on April 14, 2002 and on June 2, 2002. Our permit contains certain
guidelines which apply to Discount and the related companies PEC Israel
Economic Corporation, Elron Electronic Industries Ltd., the parent of Elbit,
Elbit and IDB Development Company Ltd., the parent of Discount, and persons who
control any one of them (collectively, the "IDB Group"). Our permit establishes
limits on the holdings of the IDB Group in the equity of Cellcom and Partner.
Changes in these holdings require a permit from the Ministry of Communications,
and may require Elbit to significantly reduce its holdings in Partner. In
addition, our permit limits the number of directors of Partner that may be
appointed by the IDB Group. Our permit also limits the exchange of information
regarding Partner within the IDB Group and its subsidiaries, limits the
involvement of the two directors and office holders of Discount Investment
Company Ltd. who are also directors of Cellcom in matters relating to Partner,
and prohibits these directors from certain activities within the IDB Group
which would provide them with access to information about Partner.
ISP license
On March 7, 2001, we received a special license issued by the Ministry of
Communications, allowing us through our own facilities to provide internet
access to both mobile and fixed network customers. The license is valid until
March 2003. We applied to the Ministry of Communications for an extension.
Antenna site permits
Permits of the Ministry of Environment
Pursuant to the Pharmacists (Radioactive Elements and Products)
Regulations, 1980 (the "Pharmacists Regulations") issued under the
Pharmaceutics Ordinance, the Ministry of the Environment is empowered to grant
erection permits and operation permits for our antennae. The granting of such
permits is subject to the satisfaction of conditions to which we are subject
under the Pharmacists Regulations. The application to the Ministry of
Environment must include a discussion of the type of device, its impact on the
environment both during ordinary operation and in times of fault,
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and details of the possible dangers posed by the device and the manner in which
these dangers may be prevented or neutralized. In addition, the application
includes an engineer's sketch of the device and its related equipment. The
Pharmacists Regulations further provide that the permits granted by the
Ministry of Environment are for a one-year period.
The Ministry of the Environment has adopted the International Radiation
Protection Agency's standard as a basis for the consents it gives for the
erection and operation of our antennae. This standard is an international
standard based upon a number of years of scientific study.
Local building permits
The Planning and Building Law requires that we receive a building permit
for the construction of our antennae. The local committee or local licensing
authority in each local authority is authorized to grant building permits,
provided such permits are in accordance with the local, regional, and National
Building Plan No. 36 which came into effect on June 15, 2002. The local
committee is made up of members of the local municipal council. The local
committee is authorized to delegate certain of its powers to subcommittees on
which senior members of the local authority may sit.
The local committee examines the manner in which an application for a
building permit conforms to the plans applying to the parcel of land that is
the subject of the application, and the extent to which the applicant meets the
requirements set forth in the Planning and Building Law. The local committee is
authorized to employ technical, vista, and aesthetic considerations in its
decision-making process. The local committee may grant building permits that
are conditioned upon the quality of the construction of the structure, the
safety of flight over the structure, and the external appearance of the
structure. Every structure located on a certain parcel of land must satisfy the
requirements and definitions set forth in the building plan applicable to such
parcel.
A decision by a local committee not to grant a building permit may be
appealed to the District Appeals Committee. A person harmed by the ruling of
the District Appeals Committee may have such ruling examined judicially by
means of an administrative petition to the District Court sitting as an
Administrative Affairs Tribunal.
National Building Plan No. 36
National Building Plan No. 36 which came into effect on June 15, 2002
regulates the growth of telecommunications infrastructure in Israel. Chapter A
of National Building Plan No. 36 sets forth the licensing, view, flight safety
and electromagnetic radiation requirements for the construction of mobile radio
telephone infrastructure. National Building Plan No. 36 was recently approved
by the Israeli
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government, after the National Committee removed from the draft a provision
which would have required notification to owners of adjoining assets of an
intention to erect an antenna site in a residential area. National Building
Plan No. 36 also adopts the radiation emission standards set by the
International Radiation Protection Agency which were also previously adopted by
the Ministry of the Environment. We believe that we currently comply with these
standards.
Other Approvals. The construction of our antennae may be subject to the
approval of the Civil Aviation Administration which is authorized to ensure
that the construction of our antennae does not interfere with air traffic,
depending on the height and location of such antennae. The approval of the
Israeli Defense Forces is required in order to coordinate site frequencies so
that our transmissions do not interfere with the communications of the Israel
Defense Forces.
We have received type approval from the Ministry of Communications for all
of the handsets and other terminal equipment we sell. The Ministry of the Environment also has authority to regulate the
sale of handsets in Israel. However, in accordance with the current practice
among mobile telephone operators in Israel, we have not obtained approvals or
exemptions from the Ministry of the Environment for the handsets we provide
because, to date, neither the Ministry of the Environment nor the Ministry of
Health has issued standards for the permitted level of radiation emissions from
handsets. However, as of June 15, 2002, we have been required to provide
information to purchasers of handsets on the Specific Absorption Rate, or SAR,
of the handsets as well as its compliance with certain standards pursuant to a
regulation promulgated by the Ministry of Industry and Trade under the Consumer
Protection Law.
We, like other mobile telephone operators in Israel, provide repeaters,
also known as bi-directional amplifiers, to subscribers seeking an interim
solution to weak signal reception within specific indoor locations. These
repeaters, which we install at the subscribers' premises upon their request,
consist of an indoor box attached to a small outdoor antenna of between 40 and
70 cm (approximately one to two feet), receive signals from a network antenna
site and amplify them within a specific room or rooms. The radiation emission
from these outdoor antennae is comparable to that of the handset whose signal
it is transmitting. In light of the lack of a clear policy of the local
planning and building authorities, and in light of the practice of the other
mobile telephone operators, we have not requested permits under the Planning
and Building Law for the repeaters. However, we have received from the Ministry
of Communications a type approval for the repeaters. We have also approached
the Ministry of the Environment, asserting that no permits are necessary for
the repeaters, based on the Ministry's previous advice that permits are not
necessary for devices with comparable levels of emission called "Fixed Cellular
Terminals."
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4C. Organizational Structure
We have one wholly owned subsidiary, Partner Future Communications 2000
Ltd., an Israeli corporation.
4D. Property, Plants and Equipment
Headquarters
We lease our headquarter facilities in Rosh Ha-ayin, Israel, as follows:
(1)
Main office at 8 Amal St.—a building of 10,532 square meters plus 6,345
square meters mainly for parking. The lease agreement is for a 20 year
period commencing on June 1998. We have an option to shorten the lease
period by five to fifteen years.
(2)
Call center at 14 Amal St.—a building of 7,874 square meters plus 5,474
square meters of parking. During 2002, we decided to terminate the lease
agreement in favor of a new building (see 3. below). The move will be
completed in the first half of 2003.
(3)
Main office at 6 Amal St.—a building of 9,172 square meters plus 14,877
square meters of parking and service areas. In 2003, we will increase our
lease to 18,151 square meters and 14,877 square meters for parking and
service areas. The lease agreement is for a 16 year period commencing in
November 2002. We have an option to shorten the lease period by five to
ten years.
We lease another call center at 5 Kornas St. in Haifa—a building of
2,525 square meters. The lease agreement is for a 5 year period commencing in
November 2001. We have the option to extend the lease period for 6 years.
Network sites
We lease most of the sites where our mobile telecommunications network
equipment is installed throughout Israel. At December 31, 2002, we had 2,035
antenna sites (including micro-sites). The lease agreements relating to our
cell sites are generally for periods of two to three years. We have the option
to extend the lease periods to ten years (including the original lease period).
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Service centers and points of sale
Lease agreements for our retail stores and service centers are for periods
of two to five years. We have the option to extend the lease periods to twenty
additional years (including the original lease period). The average size of our
retail stores and service center is approximately 230 square meters. See also
Note 8a(2)(b) to our consolidated financial statements.
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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following operating and financial review and prospects are based upon
and should be read in conjunction with our financial statements and selected
financial data, which appear elsewhere in this annual report. You should also
read the risk factors appearing elsewhere in this annual report for a
discussion of a number of factors that affect and could affect our financial
condition and results of operations.
5A. Operating results
We were formed in September 1997. We submitted our bid to the Ministry of
Communications for our license on October 28, 1997. The Ministry of
Communications awarded us our license on April 7, 1998, and we began full
commercial operations to the general public in January 1999.
See "Item 4A. Information on the Company—History and Development of the
Company" for significant events since we commenced commercial operations and
"Item 5B. Liquidity and Capital Resources" for information on the costs
required to build and expand our network and services.
Revenues
Our principal source of revenues is from the sale of network services,
primarily network airtime usage fees, and is denominated primarily in shekels.
In each of 2002, 2001 and 2000, approximately 54% of network airtime usage fees
were derived from outgoing calls, with the remainder generated from incoming
calls, roaming and value-added services. We also derive revenues from sales of
handsets, car kits, accessories and handset maintenance services to subscribers
as well as other services. Network airtime usage fees comprise payments from
subscribers originating calls on our network, payments received from other
telecommunications network operators for delivering calls originating on their
networks and terminating on our network and from foreign GSM network operators
for calls made by their roaming customers while in Israel using our network,
also called "in-roaming." In addition, we receive payments from our subscribers
for calls they originate on networks located outside of Israel, or
"out-roaming." We recognize revenues from airtime usage at the time we provide
the service to the subscriber. We recognize revenues from handset sales only
upon delivery and the transfer of ownership to the subscriber.
The Ministry of Communications has promulgated regulations that, coupled
with a change effected in the mobile telephone operators' licenses, impose a
uniform call termination tariff. The
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uniform tariff, originally NIS 0.54 per minute, fell to NIS 0.50 on January 1,
2001 until January 1, 2003, at which point it was reduced to NIS 0.45 per
minute. For more information, see "Item 4B. Business
Overview—Interconnection". These changes will substantially decrease our revenues from incoming
calls, and will also to a lesser extent decrease our cost of revenues. Had the
call termination tariffs been reduced to NIS 0.45 per minute for all of 2002,
the proforma negative impact on our revenues and net income would have amounted
to approximately NIS 110 million and NIS 62 million, respectively, as a result
of the reduction in the call termination tariffs that we would have collected
and paid, together with the related royalties.
Cost of revenues and other operating expenses
Our principal operating expenditures are:
•
subscriber acquisition costs, including primarily handset and car-kit
costs and commissions to dealers;
•
upgrade and retention costs;
•
network operations costs;
•
interconnect fees paid to the fixed-line and other telecommunication
network operators in Israel for calls made by our subscribers carried by
or terminating on the other networks;
•
charges paid to foreign GSM network operators for services provided to
our subscribers while outside Israel using their networks;
•
charges for leases and maintenance;
•
costs of replacing or repairing damaged handsets;
•
advertising and promotion;
•
customer services costs;
•
employee salaries and related expenses;
•
depreciation relating to our network-related assets and amortization
of our license; and
•
royalties paid to the Israeli government under our license.
Our
average subscriber acquisition costs, per subscriber, for 2002 were NIS
470 ($99), compared to NIS 458 in 2001 and NIS 819 in 2000. The slight increase
in average subscriber acquisition costs is attributed primarily to the
increasing percentage of business subscribers amongst our new subscribers, for
whom we have traditionally incurred higher subscriber acquisition costs
compared to other new subscribers, and higher prices of more sophisticated
handsets, resulting in
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higher handset subsidies. Average subscriber acquisition costs may increase
slightly during 2003, if handset prices on newer sophisticated models remain
high, which may lead to an increase in the handset subsidies that we provide.
We anticipate that interconnect fees, royalties to the Israeli government
and costs related to the replacement and upgrading of handsets will continue to
grow in line with the growth of our subscriber base. In addition, because of
the importance of the Orange Brand to our strategy, we expect to continue to
incur significant advertising and marketing costs for the foreseeable future in
order to maintain and enhance the strength of the brand.
Pursuant to the Telecommunication (Royalties) Regulations, 2001, we must
pay royalties to the State of Israel every quarter based on our chargeable
revenues (as defined in the regulation, including airtime, monthly subscription
fees, roaming services and non-recurring) from mobile telephone services, on a
cumulative basis, excluding value added tax. Revenues for purposes of royalty
calculation also exclude revenues transferred to other telecommunications
license holders, bad debts, payments for roaming services to foreign mobile
telephone operators and certain other revenues. The regulation provided a rate
of 5% of our chargeable revenues in 2001 and 4.5% in 2002, and provides a rate of 4% in 2003 and 3.5% from
2004. Before the regulation became effective on January 1, 2001, the rate had
been 8%, and the basis on which the royalties were calculated had been narrower
than it is now.
Churn
Churn refers to subscriber disconnections from network services, either
involuntary or voluntary, and from June 2001, subscribers who have not
generated revenue for the Company for a period of over the last six consecutive
months ending at a reporting date. Involuntary churn includes disconnections
due to non-payment of bills or suspected fraudulent use, and voluntary churn
includes disconnections due to subscribers switching to a competing mobile
telephone network or terminating their use of our services. Since we only
launched full commercial operations in January 1999, and since until mid 2002
each Israeli operator used different technologies our current churn rates are
not necessarily indicative of our future churn rates. Our annual churn rate was
10.9% for 2002, compared to 5.8% for 2001 and 5.5% for 2000.
We believe that the increase in the churn rate in 2002 is attributed
predominately to increased churn in the prepaid sector and churn from those
subscribers who joined the network in 1999 with three year commitment
periods,
as well as increasing competition.
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We anticipate churn for 2003 to increase to a level of between 15% to 18%
driven by increasing churn in the pre-paid sector caused primarily by higher
turnover in the base of foreign workers in Israel, and increasing competition
affecting all sectors.
We recognize that managing subscriber churn is an important factor in
maximizing revenue and cash flows. In order to control churn caused by
subscribers voluntarily terminating our service, we attempt to ensure that our
service is high quality and competitive. We use our advanced information
technology systems as a tool to understand, monitor and control voluntary
churn. We have a retention team within our customer services group that makes
follow-up phone-calls to subscribers who call us with complaints or problems in
order to resolve any problems and to retain the subscribers on the network. We
have developed several retention and churn prevention plans to retain our
subscribers. Some of these plans are based on a subscriber's ranking according
to financial and economic parameters. In addition, we have developed tools to
predict a subscriber's potential to churn from our network, thus enabling us to
proactively approach the subscriber with an attractive offering. We also host
exclusive subscriber events, such as shows and parties for subscribers, in
order to encourage subscriber loyalty.
Critical accounting policies and estimates
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with US GAAP. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses during the reportitng
period. On an ongoing basis, we evaluate our estimates, including those related
to long-lived assets, bad debts, inventories, income taxes, and contingencies
and litigation. We base our estimates on historical experience and on various
other assumptions and information that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
Please refer to Note 1 to our consolidated financial statements included
in this Annual Report on Form 20-F for the year ended December 31, 2002 for a
summary of all of Partner's significant accounting policies.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements:
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Long-lived assets
We have substantial investments in tangible and intangible long-lived
assets, primarily our communications network and our license. Changes in
technology or changes in our intended use of these assets may cause the
estimated period of use or the value of these assets to change. We amortize our
communications network by the straight-line method over 6.7 years (15% per
year). We amortize our license by the straight-line method over the utilization
period of the license, which is based upon the license period. Following the
extension of the license period the amortized balance of this license is
amortized as of 2002 over the period ending in 2022, subject to the changes in
utilization period. We review our communications network and license for
impairment annually, according to the economic environment and technological
developments in the cellular industry, and whenever events or changes in
circumstances indicate that the carrying amounts may not be recoverable. On
January 1, 2002, we adopted FAS 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets." FAS 144 requires that long-lived assets, to be held and
used by an entity, be reviewed for impairment and, if necessary, written down
to the estimated fair values, whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable through
undiscounted future cash flows.
Allowance for doubtful accounts
We maintain allowance for doubtful accounts for estimated losses resulting
from the inability of our subscribers to make required payments. We base our
allowance on the likelihood of recoverability of accounts receivable based on
the aging of the balances, our historical write-off experience, net of
recoveries, changes in the credit worthiness of our customers, and taking into
account current collection trends that are expected to continue. These
estimated allowance are periodically reviewed, analyzing the subscribers'
payment history. The allowance charged to expenses is determined in respect of
specific debts doubtful of collection, calculated as a specified percentage of
the outstanding balance in each debt age group, with the percentage of the
allowance increasing as the age of the debt increases. For example, a debt that
is between 1-1.5 years overdue is reserved for at the rate of 94%. The debt
becomes fully reserved once it is 1.5 years overdue. Actual customer
collections could differ from our estimates. For example, if the financial
condition or our customers were to deteriorate, additional allowances may be
required. Our bad debt expenses as a percentage of
revenues were 1.6%, 0.5% and 0.3% for the years ended December 31, 2000,
2001 and 2002, respectively.
Deferred income taxes
Deferred taxes are determined utilizing the asset and liability method,
based on the differences between the amounts presented in our financial
statements and those taken into account for tax
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purposes, in accordance with the related tax laws. Valuation allowances are
included in respect of deferred tax assets when it is more likely than not that
no such assets will be realized. We have considered future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the need for
the valuation allowance. Due to the uncertainty as to utilization of the tax
losses carryforward, full valuation allowance was provided to reduce our
deferred tax assets, because in the foreseeable future it is less likely than
not to be realized. Management evaluates the realizability of the deferred tax
assets on a current basis and assesses the need for valuation allowances. If it
were determined that we would be able to realize a deferred tax asset in excess
of its net recorded amount, an adjustment to deferred tax assets would increase
income.
Contingencies and litigation
As described in Note 8b to our consolidated financial statements, we are
party to various claims arising in the ordinary course of our operations. In
determining whether liabilities should be recorded for pending litigation
claims, we assess, based on the advice of our outside legal counsel, the
allegations made and the likelihood of our success.
When we believe that it is probable that we will not prevail in a
particular matter, we then estimate the amount of the liability. The evaluation
of the probability of success of such claims and the determination of whether
there is a necessity to include a provision in respect thereof requires
judgment by our outside legal counsel and management. Should the outcome of
such litigation be adversely determined, and if the amount of the claim is
substantial, it is possible that our results of operations or liquidity in a
particular period could be materially affected by these contingencies.
Revenue recognition
As described in Note 1j to our consolidated financial statements, we
recognize revenues as services are rendered. We recognize service revenues
based upon minutes of use processed, net of credits and adjustments for
services discounts. As a result of our billing cycle cut-off times, we are
required to make estimates for services revenue earned but not yet billed at
the end of each quarter. These estimates are based primarily upon historical
minutes of use processed.
Actual billing cycle results and related revenue may vary, depending on
subscriber usage and rate plan mix, from the results estimated at the end of
each period. Material differences may result between our estimates and the
actual amount and timing of our revenue for any period.
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Inventories
We write down our inventory for estimated obsolescence or unmarketable
inventory based on an analysis of inventory agings, assumptions about future
demand and market conditions. Changes in technology may require us to provide
additional reserves. If actual demand and/or market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required.
Handset warranty obligation
Until 2002, a provision for warranties was not made, as our liability was
covered by the handset suppliers' warranties. As of 2002, we have entered into
several agreements under which the suppliers do not provide any warranty but
rather provide additional handsets to satisfy their warranty obligation. In
these cases we provide for warranty costs at the same time as the revenues are
recognized. The costs associated with product warranties that we provide to our
customers require us to make estimates and assumptions regarding the extent of
future warranty issues and related costs. Should actual handset failure rates,
material usage or service costs differ from management's estimates, revisions
to the estimated warranty liability would be required.
Information on Israel
We are incorporated under the laws of, and our offices and network
facilities are located in, the State of Israel. Accordingly, we are directly
affected by political, economic and military conditions in Israel. Our
operations would be materially adversely affected if major hostilities
involving Israel should occur or if trade between Israel and its present
trading partners should be curtailed.
Political and economic conditions
Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors and a state of
hostility, varying from time to time in intensity and degree, has led to
security and economic problems for Israel. However, a peace agreement between
Israel and Egypt was signed in 1979, a peace agreement between Israel and
Jordan was signed in 1994 and, since 1993, several agreements between Israel
and Palestinian representatives have been signed. In addition, Israel and
several other Arab States have announced their intention to establish trade and
other relations and are discussing certain projects. To date, Israel has not
entered into any peace agreement with Syria or Lebanon. There is substantial
uncertainty about how the "peace process" will develop or what effect it may
have upon us. Since October 2000, there has been a substantial deterioration in
the relationship between Israel and the Palestinians which has resulted in
increased violence, and the situation has recently worsened due to the
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possibility of an Iraqi attack against Israel in response to an attack by the
United States and its allies against Iraq. The future effect of this
deterioration and violence on the Israeli economy and our operations is
unclear. Ongoing violence between Israel and its Arab neighbors and
Palestinians may have a material adverse effect on our business, financial
condition or results of operations.
Generally, male adult citizens and permanent residents of Israel under the
age of 45, unless exempt, may be required to perform between 36-45 days of
military reserve duty annually. Certain reserve soldiers may be required to
serve more.
Some of our directors, officers and employees are currently obligated to
perform annual reserve duty. Additionally, all such reservists are subject to
being called to active duty at any time under emergency circumstances. We
cannot assess the full impact of these requirements on our workforce and
business if conditions should change, and we cannot predict the effect on us of
any expansion or reduction of these obligations. Under emergency circumstances,
the government also has the right to revoke temporarily some of the spectrum
granted to us, to protect the security of the State of Israel or to ensure the
provision of necessary services to the public. This may materially harm our
ability to provide services to our subscribers in such emergency circumstances.
Results of operations for the year ended December 31, 2002 compared to the year
ended December 31, 2001
We had 1,837,000 subscribers as of December 31, 2002 compared to 1,458,000
subscribers as of December 31, 2001, an increase of 26%. For the year ended
December 31, 2002 we had revenues of NIS 4,055 million ($856 million) compared
to NIS 3,249 million for 2001. The increase was attributable mainly to the
increase in our subscriber base. We expect the rate of increase in our revenues
to go down, as the Israeli cellular market approaches saturation and
interconnect tariffs are reduced as mandated by the regulator.
Average monthly revenue per subscriber, or ARPU, for the year ended
December 31, 2002 was NIS 183 ($39), compared to NIS 214 in 2001. The primary
cause of this reduction was the increasing percentage of prepaid subscribers in
our subscriber base, which have historically provided below-average ARPU. We
expect ARPU to decline moderately during 2003 mainly due to the reduction in
the interconnect tariffs, with a reduction to levels of approximately NIS
165-170 ($35-36), or NIS 8-13 ($1.7-2.7) lower than ARPU in the fourth quarter
of 2002.
Our cost of revenues for the year ended December 31, 2002 was NIS 3,069
million ($648 million), compared to NIS 2,719 million in 2001. This amounted to
76% of our revenues for the year ended December 31, 2002, compared to 84% in
2001. The increase in our cost of revenues in 2002 over 2001 was driven
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primarily by interconnect and other network expenses related to higher
subscriber numbers and usage, offset by a decrease of NIS 113 million
($24 million) in our license amortization expenses as a result of the
extension of our license until 2022. Our cost of revenues as a percentage of our
revenues was lower in 2002 than in 2001, primarily due to the increasing
economies of scale that result from the fact that a portion of our costs are
not directly correlated to our revenues.
Our selling and marketing expenses, which consist primarily of expenses
related to advertising and public relations, commissions paid to dealers,
distributors and salaries of personnel involved in these activities, were NIS
308 million ($65 million) for the year ended December 31, 2002, compared to NIS
293 million in 2001. This amounted to 8% of our revenues in 2002, compared to
9% in 2001. The stability in these expenses was driven primarily by efficient
cost management. The slight increase in selling and marketing expenses was due to
increased marketing efforts in response to increased competition. We expect
selling and marketing expenses to increase in 2003 as we continue to support
the Orange Brand in anticipation of increased competition.
General and administrative expenses for the year ended December 31, 2002
were NIS 144 million ($30 million) compared to NIS 134 million in 2001. This
amounted to 4% of our revenues in 2002 compared to 4% in 2001. The increase in
these expenses was driven primarily by insurance costs and also resulted from
the fact that in 2001, we received a refund in the amount of approximately NIS
24 million from Bezeq following the Ministry of Communications' interim
settlement regarding our dispute on bad debt collection. We expect that general
and administrative expenses will remain relatively stable in 2003.
We had an operating profit for the year ended December 31, 2002 of NIS 533
million ($113 million) compared to NIS 103 million in 2001. The increase in
operating profit was achieved by our subscriber growth, accompanied by
increasing economies of scale.
We had net financial expenses for the year ended December 31, 2002 of NIS
445 million ($94 million) compared to NIS 401 million in 2001, an increase of
NIS 44 million. The increase in net financial expenses is attributed mainly to
an increase of NIS 222 million in our average total debt outstanding, higher
interest rates set by the Central Bank of Israel and the effect of the shekel
devaluation on our US $175 million senior subordinated notes.
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Our net income in 2002 was NIS 84 million ($18 million) compared to a net
loss of NIS 303 million in 2001.
Results of operations for the year ended December 31, 2001 compared to the year
ended December 31, 2000
We had 1,458,000 subscribers as of December 31, 2001 compared to 834,000
subscribers as of December 31, 2000. For the year ended December 31, 2001 we
had revenues of NIS 3,249 million compared to NIS 2,104 million for 2000. The
increase was attributable mainly to a 75% increase in our subscriber base.
Average monthly revenue per subscriber, or ARPU, for the year ended
December 31, 2001 was NIS 214, compared to NIS 306 in 2000. The primary cause
of this reduction was the increasing percentage of prepaid subscribes in our
subscriber base, which have historically provided below-average ARPU.
Our cost of revenues for the year ended December 31, 2001 was NIS 2,719
million compared to NIS 2,162 million in 2000. This amounted to 84% of our
revenues for the year ended December 31, 2001 compared to 103% in 2000. Our
cost of revenues as a percentage of our revenues was lower in 2001 than in
2000, primarily due to the increasing economies of scale that result from the
fact that a substantial portion of our costs are not directly correlated to our
revenues, combined with the decrease in the handset subsidies we provided to
the customers who joined the network during 2001. Consequently, we experienced
a gross profit during 2001, compared to a gross loss during 2000.
Our selling and marketing expenses, which consist primarily of expenses
related to advertising and public relations, commissions paid to dealers,
distributors and salaries of personnel involved in these activities, were NIS
293 million for the year ended December 31, 2001 compared to NIS 328 million in
2000. This amounted to 9% of our revenues in 2001, compared to 16% in 2000. The
decrease in these expenses as a percentage of revenue was driven primarily by
more efficient cost management.
General and administrative expenses for the year ended December 31, 2001
were NIS 134 million compared to NIS 155 million in 2000. This amounted to 4%
of our revenues in 2001 compared to 7% in 2000. The decrease in these expenses
was primarily due to a refund received from Bezeq following the Ministry of
Communications' interim settlement regarding our dispute with Bezeq on bad
debts' collection.
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We had an operating profit for the year ended December 31, 2001 of NIS 103
million compared to an operating loss of NIS 540 million in 2000. The increase
in operating profit was achieved by our subscriber growth, accompanied by
increasing economies of scale and lower total subscriber acquisition costs.
During 2001 total subscriber acquisition costs were NIS 316 million compared to
NIS 424 million in 2000.
We had net financial expenses for the year ended December 31, 2001 of NIS
401 million compared to NIS 229 million in 2000. Our net financial expenses
increased from 2000 to 2001 by NIS 172 million, and our total debt increased by
NIS 265 million. The increase in net financial expenses was attributed mainly
to an increase in our average total debt outstanding and the effects of
currency fluctuations on the outstanding principal of our senior subordinated
notes, which are denominated in US dollars.
Our net loss in 2001 was NIS 303 million compared to NIS 769 million in
2000.
Impact of inflation and exchange rate fluctuations
Substantially all of our revenues and a majority of our operating expenses
are denominated in shekels. However, through December 31, 2002, a substantial
amount of our operating expenses were linked to non-shekel currencies. These
expenses related mainly to the acquisition of handsets where the price paid by
us is based on various foreign currencies. In addition, a substantial majority
of our capital expenditures are incurred in, or linked to, non-shekel
currencies, and our notes are denominated in US dollars and require US dollar
interest payments. Thus, any devaluation of the shekel against the non shekel
currencies will increase the shekel cost of our non-shekel denominated or
linked expenses. Such an increase may have an adverse impact on our results,
which may be material. We hedge some of our foreign currency commitments, but
we do not currently hedge the principal payable on our notes due 2010.
Although we have the ability to borrow under our bank credit facility in
US dollars and Euros, our borrowings are primarily in shekels, and part of our
shekel bank borrowings are linked to the Israeli CPI. We may not be permitted
to raise our tariffs pursuant to our license in a manner that would fully
compensate for any increase in the Israeli CPI. Therefore, an increase in the
rate of inflation may also have a material adverse impact upon us by increasing
our financial expenses without an offsetting increase in revenue.
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Compensation charge related to grant of employee stock options
At December 31, 2002, there were options to purchase 6,611,110 ordinary
shares outstanding at an average exercise price of NIS 18.001 per share. See
note 9 to the Financial Statements. We have recognized a non-cash charge equal
to the difference between the exercise price of the options and the market
value of the underlying shares at the time they were granted. The compensation
cost determined under APB 25 and charged against income in the years ended
December 31, 2000, 2001 and 2002, was NIS 56,618,000, NIS 20,699,000 and
8,957,000 ($1,891,000), respectively.
5B. Liquidity and Capital Resources
Liquidity
The mobile telephone business is highly capital intensive, requiring
significant capital to acquire a license, construct mobile telecommunications
networks and fund operating losses. The capital requirements of our network are
determined by the coverage desired, the expected call traffic and the desired
quality and variety of services. Network construction costs are mainly related
to the number of cells in the service area, the number of radio channels in the
cell and the switching equipment required.
Until August 1998, our principal sources of funds were loans and other
borrowings from principal shareholders and a bridge loan facility, all of which
have been repaid out of the proceeds from our initial public offering. In
August 1998, we entered into a credit facility to finance the development of
our network and business. In October 1999, we completed our initial public
offering of ordinary shares in the form of American Depositary Shares, and
received net proceeds of approximately NIS 2,092 million. We used part of
these net proceeds to repay approximately NIS 1,494 million in
indebtedness to our principal shareholders, and the remainder to finance the
continued development of our business. In July 2000, we entered into an
Amending and Rescheduling Agreement, which amended our credit facility,
increasing the amount available to $750 million, subject to the meeting of
defined milestones. In August 2000, we completed an offering of $175 million
aggregate principal amount of unsecured senior subordinated notes due 2010. The
net proceeds from this offering (approximately $170.5 million after deducting
commissions and offering expenses) were used mainly to repay a portion of the
outstanding indebtedness under our credit facility.
Currently, the main sources of our liquidity are:
•
our operating cashflows;
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•
our credit facility; and
•
factoring long-term trade receivables.
We generated positive cashflow from operations amounting to NIS 682
million ($144 million) in 2002, compared to NIS 423 million in 2001. The
difference was primarily due to increased operating profits in 2002 as compared
to 2001. Cashflow used in investing activities was NIS 816 million ($172
million) in 2002, compared to NIS 629 million in 2001. The increase was mainly
due to our paying for additional spectrum that we had acquired in 2001. Cash
provided by financing activities was NIS 130 million ($27 million) in 2002,
compared to NIS 211 million for 2001. The decrease is primarily due to the
decrease of net borrowings under our long-term loans.
On December 31, 2002, we entered into an Amending Agreement to the Facility
Agreement, which amended our credit facility, decreasing the amount available
to $710 million. Our credit facility is divided into three tranches: a $410
million multicurrency term loan facility (facility A), a $150 million revolving
multicurrency loan facility (facility B), and a $150 million shekel term loan
facility (facility C). All facilities are provided by Israeli banks and
Citibank N.A., with Bank Leumi Le-Israel B.M. as facility agent.
Facilities A and B of our credit facility may be drawn in shekels, US
dollars or euros, provided that not less than 60% of the outstanding
advances
under facilities A and B, at any time, must be in shekels and that not more
than 40% of the outstanding advances under facilities A and B may be drawn in US dollars or
euros. Facility C may be drawn only in shekels. It is our intention to draw
amounts under the credit facility primarily in shekels. Under the amended
credit facility, facility A is available for drawing until March 31, 2003,
facility B is available for drawing until June 30, 2008 and facility C is

available for drawing until December 31, 2004. At December 31, 2002, the
balances available for drawing were approximately $29 million under facility A,
$12 million under facility B, and $150 million under facility C, and at
February 28, 2003 the balances available for drawing were approximately $30
million under facility A, $6 million under facility B, and $150 million under
facility C.
Repayment under facility A will begin on March 31, 2003 and will continue
until June 30, 2008, repayment under facility B will begin on June 30, 2008,
and repayment under facility C will begin on March 31, 2005 and will continue
until June 30, 2009.
Another source of our liquidity results from our factoring on a
non-recourse basis most of our long-term trade receivables resulting from sales
of handsets. We record the transfer of accounts receivable as a sales
transaction under the provisions of Statement of Financial Accounting Standards
No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments
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of Liabilities. During the years ended December 31, 2001 and 2002, we
factored approximately NIS 180 million and NIS 210 million ($44
million), respectively, from long-term trade receivables. The resulting costs
amounted to approximately NIS 9 million and NIS 10 million for
the years ended December 31, 2001 and 2002, respectively, and are charged
to "Financial expenses-net", as incurred.
Commitments and contractual obligations
As a result of obtaining GSM 1800 and UMTS third generation spectrum bands
in the December 2001 spectrum auction in Israel, we have payment obligations
with respect to each of those spectrum bands. We are committed to pay NIS 180
million (approximately $38 million) for the GSM 1800 spectrum, in two
installments. The first installment, in the amount of NIS 108 million
(approximately $23 million) was paid in February 2002, and the second
installment in the amount of NIS 72 million (plus interest at the rate set by
the Accountant General of the Israeli Ministry of Finance) is payable no later
than December 31, 2003.
We are also committed to pay NIS 220 million (approximately $46 million)
for the UMTS third generation spectrum, in six installments. The first two
installments, totaling NIS 100 million (approximately $21 million), were paid
in February and June 2002, and the remaining four installments (plus interest
at the rate set by the Accountant General of the Israeli Ministry of Finance)
are payable no later than June 1, 2003, 2004, 2005 and 2006 in amounts equal to
NIS 31 million, NIS 35 million, NIS 33 million and NIS 22 million,
respectively.
Since the additional spectrum has only been received in part, the assets
recorded on our balance sheet reflect only the cost of spectrum
actually received and advances paid
on account of spectrum still to be received, including interest costs (relating
to loans and credit which served to finance the license fee) which
were incurred until
the commencement of utilization of the license and which were
capitalized along with the
cost of the license.
From January 1, 2000 to December 31, 2002, we made cumulative net capital
expenditures of approximately NIS 1,701 million, of which NIS 556 million ($117
million) was incurred in 2002. We expect that capital expenditures for our
network will continue to represent the largest portion of our total capital
expenditures over the next few years. We expect to incur approximately NIS 700
million ($148 million) of capital expenditures in 2003, primarily in order to
increase the capacity of our GSM network through the
installation of GSM 1800 antennas. We estimate that building out our UMTS
network will cost approximately $300 million over the three to five years from
the beginning of the network build-out, with approximately $150 million in
capital expenditures required in the first 12
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months of the build-out. The UMTS third generation network build-out is
expected to begin towards the second half of 2003.
Set forth below are our contractual obligations and other commercial
commitments over the medium term.
Payments due by period (NIS in thousands)
Less than
After 5
Contractual Obligations
Total
1 year
1-3 years
4-5 years
years
Long-Term Debt
2,642,031
0
997,463
815,593
828,975
Capital Lease Obligations
—
—
—
—
—
Operating Leases
247,086
101,192
113,425
21,917
10,552
Unconditional Purchase Obligations:
GSM 1800 spectrum
70,000
70,000
—
—
—
UMTS third generation spectrum
132,000
34,000
98,000
—
—
Handsets
203,000
203,000
—
—
—
Fixed Assets
41,000
41,000
—
—
—
Other Long-Term Obligations
—
—
—
—
—
Total Contractual Cash Obligations
3,335,117
449,192
1,208,888
837,510
839,527
Amount of commitment expiration per period
(NIS in thousands)
Total
amounts
Less than
Over 5
Other Commercial Commitments
committed
1 year
1-3 years
4-5 years
years
Lines of Credit
654,500
—
—
654,500
—
Standby Letters of Credit
—
—
—
—
—
Guarantees
122,159
24,922
26
103
97,108
Standby Repurchase Obligations
—
—
—
—
—
Other Commercial Commitments
—
—
—
—
—
Total Commercial Commitments
776,659
24,922
26
654,603
97,108
We believe that funds from our operations, together with funds available
under the credit facility, will provide us with enough liquidity and resources
to fund our expected capital expenditure needs, including our plans to increase
the capacity of our existing network and capital expenditures associated with
our UMTS third generation network build-out, as well as our obligations under
our financing agreements, our license payments and our other material
commitments. However, the
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actual amount and timing of our future requirements may differ materially from
our estimate. In addition, we may be required to seek additional financing if:
•
Our assumptions regarding the costs associated with the offering of
our new products prove be inaccurate;
•
We experience lower growth in our business or subscriber base than we
currently anticipate; or
•
We experience unanticipated costs or competitive pressures.
5C. Research and Development, Patents and Licenses
In order to compete in Israel's highly penetrated mobile telephone market
by attracting new subscribers and retaining existing subscribers, we must
introduce new services based on the latest available technology in the mobile
telephone industry and particularly in the GSM sector. We currently offer our
subscribers a range of value added services, some of which were developed by
outside companies. We have a strong relationship and are working with Hutchison
Whampoa Limited, one of our principal shareholders, in connection with the
development of products and services for UMTS third generation cellular
communications. Hutchison is a global leader in UMTS third technology and, in
particular, the deployment and development of UMTS third generation mobile
networks and products and services worldwide. In August 2002, we signed a
cost-sharing agreement with Hutchison Telecommunications Limited and its
subsidiaries for the joint acquisition and development of information
technology platforms and software solutions, hardware, content and other
services, as well as joint marketing, promotion and communications activities
in connection with UMTS third generation business. For more information, see
"Item 7B. Related Party Transactions—Transactions with Affiliates."
We and our wholly-owned subsidiary, Partner Future Communications 2000
Ltd., or PFC, offer companies the opportunity to test their technologies on
engineering test laboratories and on our network systems and in return enjoy
the advantage of launching innovative services to our subscribers with a faster
time to market. PFC has also invested in some small, high technology companies.
PFC's carrying value of the investments in these companies decreased in 2002 to
NIS 3.5 million ($0.7 million).
5D. Trend Information
Our business and results of operations have been affected by a number of
trends, such as the significant growth in the Israeli mobile telephone market
and the rapid growth in the demand for
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mobile telephones and mobile services. Growth in the use of the SMS has also
contributed to the increase in demand for mobile data applications.
There are several potential effects of these trends on our business. The
rapid growth in the demand for mobile services increases penetration levels in
the market. Historically, we have experienced rapid growth in the number of our
subscribers and in our market share since we launched our network. As the
Israeli market approaches saturation, we expect subscriber growth to decrease.
We further expect that this decrease in our subscriber growth, together with
Cellcom's launch of its GSM services, will lead to increased competition among
mobile operators and therefore increased churn. The increasing penetration has
also affected the average monthly number of minutes our subscribers used in our
network, which has been reduced over time, and which is expected to moderately
decline in 2003. We are also affected by the market trends in the growing
demand for value added services, and we are currently introducing to our
subscribers advanced value added services, accessible through various
interfaces and platforms including WAP, High Speed Circuit Switched Data, or
HSCSD, services, SMS services and General Packet Radio Services, or GPRS. We
forecast that the majority of any revenue growth in 2003 will be voice related,
although we expect that data revenues will grow at a faster rate in 2003 than
voice revenues.
In order to provide UMTS third generation broadband cellular services, we
will have to establish a UMTS third generation network and develop UMTS third
generation services. Building and rolling-out a UMTS third generation network
will require additional capital and operational expenditures. In addition, we
believe that the commercial introduction of a UMTS third generation network and
services is likely to significantly affect our business in further ways that we
cannot fully foresee at present.
For more information about other factors that may affect our results of
operations, see "Item 3D. Key Information—Risk Factors."
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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6A. Directors and Senior Management
Directors
Name of Director
Age
Position
Fok Kin-ning, Canning
51
Chairman of the Board of Directors
Khoo Chek Ngee(1)(4)
60
Director
Tal Raz(1)(4)
41
Director
Avraham Bigger(1)(2)(3)(4)
56
Director
Ting Yu Chan(1)(4)
52
Director
Chow Woo Mo Fong, Susan
49
Director
Dori Dankner(1)
42
Director
Shmuel Dankner
72
Director
Robert Donald Fullerton(2)(3)
71
Director
Uzia Galil
77
Director
Erez Gissin(1)
44
Director
Amir Kess
41
Director
Pesach Shachar(1)
69
Director
Frank John Sixt
51
Director
Hans Roger Snook
54
Director
Carol Tsang
51
Director
Ben-Zion Zilberfarb(1)(2)(3)
53
Director
(1)
Member of the Executive Committee of the Board of Directors
(2)
Independent Director
(3)
Member of the Audit Committee
(4)
Member of the Compensation Committee
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FOK KIN-NING, CANNING has been a director of Partner since May 1998 and
the Chairman of its Board of Directors since that time. Mr. Fok has been an
Executive Director of Hutchison Whampoa Limited since 1984 and its Group
Managing Director since 1993. He also serves as Chairman of Hutchison
Telecommunications (Australia) Limited, Hutchison Harbour Ring Limited and
Hutchison Telecommunications Limited (the holding company of the
telecommunications interests of Hutchison Whampoa Limited). In addition, Mr.
Fok is the Co-Chairman of Husky Energy Inc., the Deputy Chairman of Cheung Kong
Infrastructure Holdings Limited and Hongkong Electric Holdings Limited. He is
also a Director of Cheung Kong (Holdings) Limited. Mr. Fok holds a Bachelor of
Arts degree from St. John's University in Minnesota, United States and a
diploma in financial administration from the University of New England in
Australia. He is a member of the Australian Institute of Chartered Accountants.
Mr. Fok was nominated as a director, and as the Chairman of the Board of
Directors, by Advent pursuant to the relationship agreement described in "Item
7B. Major shareholders and Related Party Transactions—Related Party
Transactions—Relationship Agreement."
KHOO CHEK NGEE has been a director of Partner since October 1997 and is
the Chairman of the Executive Committee and the Chairman of the Compensation
Committee. Since 1993, Mr. Khoo has been Group Managing Director of Hutchison
Telecommunications Limited. From 1966 to 1993, he was with Singapore
Telecommunications Pte. Ltd., rising to the position of Vice President of
Mobile Communications in 1991. Mr Khoo holds a Bachelor of Science degree in
Engineering from the London University Imperial College of Science and
Technology, and he participated in the Advanced Telecommunications Management
Program at the Center of Telecommunication Management, University of
Southern California. Mr. Khoo was nominated as a director, and as a member of
the Executive Committee, by Advent, pursuant to the relationship agreement
described in "Item 7B. Major shareholders and Related Party
Transactions—Related Party Transactions—Relationship Agreement."
TAL RAZ has been a director of Partner since November 2001 and is a member
of the Executive Committee and the Compensation Committee. Mr. Raz is serving
as Vice President Finance and Chief Financial Officer of Elron Electronic
Industries since May 2002. Mr. Raz is Acting President and Chief Executive
Officer since October 2001 as well as Chief Financial Officer of Elbit Ltd. The latter position he
has held since he joined Elbit Ltd. in April 1997. Mr. Raz is a certified
public accountant, and holds Bachelor of Arts and Master of Arts degrees in
accounting and business administration from Baruch Collage, New York. Mr. Raz
was nominated as a director, and as a member of the Executive committee, by
Elbit.COM, pursuant to the relationship agreement described in "Item 7B. Major
shareholders and Related Party Transactions—Related Party
Transactions—Relationship Agreement."
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AVRAHAM BIGGER has been a director of Partner since February 2000. Mr.
Bigger is a member of the Executive Committee, the Audit Committee and the
Compensation Committee of Partner. From 1998 to the present, he has been
director and owner of Bigger Investments Ltd. and chairman and owner of Caniel
Beverage Packaging Ltd. and Caniel Packaging Industries Ltd. Since February
2002, he has been the Chairman of Y.D. Vehicles and Transportation Ltd. He also
serves on the boards of directors of several companies. He was the Chief
Executive Officer of Menorah Insurance Company Ltd. and a member of the Board
of Directors of Menorah during 1997. He served on the Board of Directors of
Bank Leumi Le Israel B.M. and as a member of the Finance Committee and Credit
Committee of this Bank during 1995. From 1993 to 1996, he was the Chief
Executive Officer of Paz Oil Company Ltd. From 1986 to 1993, he was the Chief
Executive Officer of the Israel General Bank Ltd., and prior to that, held
various management positions in Clal Industries Ltd. He also served in various
positions in the Israeli Ministry of Finance, including Special Assistant to
the General Director of the Ministry of Finance. He received his Bachelor's
degree in Economics and Master of Arts degree in Business Management from the
Hebrew University of Jerusalem.
TING YU CHAN was a director of Partner from October 1997 to March 2000 and
became a director again in May 2001. He is a member of the Executive Committee
and the Compensation Committee. Mr. Chan is a director of Hutchison
Telecommunications (Australia) Ltd. and Deputy Group Managing Director of
Hutchison Telecommunications International Limited. Since joining the Hutchison
Whampoa group, he has been closely involved in the management and development
of Hutchison's telecommunications business internationally. Mr. Chan holds a
degree in Law and Arts (Maths), as well as a Postgraduate Certificate in Laws.
Mr. Chan was nominated as a director, and as a member of the Executive
Committee, by Advent, pursuant to the relationship agreement described in "Item
7B. Major shareholders and Related Party Transactions—Related Party
Transactions—Relationship Agreement."
CHOW WOO MO FONG, SUSAN has been a director of Partner since August 1998.
Mrs. Chow has been an Executive Director of Hutchison Whampoa Limited since
1993 and its Deputy Group Managing Director since 1998. She is a solicitor and
holds a Bachelor's degree in Business Administration. Mrs. Chow is also an
Executive Director of Cheung Kong Infrastructure Holdings Limited and a
Director of Hongkong Electric Holdings Limited, TOM.COM LIMITED, Hutchison
Harbour Ring Limited and Hutchison Telecommunications Limited. Mrs. Chow was
nominated as a director by Advent, pursuant to the relationship agreement
described in "Item 7B. Major shareholders and Related Party
Transactions—Related Party Transactions—Relationship Agreement."
DORI DANKNER has been a director of Partner since October 1997 and is a
member of the Executive Committee. He is the chairman of Elleren (D.D.)
Investments, a company whose shares are
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traded on the Tel Aviv Stock Exchange, and the Chief Executive Officer of
D.S.D. Investments Ltd. Mr. Dankner is also a director of Matav, Dankner
Investments Ltd., Israel Salt Industries Ltd., Dankner Infrastructure (D.D.)
Ltd., Omega D.S. Investments Ltd. and Bareket D.S. Investments Ltd. He holds a
Bachelor of Science degree in Industrial Engineering from Tel Aviv University
and a Master of Business Administration degree in Finance and International
Business from New York University. Dori Dankner is the son of Shmuel Dankner.
Mr. Dankner was nominated as a director, and as a member of the Executive
Committee, by Matav, pursuant to the relationship agreement described in "Item
7B. Major shareholders and Related Party Transactions—Related Party
Transactions—Relationship Agreement."
SHMUEL DANKNER has been a director of Partner since October 1997. Mr.
Dankner has been Chairman of the Board of Directors of Matav since 1988. He is
the Chairman of the Board of Dankner Investments Ltd. The Dankner Group, which
he co-founded in 1957, includes enterprises involved in banking;
telecommunications; cable television; salt production and export; petrochemical
and plastic production; and real estate development. Mr. Dankner holds a
Bachelor of Science degree with highest honors in Chemical Engineering from the
University of California—Berkeley and a Master of Science in Chemical
Engineering from Columbia University, New York. In 1977, he received the
Industry Prize from the Israel Association of Manufacturers for managerial
achievements and initiative in developing the private industry. Shmuel Dankner
is the father of Dori Dankner. Mr. Dankner was nominated as a director by
Matav, pursuant to the relationship agreement described in "Item 7B. Major
shareholders and Related Party Transactions—Related Party
Transactions—Relationship Agreement."
ROBERT DONALD FULLERTON has been a director of Partner since February
2003. He became director of Canadian Imperial Bank of Commerce (CIBC) (formerly
The Canadian Bank Of Commerce) in 1974. He joined the Bank in 1953 and served
in a variety of positions in the branch system and the International Division
including New York. He served in the following senior executive positions prior
to becoming Chairman, President and Chief Executive Officer in 1985, Regional
General Manager International, Regional General Manager Saskatchewan, Chief
General Manager and President. During this period, he chaired many of the board
committees including the Executive Committee and the Audit Committee. Mr.
Fullerton retired as an Executive Officer in 1992 but remained on the board and
continued to chair the Executive Committee until 1999. He continues to serve as
a director. Mr. Fullerton Chairs the Audit Committee of George Weston Limited
and is a member of the Audit Committees of CIBC, Hollinger Inc. and Asia
Satellite Telecommunications Holdings Ltd. During his career he has served on
the board of directors of a large number of both Canadian and international
companies including I.B.M. Canada, Honeywell Inc., Amoco Petroleum
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Canada, Orange plc, Ontario Hydro, Westcoast Energy, as well as many cultural
and educational entities. He received a Bachelor's degree in Arts from the
University of Toronto in 1953.
UZIA GALIL has been a director of Partner since August 1999. Mr. Galil
currently serves as President and Chief Executive Officer of Uzia Initiatives
and Management Ltd., a company specializing in the promotion and nurturing of
new businesses associated with mobile communication, electronic commerce and
medical information media, which he founded in November 1999. From 1962 until
November 1999, Mr. Galil served as President and Chief Executive Officer of
Elron Electronics Industries Ltd., an Israeli high technology holding company,
which he founded and of which he also served as Chairman of the Board. From
January 1981 until leaving Elron, Mr. Galil also served as Chairman of the
Board of Directors of Elbit Ltd., an electronic communication affiliate of
Elron, and as a member of the Boards of Directors of Elbit Systems Ltd., a
defense electronics affiliate of Elron, and all other private companies held in
the Elron portfolio. Mr. Galil currently serves as a member of the Boards of
Directors of Orbotech Ltd., NetManage Inc., and as Chairman of Zoran
Corporation. From 1980 to 1990, Mr. Galil served as Chairman of the
International Board of Governors of the Technion. Mr. Galil holds a M.S. in
Electrical Engineering from Purdue University and a B.S. from the Technion. Mr.
Galil has also been awarded an honorary doctorate in technical sciences by the
Technion in recognition of his contribution to the development of science-based
industries in Israel, an honorary doctorate in philosophy by the Weizman
Institute of Science, an honorary doctorate in engineering by Polytechnic
University, New York, and an honorary doctorate from the Ben-Gurion University
of the Negev in Israel. Mr. Galil is also a recipient of the Israel Prize. Mr.
Galil was nominated as a director by Elbit.COM, pursuant to the relationship
agreement described in "Item 7B. Major shareholders and Related Party
Transactions—Related Party Transactions—Relationship Agreement."
EREZ GISSIN has been a director of Partner since August 1998 and is a
member of the Executive Committee. For the last two years, Mr. Gissin has been
the CEO of IP Planet Network Ltd., an Israeli telecommunication company
providing satellite broadband services. Previously, he was the Vice President
of Business Development of the Eurocom Group, an Israeli leader in telecom and
internet products and services. Mr. Gissin holds a Bachelor of Science in
Industrial Engineering from Tel Aviv University and an MBA degree from Stanford
University, California. Mr. Gissin was nominated as a director, and as a member
of the Executive Committee, by Eurocom, pursuant to the relationship agreement
described in "Item 7B. Major shareholders and Related Party
Transactions—Related Party Transactions—Relationship Agreement."
AMIR KESS has been a director of Partner since August 1998, and has been
an Executive Vice President of Arison Investments since 1996. He also serves as
a director of other companies in which
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Arison or its affiliates is a shareholder, including Eurocom Communications,
Internet Gold, a large Israeli internet service provider, DBS Satellite
Services, a direct broadcast satellite licensee in Israel, and Shikun V'Binui
Holdings, a company which is active in the building and construction market.
From 1990 to 1995, Mr. Kess was an attorney in the Israeli law office of S.
Horowitz and Co. Mr. Kess was nominated as a director by Eurocom, pursuant to
the relationship agreement described in "Item 7B. Major shareholders and
Related Party Transactions—Related Party Transactions—Relationship
Agreement."
PESACH SHACHAR has been a director of Partner since May 1998 and is a
member of the Executive Committee. For 21 years he was the General Manager,
founder, and a shareholder in Nogay Ltd., a telecommunications consulting firm
active in numerous high-tech projects in Israel and overseas. In that capacity,
he advised Hutchison on the prospects in the cellular market in Israel,
established the Partner shareholder consortium and advised Hutchinson on the
bidding for the license and launch of operations. Mr. Shachar served 28 years
in the Israel Defense Forces Signal Corps and Air Force/Telecommunications,
reaching the rank of Colonel. Mr. Shachar was nominated as a director, and as a
member of the Executive Committee, by Advent, pursuant to the relationship
agreement described in "Item 7B. Major shareholders and Related Party
Transactions—Related Party Transactions—Relationship Agreement."
FRANK JOHN SIXT has been a director of Partner since May 1998. Mr. Sixt
has been an Executive Director of Hutchison Whampoa Limited since 1991 and its
Group Finance Director since 1998. He is the Chairman of TOM.COM LIMITED. He is
also an Executive Director of Cheung Kong Infrastructure Holdings Limited and
Hongkong Electric Holdings Limited and a Director of Cheung Kong (Holdings)
Limited, Hutchison Telecommunications (Australia) Limited, Husky Energy Inc.,
and Hutchison Telecommunications Limited. He holds a Bachelor of Arts degree
and a Master of Arts degree from McGill University and a Bachelor's degree in
Civil Law from the University of Montreal, and is a member of the Bar and of
the Law Society of the Provinces of Quebec and Ontario, Canada. Mr. Sixt was
nominated as director by Advent, pursuant to the relationship agreement
described in "Item 7B. Major shareholders and Related Party
Transactions—Related Party Transactions—Relationship Agreement."
HANS ROGER SNOOK has been a director of Partner since August 1998. Mr.
Snook was the founder and CEO of Orange plc., which was acquired by France
Telecom and merged with France Telecom's mobile assets in 2000. After leading
the company to a second successful flotation in 2001, Mr. Snook stepped down as
CEO to pursue other interests in health and integrated medicine. He previously
served as a Director of Hutchison Telecommunications Limited and as a member of
the Board of Directors of a number of telecommunications companies within the
Hutchison Whampoa
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Limited group. Mr. Snook was nominated as a director by Advent, pursuant to the
relationship agreement described in "Item 7B. Major shareholders and Related
Party Transactions—Related Party Transactions—Relationship Agreement."
CAROL TSANG has been a director of Partner since April 2002. Ms. Tsang
joined Hutchison Telecommunications International Limited in September 1997 as
Director of Business Development-Finance and was closely involved in the
financial aspects of Hutchison's new telecommunication projects
internationally. She has been Group Finance Director of Hutchison
Telecommunications International Limited since January 1999. Ms. Tsang holds a
Masters Degree in Business Administration from the Chinese University of Hong
Kong. Ms. Tsang was nominated as director by Hutchison Telecommunications
(Amsterdam) BV, pursuant to the relationship agreement described in "Item 7B.
Major Shareholders and Related Party Transactions—Related Party Transactions—
Relationship Agreement."
BEN-ZION ZILBERFARB has been a director of Partner since February 2000.
Professor Zilberfarb is currently a professor of economics and chairman of the
A. Meir Center for Banking at Bar-Ilan University. He is a member of the board
of directors of Fundtech Ltd. He was the chairman of the board of directors of
Euro-Trade Bank during 2000-2001 and of Karnit Insurance Company during
1998-2002. He also served as the Director General of the Israeli Ministry of
Finance from 1998 to 1999. For many years, he served as a member of several
governmental committees. He also served as the Chairman of the Investment
Committee, of Bank Leumi Provident Funds and consultant to several financial
institutions and several governmental and regulatory authorities including the
Israel Securities Authority and the Bank of Israel. He received a Ph.D. in
Economics from the University of Pennsylvania and a Bachelor's degree and
Master of Arts degree, both in Economics, from Bar-Ilan University.
Senior Management
Name of officer
Age
Position
Amikam Cohen
54
Chief Executive Officer
Iris Beck
36
Vice President, Marketing
Adi Biran
59
Vice President, Regulation and New Business
Development
Dan Eldar
49
Vice President, Carrier, International and
Investor Relations
Alan Gelman
47
Chief Financial Officer
Amnon Gideon
50
Vice President, Human Resources and Operations
Neomi Goldgevicht*
44
Vice President, Finance
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Name of officer
Age
Position
Yacov Kedmi
51
Vice President, Content and Multimedia
Roly Klinger
43
General Counsel and Joint Company Secretary
Haim Romano
48
Vice President, Customers
Effie Rosenhause**
51
Vice President, Marketing and Sales
Edith Shih
50
Joint Company Secretary
Menahem Tirosh
51
Vice President, Network Engineering and
Operation
*
Ms. Goldgevicht resigned from the Company, effective January 31, 2003.
**
Mr. Rosenhause resigned from the Company, effective December 31, 2002.
AMIKAM COHEN joined Partner in April 1998 as Chief Executive Officer. From
1996 to 1998, he was Chief Executive Officer of Elite Industries Ltd., one of
Israel's largest confectionery and coffee producers and marketers. From 1991 to
1996, Mr. Cohen was Managing Director of Strauss Dairies Ltd. From 1987 to
1990, he was General Manager of the Refrigerator and Air Conditioner Division
of Tadiran Home Appliances Ltd. From 1978 to 1986, Mr. Cohen served in numerous
capacities at the Tadiran Telecommunications Group, including General Manager
of the Public Switching Division, General Manager of the Microelectronics
Section, and Director of the entire group's purchasing department. He holds a
Bachelor of Science degree in Industrial Management Engineering from Ben Gurion
University, Beersheva, Israel.
IRIS BECK was appointed Vice President, Marketing in December, 2002. Prior
to joining the Company, she served as General Manager of Lever Israel (local
subsidiary of Unilever). Ms. Beck worked at Lever Israel since 1996 and held
senior positions such as Marketing Manager and Technical Director before her
appointment as General Manager. Ms. Beck worked as Brand Manager at Strauss Ice
Cream from 1993 to 1996, and as Project Controller at Kulick & Soffa from 1991
to 1993. Ms. Beck holds a Bachelor's degree in Economic Science (with
distinction) from Haifa University, and Master of Arts Degree in Marketing
(with distinction) from Bar-Ilan University.
ADI BIRAN joined Partner in October 1997 and in April 1998 became Vice
President, Regulation and New Business Development. Mr. Biran came to Partner
from Elbit Ltd., where, since 1992, he headed their effort to enter the
telecommunications market and in that capacity, guided their participation and
managed the bid preparation process that resulted in Partner's mobile radio
telephone license. Prior to joining Elbit, he was Managing Director of Efrat
Future Technology Ltd., a subsidiary of Comverse Technology Inc. Mr. Biran
continues to be an employee of Elbit in connection with matters unrelated to
Partner on which he worked prior to joining Partner. He completed his 20-year
career in the Israel Air Force as a colonel and as chief of research and
development. Mr. Biran
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holds a Bachelor's degree in Aeronautical Engineering with distinction from the
Israel Institute of Technology (Technion), Haifa, Israel.
DAN ELDAR serves as Vice President, Carrier, International and Investor
Relations for Partner. Dr. Eldar joined Partner in April 1998 and was
responsible for strategic planning and relations with carriers in Israel and
abroad. Since 1989, Dr. Eldar has served as the managing director of an Israeli
consulting firm specializing in strategic planning, negotiation and project
management. Dr. Eldar has managed many large-scale projects in the
telecommunications and semiconductor industries, as well as in other areas. He
holds Ph.D and Master of Arts degrees from Harvard University and Master of
Arts and Bachelor of Arts degrees from Hebrew University, Jerusalem.
ALAN GELMAN was appointed Chief Financial Officer of Partner in January
2001. For the three years prior to joining Partner, Mr. Gelman served as Chief
Financial Officer and Vice President of Barak ITC, one of Israel's providers of
international voice, data and internet services. From 1994 to 1997, Mr. Gelman
served as the Controller for Cellcom Israel Ltd. Mr Gelman holds a Bachelor's
degree in Accounting from Queens College in New York and an MBA from
Hofstra University in New York. Mr. Gelman is licensed as a Certified Public
Accountant in the USA (New York) and in Israel. Mr. Gelman was nominated as
Chief Financial officer by Advent, with the approval of our Board, pursuant to
the relationship agreement described in "Item 7B. Major shareholders and
Related Party Transactions—Related Party Transactions—Relationship
Agreement."
AMNON GIDEON was appointed Vice President, Human Resources in January
2001. Prior to joining the Company, Mr. Gideon served as Manager of Human
Resources at Motorola Israel Ltd. From 1991 until 1994, Mr. Gideon served as
the Executive Director of the Association for Civil Rights in Israel. Mr.
Gideon holds a Bachelor's degree in Political Science and Psychology from
Bar-Ilan University and a Master's degree in Human Resource Management from the
University of Derby.
NEOMI GOLDGEVICHT joined Partner in August 1998 as Vice President, Finance
and resigned from the company on January 31, 2003. Prior to then, she was Chief
Financial Officer at Mul-T-Lock Ltd., an international manufacturer of high
security locks, doors, and related components and devices. In that capacity,
she was responsible for financial matters at that company which is listed on
the Tel Aviv Stock Exchange, and for establishing eight subsidiaries in Europe
and the United States and implementation of their enterprise resource
processing system. She holds a Bachelor of Arts degree in Economics and
Accounting from Tel Aviv University, and an MBA degree from the University of
Bradford. Mrs. Goldgevicht has held her Certified Public Account credentials in
Israel since 1982, and serves as a member of the Bank of Israel's Advisory
Council and Committee.
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YACOV KEDMI joined Partner in May 1998 and served as Vice President,
Marketing and in October 2001 was appointed as Vice President, Content and
Multimedia. From 1992 to 1994, he had been Deputy Managing Director and
Marketing Director of the Ma'ariv daily newspaper, and before that, Managing
Director of Mei Eden, a bottled water producer. He also served for eleven years
as Marketing Director of Tabori Corporation, a producer of soft drinks,
disposable diapers, and paper products. In the four years immediately prior to
joining us, Mr. Kedmi was the principal in MPV Communications, providing
marketing consulting services to numerous Israeli companies, and was a partner
in the launch of two businesses, one with a direct marketing catalogue in which
customers bid for the products, and another producing premium gifts and
promotional products. He studied management at Bar Ilan University, Israel.
ROLY KLINGER joined Partner in August 1998 as General Counsel and Joint
Company Secretary. From 1993, she served as Legal Advisor and Corporate General
Secretary of Keshet Broadcasting Ltd., which holds an operating franchise for
Israel's first commercial television channel. Previously, while practicing in
the private sector, she lectured on communications law at the College of
Management—Academic Studies, Tel-Aviv. Ms. Klinger received an LL.B degree
from Tel Aviv University and is admitted to the Israel Bar.
HAIM ROMANO joined Partner in June 1998 as Vice President, Human Resources
and Administration, in December 2000 was appointed Vice President, Customer
Services and in January 2003 was appointed Vice President, Customers' Division.
In that capacity he is responsible for personnel policy and management,
physical facilities, and site acquisition. From 1996 to 1998, Mr. Romano headed
the Human Resources Division in the Israel General Security Service.
Immediately prior, he had served in the Israel Defense Forces for 24 years, the
last two as head of their Civil Personnel Department. Mr. Romano holds Masters
degrees from Haifa University and Tel Aviv University.
EFFIE ROSENHAUSE joined Partner in June 1998 as Vice President, Sales and
in October 2001 was appointed as Vice President, Marketing and Sales, although
he resigned from the company on December 31, 2002. For the seven previous
years, Mr. Rosenhause was Vice President Marketing and Sales for Super-Pharm,
the leading drugstore chain in Israel. Eleven years earlier he had been
Marketing Manager and was one of the founders of that chain. In the interim, he
served in New York as Executive Vice President of the largest Benetton licensee
in New York, and as a partner in a patented products firm in the United States
and Switzerland. He holds a Bachelor degree in Business Administration from the
Polytechnic of Central London.
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EDITH SHIH has been the Joint Company Secretary of Partner since July
1998. Ms. Shih has been a senior manager of Hutchison Whampoa Limited since
1991, its Head Group General Counsel since 1993 and its Company Secretary since
1998. She is currently an executive director of Hutchison International Limited
and director of various Hutchison group companies. She is also the Company
Secretary of Hutchison Telecommunications Limited and the Joint Company
Secretary of Hutchison Telecommunications (Australia) Limited. She holds a
Bachelor of Science and a Master of Arts degree from the University of the
Philippines, a Master of Arts and a Master of Education degree from Columbia
University, New York. She is qualified to practice law in Hong Kong, England
and Wales and Victoria, Australia.
MENAHEM TIROSH has served Partner since May 1998 as a consultant and as
Vice President, Network Engineering and Operation. From 1996 to 1998, Mr.
Tirosh was Deputy Director of the Cellular Infrastructure Division of Motorola
(Israel) Ltd. From 1969 to 1996, Mr. Tirosh served in the Israeli Defense
Forces, rising to the position of Department Head, Communication Systems. He
holds a Bachelor of Science degree in Electrical Engineering from the Israel
Institute of Technology (Technion), Haifa, Israel and a Master of Science in
Advanced Communication Engineering degree from Ben Gurian University. Mr.
Tirosh served as a full colonel in the Israeli Defense Forces Signal Corps.
Except as disclosed above, none of the above directors or members of
senior management has any family relationship with any other director or senior
manager of the Company. Senior managers, except for the Chief Financial
Officer, as disclosed above, are selected by the CEO with the approval of the
Board for an indefinite term of office and may be removed by the Board at any
time.
6B. Compensation
The aggregate compensation paid, and benefits in kind granted to or
accrued on behalf of all our directors and senior managers for their services
in all capacities during the year ended December 31, 2002 was approximately NIS
32 million ($7 million). In 2002 options were granted to our senior management
under the 2000 Employee Stock Option Plan to purchase up to 175,000 of our
ordinary shares at an exercise price of NIS 22.45 per share. These options
will expire in December 2011, subject to earlier expiration upon the
termination of employment under certain circumstances. For more information,
see "Item 6E. Directors, Senior Management and Employees—Share Ownership—2000
Employee Stock Option Plan". Included in the above, the total amount set aside
or accrued to provide pension, retirement or similar benefits on behalf of all
our directors and
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senior managers during the year ended December 31, 2002 was approximately NIS
10 million ($2 million).
6C. Board Practices
Terms of directors
Directors are elected at the annual shareholders meeting to serve for
three years, in the case of independent directors, or until the next annual
meeting of the shareholders, in the case of other directors; or until their
respective successors are elected and qualified, whichever occurs first. An
extraordinary meeting of the Company may elect any person as a director to fill
an office which became vacant, or to serve as an external director or an
independent director, or if the number of the members of the Board of Directors
is less than the minimum set in the Articles of Association. Any director
elected in such manner (excluding an external director) shall serve in office
until the coming annual meeting. The Articles of Association also provide that
the Board, with the approval of 75% of the directors, may appoint an additional
director to fill a vacancy. The Company's Articles of Association provide that
the Board may delegate all of its powers to committees of the Board as it deems
appropriate, subject to the provisions of the Companies Law. No director has a
service contract with the company or its wholly owned subsidiary providing for
benefits upon termination of employment. Officers of Partner serve at the
discretion of the Board or until their successors are appointed.
Alternate directors
Our Articles of Association provide that a director may appoint any
individual to serve as an alternate director. An alternate director may not
serve as such unless such person is qualified to serve as a director. In
addition, no person who already serves as a director or alternate director of
Partner may serve as the alternate director of another director of Partner.
Under the Companies Law, an alternate director shall have all of the rights and
obligations of the director appointing him or her, except the power to appoint
an alternate. The alternate director may not act at any meeting at which the
director appointing him or her is present. Unless the time period or scope of
any such appointment is limited by the appointing director, such appointment is
effective for all purposes and for an indefinite time, but will expire upon the
expiration of the appointing director's term.
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Independent directors
The Companies Law requires that Partner have at least two external
directors on its Board of Directors. In the interests of good corporate
governance, our Board of Directors decided that our Audit Committee should
consist of three members, each qualified as an independent director, pursuant
to applicable U.S. and other requirements, including, inter alia, the
requirements of Nasdaq. These independent directors are also qualified as
external directors, according to the Companies Law. The election of an external
director under the Companies Law must be approved by a general meeting of
shareholders provided that either: (a) the majority of shares voted at the
meeting, including at least one third of the shares of non-controlling
shareholders voted at the meeting, vote in favor of such arrangement or (b) the
total number of shares voted against such arrangement does not exceed one
percent of the aggregate voting rights in the company.
Mr. Avraham Bigger, Mr. Ben-Zion Zilberfarb and Mr. Robert Donald
Fullerton are currently the external, independent directors who satisfy the
requirements for independent directors under the Nasdaq National
Market and for
external directors under the Companies Law.
Executive committee
Our Executive Committee was nominated by the Board of Directors on July
15, 1998. Our principal shareholders have agreed that the Executive Committee
initially will consist of three nominees of Advent and one nominee of each of
Elbit.COM, Matav Investments and Eurocom, the other principal shareholders of
Partner. Two of our independent directors currently serve on our Executive
Committee.
Subject to the provisions of the Companies Law, the Executive Committee is
authorized to make all major decisions relating to the business affairs of
Partner. The Executive Committee is authorized by the Board of Directors to
approve contracts, commitments and other transactions up to a value determined
by the Board of Directors from time to time.
Audit committee
The Companies Law requires public companies, including Partner, to appoint
an audit committee. The responsibilities of the audit committee that we have
appointed include reviewing our financial statements, identifying
irregularities in the management of the company's business and approving
related party transactions as required by law. According to the Companies Law,
an audit committee must consist of at least three board members, and include
all the company's external directors. However, the chairman of the board, any
director employed by the company or granting
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services to the company on a permanent basis, any controlling shareholder or
any relative of a controlling shareholder may not be a member of the audit
committee. Our audit committee consists of three board members, all of which
meet both Nasdaq's definition of independent directors, and the Companies Law's
definition of external directors. None of them is an affiliated person of
Partner or has received any consulting, advisory or other compensatory fee from Partner, other
than in their capacity as directors of Partner.
Compensation committee
The compensation committee was nominated by the Board of Directors on
November 14, 2002. Our compensation committee consists of four Board members,
of which one is an external, independent director. The compensation committee
is responsible for evaluating and recommending to the Board (and to the Audit
Committee, if so required under any applicable law) the total compensation
package for the Company's Chief Executive Officer and all other officers;
reviewing the results and procedures for the evaluation of the performance of
other officers by the Company's Chief Executive Officer; making recommendations to the
Board regarding any long-term incentive compensation or equity plans; and
supervising the administration of the plans and periodically reviewing a
comprehensive statement of executive compensation policy.
Internal auditor
The Companies Law requires the board of a public company to appoint an
internal auditor nominated by the audit committee. A person who does not
satisfy certain independence requirements may not be appointed as an internal
auditor. The role of the internal auditor is to examine, among other things,
the compliance of the company's conduct with applicable law and orderly
business procedures. Mr. Yehuda Motro has been appointed as our first internal
auditor. Mr. Motro was formerly the internal auditor of the Tel Aviv Stock
Exchange.
Fiduciary duties of an office holder
The Companies Law governs the duty of care and duty of loyalty which an
Office Holder has to the company. An "Office Holder" is defined in the
Companies Law as a director, general manager, chief executive officer,
executive vice president, vice president, any other person assuming the
responsibilities of any of the foregoing positions without regard to such
person's title and other managers directly subordinate to the general manager.
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The duty of loyalty requires the office holder to avoid any conflict of
interest between the office holder's position in the company and personal
affairs, and proscribes any competition with the company or the exploitation of
any business opportunity of the company in order to receive personal advantages
for him or herself or others. This duty also requires him or her to reveal to
the company any information or documents relating to the company's affairs that
the office holder has received due to his or her position as an office holder.
The duty of care requires an office holder to act in a way that a reasonable
office holder would act in the same position and under the same circumstances.
This includes the duty to utilize reasonable means to obtain information
regarding the advisability of a given action submitted for his or her approval
or performed by virtue of his or her position and all other relevant
information.
Approval of related party transactions
Generally, under the Companies Law the compensation of an Office Holder
who is a director, or the compensation of an Office Holder who holds a
controlling interest in the company, requires the approval of the audit
committee, the Board of Directors and the general meeting of the shareholders
of the company. The Companies Law also requires that an arrangement between the
company and its Office Holder and also a transaction between the company and
another person in which an Office Holder has a personal interest,
requires the
approval of the Board of Directors. If such transactions are extraordinary
transactions, in addition to the Board approval and any approval required by
the Articles of Association, the transaction also must be approved by the
company's audit committee, and, in certain circumstances, the shareholders of
the company at a general meeting. Under the Companies Law, an extraordinary
transaction between a public company and a person having control of the company
or an extraordinary transaction between a public company and another person, in
which a controlling member has a personal interest, must be approved by the
audit committee, the Board of Directors and a meeting of the shareholders,
provided that either: (a) the majority of shares voted in favor
of the arrangement at the meeting,
including at least one third of the shares voted by shareholders who do not
have a personal interest in the matter and who are present at the
meeting are voted in favour of such arrangement (abstentions shall not be included in the total of the votes) or (b) the total
number of shares of the shareholders referred to in clause (a) voting against
such arrangement does not exceed one percent of the aggregate voting rights of
the company.
The Companies Law requires that an Office Holder promptly disclose any
direct or indirect personal interest that he or his affiliates may have, and
all related material information known to him, in connection with any existing
or proposed transaction by the company. If the Office Holder complies with such
disclosure requirements, the company may approve the transaction in accordance
with the provisions of its articles of association and the Companies Law. Under
the Companies Law, if the
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Office Holder has a personal interest in the transaction, the approval must
confirm that the transaction is not adverse to the company's interest.
In most circumstances, the Companies Law restricts Office Holders who have
a personal interest in a matter which is considered at a meeting of the board
or the audit committee from being present at such meeting, participating in the
discussions or voting on any such matter.
For information concerning the direct and indirect personal interests of
certain of our Office Holders and principal shareholders in certain
transactions, see "Item 7. Major Shareholders and Related Party Transactions."
Duty of a shareholder
Under the Companies Law, a shareholder has a general duty to act in good
faith towards the company and other shareholders and refrain from improperly
exploiting his power in the company, particularly when voting in the general
meeting of shareholders on (a) any amendment to the articles of association,
(b) an increase of the company's authorized share capital, (c) a merger or (d)
approval of transactions with affiliates which require shareholder approval. In
addition, any controlling shareholder, any shareholder who knows that it
possesses power to determine the outcome of a shareholder vote and any
shareholder that, pursuant to the provisions of the articles of association,
has the power to appoint an office holder in the company, is under a duty to
act in fairness towards the company.
Indemnification
Our Articles of Association provide that Partner shall be entitled to
undertake in advance to indemnify an officer or director of Partner, provided
that the undertaking is restricted to the events of a kind which the Board of
Directors may anticipate at the time it makes such undertaking at an amount
which the Board of Directors determines is reasonable under the circumstances.
In addition, Partner can indemnify an officer or director for specific
occurrences retroactively.
The Articles of Association also provide that Partner may indemnify an
officer or director of Partner for liability or expense he incurs as a result
of an action taken by him in his capacity as an officer or director of Partner
as follows:
(1)
any financial liability imposed on the officer or director in favor of a
third party in accordance with a judgment, including a judgment given in a
settlement or a judgment of an arbitrator, approved by the court; or
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(2)
reasonable litigation expenses, including legal fees, incurred by the
officer or director or which he was ordered to pay by the court:
(a)
within the framework of proceedings filed against him by Partner or
on Partner's behalf or by a third party,
(b)
in a criminal proceeding in which he was acquitted, or
(c)
in a criminal proceeding in which he was convicted of a felony which
does not require a finding of criminal intent.
In no event may Partner indemnify an officer or director for:
(1)
a breach of the duty of loyalty toward Partner, unless the officer or
director acted in good faith and had reasonable grounds to assume that the
action would not harm Partner;
(2)
a breach of the duty of care if it was made intentionally or recklessly;
(3)
an intentional act which was done to unlawfully yield a personal profit;
or
(4)
fine or penalty imposed on him.
We have undertaken to indemnify our directors and officers, subject to
certain conditions for (a) any financial obligation that is imposed on such
person for the benefit of a third person by a judgment, including a settlement
or arbitration decision certified by the court for an action done in the scope
of such person's duties as our director or officer, and (b) reasonable
litigation expenses, including legal fees, that were incurred by such person or
which the court obligates such person to pay in a proceeding against such
person that has been filed by us, on our behalf or by a third party, or in a
criminal proceeding in which such person is acquitted or convicted, provided
that the crime for which such person was convicted does not require a finding
of criminal intent, and in each case for an act committed in the capacity as
our director or officer.
We have effected a directors' and officers' liability insurance policy
insuring our directors' and officers' liability and our undertaking to
indemnify them, in respect of certain matters permitted by the Companies Law.
The policy includes coverage in respect of our and our directors' and officers'
liability in respect of our initial public offering and our offering of 13%
senior subordinated notes due 2010.
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6D. Employees
At December 31, 2002, we had 2,688 employees on a full-time or full-time
equivalent basis (2,523 at December 31, 2001 and 2,131 at December 31, 2000),
of whom 1,421 (including face-to-face customer service employees who were
transferred to customer service in 2001) (1,382 at December 31, 2001 and 834 at
December 31, 2000) were in customer service, 325 (274 at December 31, 2001 and
286 at December 31, 2000) were in engineering, 281 (232 at December 31, 2001
and 349 at December 31, 2000) were in sales and sales support, 160 (129 at
December 31, 2001 and 154 at December 31, 2000) were in information technology,
75 (55 at December 31, 2001 and 57 at December 31, 2000) were in marketing, 72
(70 at December 31, 2001 and 69 at December 31, 2000) were in finance, 68 (43
at December 31, 2001 and 37 at December 31, 2000) were in human resources and
security and fraud management and administration and 286 (467 at December 31,
2001 and 345 at December 31, 2000) were in our remaining operations. Substantially all of our employees have entered into employment
contracts with us, terminable at will by either party.
Our employees are not covered by any company-specific collective
bargaining agreement. However, we are subject to various Israeli labor laws and
practices, as well as orders extending certain provisions of collective
bargaining agreements between the Histadrut, currently the largest labor
organization in Israel, and the Coordinating Bureau of Economic Organizations,
the federation of employers' organizations. Such laws, agreements and orders
cover a wide range of areas and impose minimum employment standards including,
working hours, minimum wages, vacation and severance pay, and special issues,
such as equal pay for equal work, equal opportunity in employment, and
employment of women, youth, disabled persons and army veterans.
We generally contribute funds on behalf of our employees to a fund known
as "Managers' Insurance". This fund provides a combination of provident fund, insurance and severance pay benefits to the
employees, giving the employees a lump sum payment upon retirement and securing
most of the severance pay, if legally entitled, upon termination of employment.
Most employees are entitled to participate in the plan upon the start of
employment or after an initial period. Each of the participating employees
contributes an amount equal to 5% of his salary and we contribute between 13.3%
and 15.8% of such employee's salary.
We also offer to most of our employees the opportunity to participate in a
"Continuing Education Fund," which functions also as a savings plan. Each of
the participating employees contributes an amount equal to 2.5% of his salary
and we contribute between 5% and 7.5% of such employee's salary.
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According to the National Insurance Law, Israeli employers and employees
are required to pay predetermined sums to the National Insurance Institute.
These contributions entitle the employees to health insurance and benefits in
periods of unemployment, work injury, maternity leave, disability, reserve
military service, and bankruptcy or winding-up of the employer. We have never
experienced a strike or work stoppage and no material labor-related claims are
pending. We believe that our relations with our employees are good.
Since October 2001, most of our employees participate in a Health
Insurance Program which provides additional benefits and coverage which the
public health system does not provide. Eligibility to participate in the policy
depends on seniority and position. Non eligible employees can participate by
their own means and receive the same prices and coverage as eligible employees.
6E. Share Ownership
As of December 31, 2002, our directors and senior managers beneficially
owned an aggregate of 2,326,991 or 1.28%, of our outstanding ordinary shares.
No individual director or senior manager beneficially owns 1% or more of our
outstanding ordinary shares.
As of December 31, 2002, our senior managers, in the aggregate, held
options under the 1998 and 2000 Employee Stock Option Plans to purchase up to
1,533,578 of our ordinary shares. No individual senior manager holds options to
purchase 1% or more of our outstanding ordinary shares. 957,870 of these
options have an exercise price of $0.343 and will expire after the eighth
anniversary date of the commencement of the vesting schedule with respect to
the options, subject to earlier expiration upon the termination of the
option-holder's employment under certain circumstances. The remaining 575,708
of these options have an exercise price of the fair market value of our
ordinary shares on the date preceding the date on which the option was granted
and will expire nine years from the date of the option grant, subject to an
earlier expiration upon the termination of the option-holder's employment under
certain circumstances. The exercise price for the remaining options ranges
between NIS 20.45 and NIS 22.23. The fair market value, with respect to such
remaining options, was determined on the basis of the average of the closing
sale price of ordinary shares during the 30 trading days preceding the granting
date.
1998 Employee Stock Option Plan
Our board of directors adopted the 1998 Employee Stock Option Plan, or the
Plan, to promote the interests of Partner and its shareholders by providing our
senior management and other
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employees with appropriate incentives and rewards to encourage them to enter
into and continue in the employ of Partner and to acquire a proprietary
interest in our long-term success.
The Plan currently authorizes the issuance of options to purchase up to
5,104,168 ordinary shares. As of December 31, 2002, we had granted (excluding
options granted but subsequently cancelled) options to purchase 2,225,388
ordinary shares at an exercise price of $0.343 per share or at fair market
value, as described above. In addition, options to purchase 2,706,334 ordinary
shares had been exercised under the Plan. In April 2002, the Board of Directors
resolved that options to be allocated under the Plan may be issued under the
same terms and conditions of the 2000 Plan, including their exercise price,
vesting schedule and expiration period, as shall be determined by the Board of
Directors from time to time.
Upon the occurrence of any merger, consolidation, reorganization,
recapitalization or similar event, or other substantially similar corporate
transaction or event, we are required to make such equitable changes or
adjustments necessary to the number of shares subject to each outstanding
option in order to prevent dilution or enlargement of the option holders'
rights.
The Plan is administered by an Employee Stock Option Committee of the
Board of Directors. Subject to the restrictions of the Companies Law, the
Employee Stock Option Committee is authorized, among other things, to exercise
all the powers and authorities either specifically granted to it under the Plan
or necessary or advisable in the administration of the Plan including the
authority in its discretion to determine the persons to whom options are
granted, the number of shares covered by each option, the time or times at
which options are granted, the exercise price for options, and any other terms
to be included as part of the option grant. The Employee Stock Option Committee
also has the power and authority to determine whether, to what extent, and
under what circumstances an option may be settled, canceled, forfeited,
exchanged, or surrendered; to construe and interpret the Plan and any agreement
granting an option; and to make all other determinations deemed necessary or
advisable for the administration of the Plan.
In accordance with Section 102 of the Israeli Income Tax Ordinance (New
Version), 1961 and regulations promulgated thereunder, the options and the
shares to be issued upon the exercise of options, which were granted prior to
December 31, 2002, will be held for the benefit of the option holders by a
trustee who will hold the outstanding options and any shares issued upon
exercise of the options in trust on behalf of each participant for a period of
not less than two years from the date an option is issued to the Trustee on
behalf of such employee.
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In December 2002, we entered into an agreement with the Israeli tax
authorities concerning the tax liabilities of our employees resulting from the
benefit arising from the options granted to them under the Plan. According to
the agreement, the individual tax rate on the taxable income received by the
employees in connection with the benefit arising from the options will be
reduced. In exchange, the Company will defer the deduction of such taxable
income as an expense, for a period of four years from the date it commences
paying income taxes.
The
agreement applies only to employees who have joined the agreement and
relates to (1)
options that are exercised by December 31, 2002 and/or (2) options that vest
by December 31, 2003 and are exercised by March 31, 2004.
In each case, the trustee must have held the options for a period of 24 months
from the date on which they
were granted. See Note 9(d) to our consolidated financial statements.
An option shall be exercised upon the instruction of an option holder to
the Trustee. Twenty percent of each option shall become vested on each of the
first, second, third, fourth and fifth anniversaries of the date the holder of
that option has commenced his or her employment with Partner, unless another
date for the commencement of the vesting schedule with respect to such option
has been set by the Employee Stock Option Committee. The option holder may
exercise all or part of his options at any time after the date of vesting but
not later than the eighth anniversary date of commencement of the vesting
schedule with respect to the option.
If an option holder's employment with Partner is terminated because of his
willful and continued failure to perform his duties and obligations to Partner
or his willful engaging in misconduct injurious to Partner such that, in each
case, the actions or omissions of the participant are sufficient to deny the
participant severance payment under the Israeli Severance Payment Law, 1963,
his options will expire upon termination of employment. If an option holder's
employment with Partner is terminated by Partner for any other reason, he may
exercise his vested options during the remainder of their exercise period. If
an option holder's employment is voluntarily terminated by the option holder,
he may exercise his vested options during the 90 day period following the later
of the date of termination and the date upon which the resulting shares may be
freely sold. If an option holder's employment with Partner is terminated as a
result of the retirement, death or disability of the option holder, he may
exercise his vested options and the pro rata portion of options scheduled to
vest in the year of termination during the remainder of their exercise period.
The Board of Directors may, at any time and from time to time, terminate
or amend the Plan in any respect, subject to any applicable approvals or
consents that may be otherwise required by law, regulation or agreement, and
provided that no termination or amendment of the Plan shall adversely affect
the terms of any option which has already been granted.
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2000 Employee Stock Option Plan
Our board of directors adopted a second employee stock option plan, the
2000 Employee Stock Option Plan, or the 2000 Plan, to promote our interests and
those of our shareholders by providing our employees with appropriate
incentives and rewards to encourage them to enter into and continue in our
employ and to acquire a proprietary interest in our long-term success.
The 2000 Plan authorizes the issuance of options to purchase up to
4,472,222 ordinary shares. As of December 31, 2002, we had granted (excluding
options granted but subsequently cancelled) options to purchase 4,385,722
ordinary shares at an exercise price of the fair market value of our ordinary
shares on the date preceding the date on which the option is granted. The fair
market value is determined on the basis of the average of the closing sale
price of ordinary shares during the 30 trading days preceding the granting
date. As of December 31, 2002, no options to purchase ordinary shares had been
exercised under the 2000 Plan.
Upon the occurrence of any merger, consolidation, reorganization or
similar event, or other substantially similar corporate transaction or event,
we are required to make such equitable changes or adjustments necessary to the
number of shares subject to each outstanding option in order to prevent
dilution or enlargement of the option holders' rights.
The 2000 Plan is administered by an Employee Stock Option Committee of the
Board of Directors. Subject to the restrictions of the Companies Law, the
Employee Stock Option Committee is authorized, among other things, to exercise
all the powers and authorities either specifically granted to it under the 2000
Plan or necessary or advisable in the administration of the 2000 Plan including
the authority in its discretion to determine the persons to whom options are
granted, the number of shares covered by each option, the time or times at
which options are granted, the options exercise price and any other terms to be
included as part of the option grant. The Employee Stock Option Committee also
has the power and authority to determine whether, to what extent, and under
what circumstances an option may be settled, canceled, forfeited, exchanged, or
surrendered; to construe and interpret the 2000 Plan and any agreement granting
an option; and to make all other determinations deemed necessary or advisable
for the administration of the 2000 Plan.
In accordance with Section 102 of the Israeli Income Tax Ordinance (New
Version), 1961 and the regulations promulgated thereunder, the options and the
shares to be issued upon the exercise of options, which were granted prior to
December 31, 2002, will be held for the benefit of the option holders by a
trustee who will hold the outstanding options and any shares issued upon
exercise of the options in trust on behalf of each participant for a period of
not less than two years from the date an option is issued to the Trustee on
behalf of such employee.
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An option shall be exercised upon the instruction of an option holder to
the Trustee. Twenty five percent of each option shall become vested on each of
the first, second, third and fourth anniversaries of the date the holder of
that option commenced his or her employment with us, unless another date for
the commencement of the vesting schedule with respect to such option has been
set by the Employee Stock Option Committee. The option holder may exercise all
or part of his options at any time after the date of vesting but no later than
the expiration of the exercise period, which will be fixed by the Employee
Stock Option Committee and will not exceed ten years from the date of option
grant.
If an option holder's employment with us is terminated because of his
willful and continued failure to perform his duties and obligations to us or
his willful engaging in misconduct injurious to us such that, in each case, the
actions or omissions of the participant are sufficient to deny the participant a severance payment
under the Israeli Severance Payment Law, 1963, his options will expire upon
termination of employment. If an option holder's employment with us is
terminated by us for any other reason, he may exercise his vested options
during the remainder of their exercise period. If an option holder's employment
is voluntarily terminated by the option holder, he may exercise his vested
options during the 90 day period following the later of the date of termination
and the date upon which the resulting shares may be freely sold. If an option
holder's employment with us is terminated as a result of the retirement, death
or disability of the option holder, he may exercise his vested options and the
pro rata portion of options scheduled to vest in the year of termination during
the remainder of their exercise period.
The Board of Directors may, at any time and from time to time, terminate
or amend the 2000 Plan in any respect, subject to any applicable approvals or
consents that may be otherwise required by law, regulation or agreement, and
provided that no termination or amendment of the 2000 Plan shall adversely
affect the terms of any option which has already been granted.
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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7A. Major Shareholders
The following table sets forth certain information with respect to the
beneficial ownership of our ordinary shares as of December 31, 2002 with
respect to each person who we believe to be the beneficial owner of 5% or more
of our ordinary shares. Except where otherwise indicated, we believe, based on
information furnished to us by the principal shareholders, that the beneficial
owners of the ordinary shares listed below have sole investment and voting
power with respect to such ordinary shares. None of our major shareholders has
any different voting rights than any other shareholder.
Number of
Percent of
ordinary shares
outstanding
beneficially
ordinary shares
Name and address
owned
owned
Hutchison Whampoa Limited(1)
22/F Hutchison House
10 Harcourt Road
Central, Hong Kong
77,377,051
42.61
%
Elbit Ltd.(2)
3 Azrieli Center
42nd floor, Tel Aviv 67023
22,134,777
12.19
%
Eurocom Communications Ltd.(3)
2 Dov Friedman Street
Ramat Gan 52141
Israel
17,793,548
9.80
%
Matav-Cable Systems Media Ltd.(4)
42 Pinkas Street
Netanya 42134 Israel
13,494,539
7.43
%
(1)
Hutchison Whampoa Limited, a company listed on the Hong Kong Stock
Exchange and traded on the London Stock Exchange, owns Partner shares through
two indirect subsidiaries, Advent Investments Pte Ltd ("Advent") and Hutchison
Telecommunications (Amsterdam) B.V. ("HTA") which own 34.48% and 8.13%,
respectively, of the ordinary shares of Partner. Advent, incorporated in
Singapore, is an indirect wholly owned subsidiary of Hutchison Whampoa Limited,
through a chain of wholly owned subsidiaries as
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follows: Advent is owned by Amber International Holdings Inc., which is owned
by Hutchison Telecommunications Limited, which is owned by Hutchison
International Limited, which is owned by Hutchison Whampoa Limited. HTA,
incorporated in the Netherlands, is a wholly-owned subsidiary of Hutchison
Whampoa Limited through a chain of wholly-owned subsidiaries (unless specified
otherwise) as follows: HTA is owned by Hutchison 3G Europe Investments
S.a.r.l., which is owned by Hutchison Whampoa Europe Investments S.a.r.l.,
which is 98.98%, 0.51% and 0.51% owned by Auditorium Investments 1 S.a.r.l.,
Auditorium Investments 2 S.a.r.l. and Auditorium Investments 3 S.a.r.l.
respectively, all of which are owned by New Millennium Corp., which is owned
by Ommaney Limited, which is owned by Hutchison Whampoa International (00/03)
Limited, which is owned by Hutchison Telecommunications Limited, which is
owned by Hutchison International Limited, which is owned by Hutchison Whampoa
Limited. By virtue of interests in relation to Hutchison Whampoa Limited,
Cheung Kong (Holdings) Limited, Li Ka-Shing Unity Holdings Limited, Li
Ka-Shing Unity Trustee Company Limited as trustee of The Li Ka-Shing Unity
Trust, Li Ka-Shing Unity Trustee Corporation Limited as trustee of The Li
Ka-Shing Unity Discretionary Trust and Li Ka-Shing as owner of more than one
third of the issued share capital of Li Ka-Shing Unity Holdings Limited are
each taken as interested in the Partner shares held by Hutchison Whampoa
Limited by virtue of the provisions of the Securities (Disclosure of
Interests) Ordinance, Cap. 396 of the laws of Hong Kong.
(2)
Elbit Limited owns Partner shares through its wholly owned subsidiary,
Elbit.COM Limited. Elbit Limited is wholly owned by Elron Electronic
Industries Ltd. The principal shareholders of Elron are Discount
Investment Corporation Ltd. ("DIC"), mutual and/or provident funds managed
by Bank Leumi ("Bank Leumi Group") and the Clal Insurance Group. DIC held
approximately 38.52% of the voting power of Elron. Bank Leumi Group and
the Clal Insurance Group, held approximately 8.39% and 2.69%,
respectively, of the voting power of Elron.
IDB Holding Corporation Ltd. ("IDBH") is the parent of IDB Development
Corporation Ltd. ("IDBD"), which in turn is the parent of DIC, which in turn
is the parent of PEC Israel Economic Corporation ("PEC"). The Recanati family
holds, through three private companies (the "Private Companies")
approximately 51.7% of the outstanding share capital and voting rights of
IDBH. The Private Companies may be deemed to be controlled by Oudi Recanati,
Leon Y. Recanati, Judith Yovel Recanati and Elaine Recanati. Elaine Recanati
is the aunt of each of Oudi Recanati, Leon Y. Recanati, and Judith Yovel
Recanati. Leon Y. Recanati and Judith Yovel Recanati are siblings and Oudi
Recanati is their cousin. Leon Y. Recanati is Chairperson of IDBH, IDBD and
DIC. These persons may be deemed to share the power to vote and dispose of
Elron's shares owned by DIC. On or about May 23, 2002, the Private Companies
signed an agreement to sell their approximately 51.7% of the share capital of
IDBH Ltd. to a group comprising Ganden Holdings Ltd., Ganden Investments IDB
Ltd., Maskit-Man Ltd. (a company owned by the Yitzhak and Ruth Manor family)
and Avraham Livnat Investments (2002) Ltd. The agreement is subject to the
fulfillment of conditions precedent and to the receipt of various approvals,
including approvals at the
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general meetings of the shareholders of the Private Companies, and to
approvals required by law. The agreement also contains various provisions
that make it possible for the Private Companies and the purchasers to cancel
the agreement.
(3)
Eurocom Communications Ltd. owns 9.92% of the ordinary shares of Partner.
Of these, it owns 9.80% directly, and an additional 0.12% indirectly
through its wholly owned subsidiary Tapuz Cellular Systems Ltd. Eurocom
Communications Ltd. is owned by Eurocom Holdings (1979) Ltd. (50.33%),
Shaul Elovitch (0.66%) and Arison Investments Ltd. (49%). Eurocom Holdings
(1979) Ltd. is owned by Shaul Elovitch (80% of the ordinary shares and 75%
of the management shares) and Joseph Elovitch (20% of the ordinary shares
and 25% of the management shares). Arison Investments Ltd. is a wholly
owned subsidiary of Arison Holdings (1998) Ltd. Arison Holding (1998) Ltd.
is owned by the late Ted Arison Trust for Shari Arison (33.74%), the late
Ted Arison Trust for Mickey Arison (25.3%), the late Ted Arison Trust for
Lin Arison (25.3%), Shlomo Nehama (14.88%), and by Arison Investments Ltd.
(0.77%).
(4)
Matav-Cable Systems Media Ltd. ("Matav"), a company quoted on Nasdaq and
listed in the Tel Aviv Stock Exchange, owns Partner's shares through its
wholly owned subsidiary, Matav Investments Ltd. Matav is owned by Dankner
Investments Ltd. (47.74% equity, 49.96% voting), Ma'ariv Electronic
Communications (15.09% equity, 15.79% voting) and by its directors and
officers (as a group, 12.65% equity, 13.67% voting). The remaining 20.07%
of the shares in Matav are held by the public. Dankner Investments is a
publicly held company, whose securities are traded on the Tel Aviv Stock
Exchange, controlled by members of the Dankner and Gineo families (who
collectively hold approximately 88.08% of Dankner Investments' issued
share capital). Members of the Dankner and Gineo families are parties to
the shareholders agreement in Dankner Investments, concerning the voting
of their respective shares in coordination with the parties to the
agreements. Each member of the Dankner and Gineo families who is a party
to the Dankner Investments shareholders' agreement could be deemed to be
beneficial owners of all of the shares of Matav owned by Dankner
Investments, but they disclaim beneficial ownership of such shares. On
July 30, 1998, Dankner Investments reached an agreement with Mr. Hanania
Gibstein, Mr. Shimon Cheifetz and Mr. Eli Cheifetz all shareholders of
Matav, according to which Mr. Gibstein and Messrs. Cheifetz agreed not to
sell their shares in Matav without the consent of Dankner Investments.
Dankner Investments agreed not to sell its shares in Matav without
allowing Mr. Gibstein and Messrs. Cheifetz to take part in the sale and
Mr. Gibstein and Messrs. Cheifetz agreed to join the sale of all or most
of Dankner Investment's shares of Matav. This agreement is subject to the
Matav Shareholders' Agreement. In July 2002, the parties to the Matav
Shareholders Agreement entered into an agreement amending the Matav
Shareholders Agreement (the "Amendment"). Under the Amendment, Ma'ariv
ceased to be a party to the Matav Shareholders Agreement and has no right
or obligation in connection with the Matav Shareholders Agreement or the
Amendment. In Addition, pursuant to the Amendment, if Messrs. Cheifetz
shall not have a right to nominate a director to the Board of Directors of
Matav, on account of the number of original shares held by him, the
parties shall act to nominate a director to the Board of Directors
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of Matav designated by Messrs. Cheifetz, provided that the number of original
shares held by Messrs. Cheifetz shall be at least 60% of the number of
original shares required in order to have a right to nominate one director of
Matav. Dankner Investments shall not be obligated to act according to the
above, if as a result the number of directors of Matav nominated by Dankner
Investments shall not constitute the majority of directors of Matav (the
director designated by Messrs. Cheifetz shall not be considered a director
nominated by Dankner Investments).
Before our October 1999 initial public offering, the ownership of our
outstanding ordinary shares by our founding shareholders, on a percentage
basis, was as follows: Matbit Telecommunication Systems Ltd. owned 33.066%;
Matav Investments Ltd. owned 3.76%; Advent Investments Pte Ltd. owned 46.674%;
and Tapuz Cellular Systems Limited Partnership owned 16.5%. In January 2002,
Tapuz Cellular Systems Limited Partnership was dissolved and its holdings in
Partner were transferred to its limited partners, Eurocom Communications Ltd.,
Polar Communications Ltd. and Tapuz Cellular Systems Ltd., a wholly owned
subsidiary of Eurocom, pro rata their previous interests in the partnership. On
April 24, 2002 Matav Investments Ltd. sold to Hutchison Telecommunications
(Amsterdam) BV, an indirect wholly owned subsidiary of Hutchison Whampoa
Limited, 5,044,667 ordinary shares of Partner and Matbit Telecommunication
Systems Ltd. sold to Hutchison Telecommunications (Amsterdam) BV 8,734,001
ordinary shares of Partner, which aggregate number of 13,778,668 ordinary
shares comprise approximately 7.7% of Partner's issued share capital. On
December 2, 2002, the holdings of Matbit Telecommunication Systems Ltd. in
Partner were transferred to its shareholders, Elbit.COM Ltd. and Matav
Investments Ltd., pro rata to their previous interest in Matbit
Telecommunication Systems Ltd. During 2002, two of our shareholders, MFS
Investments Management and T. Rowe Price Associates, Inc., who had previously
held 7.22% and 5.70% of our ordinary shares, reduced their holdings to less
than 5% each. There have been no other significant changes in the ownership of
our outstanding ordinary shares, on a percentage basis, by our major
shareholders since our inception.
On December 31, 2002, 16,782,299 ADSs (equivalent to 16,782,299 ordinary
shares or approximately 9.24% of the total outstanding ordinary shares) were
outstanding and held of record by 21 registered holders in the United States.
Additionally, at December 31, 2002, there were approximately nine holders of
record of our ordinary shares. Of these holders, none had a registered address
in the United States, although certain accounts of record with registered
addresses other than in the United States may hold our ordinary shares, in
whole or in part, beneficially for United States persons. We are aware that
many ADSs and ordinary shares are held of record by brokers and other nominees
and accordingly the above numbers are not necessarily representative of the
actual
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number of persons who are beneficial holders of ADSs and ordinary shares, or
the number of ADSs and ordinary shares beneficially held by such persons.
As far as we know, we are not directly or indirectly owned or controlled
by another corporation or by any government, and there are no arrangements that
might result in a change in our control.
7B. Related Party Transactions
Relationship Agreement
Our founding shareholders and Elbit.COM Limited entered into a
Relationship Agreement in relation to their direct and indirect holdings of our
shares and the rights associated with such holdings. The Relationship Agreement
replaced all existing agreements between our founding shareholders and
Elbit.COM Limited. When one of our founding shareholders, Tapuz, was dissolved
in January 2002 and its holdings in Partner were distributed to its limited
partners, who are Eurocom Communications Ltd., Polar Communications Ltd. and
Tapuz Cellular Systems Ltd., these limited partners became parties to, and
assumed Tapuz's rights and obligations under, the Relationship Agreement. The
Relationship Agreement was amended on April 23, 2002, concurrently with the
sale of shares in Partner indirectly owned by Matav-Cable Systems Media Ltd. to
Hutchison Telecommunications (Amsterdam) BV.
Foreign mobile radio telephone operator
The parties to the Relationship Agreement have agreed that a parent of
Advent will continue to be a controlling corporation of a foreign mobile radio
telephone operator as required by our license, for so long as this is required
by our license. See also "Item 4B. Information on the Company—Business
Overview—Regulation—Our License."
Board composition
Pursuant to the Relationship Agreement, our Board shall comprise a minimum
of seven and a maximum of sixteen directors, including at least two independent
directors. If more independent directors are required by law or by any of the
stock exchanges on which our shares are to become listed, the number of
independent directors and size of the board will be increased accordingly.
Currently our board consists of 17 directors of whom seven were nominated by
Advent, one by Hutchison Telecommunications (Amsterdam) BV, two by each of
Matav Investments Limited, Elbit.COM Limited and Eurocom Communications, plus
three independent directors.
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The Relationship Agreement contains detailed provisions whereby the number
of directors that each of the "nominating parties," who are Advent, Hutchinson
Telecommunications (Amsterdam) BV, Matav Investments Ltd., Elbit.COM Limited,
Eurocom Communications Ltd. and Polar Communications Ltd., may nominate, may be
reduced if a nominating party disposes of some or all of its shares, depending
on the remaining percentage of shares held by the nominating party. In addition
the nominating parties may transfer some or all of their rights to nominate
directors to a "strategic investor," i.e. a person, including a nominating
party, who already has, or will have as a result of a simultaneous transfer of
our shares, at least 4.99% of our shares acquired from one of the nominating
parties in a single transaction.
Two of our founding shareholders, Matav Investments Ltd. and Eurocom
Communications Ltd., are not currently required by the Relationship Agreement
to vote for the board nominations of the nominating parties under the
Relationship Agreement. Matav Investments Ltd. and Eurocom Communications Ltd.
will be required to vote for these nominations if and when an undertaking to do
so will not, under Bank of Israel rules, limit our ability to borrow from any
bank participating in our credit facility. In addition, if Matav Investments
Ltd. or Eurocom Communications Ltd. sells Partner shares together with the
right to nominate a director, the acquirer will be required under the
Relationship Agreement to undertake to vote for the board nominations provided
this undertaking would not subject Partner to the borrowing limitations
described above. See also "—Term and Termination."
To the extent the operation of the above provisions results in our Board
size decreasing below 16 but not below seven, no additional directors will be
appointed. If the Board falls below seven directors then additional directors
are to be appointed to make it up to seven and none of our principal
shareholders will have any special rights to nominate such extra directors. In
addition, to the extent the right to nominate directors is assigned from one
person to another, the assignment may only take place if the assignor can
produce evidence that the assignment will not breach our license or the terms
of our credit facility and that all necessary approvals have been obtained, and
if the assignee agrees to be bound by the Relationship Agreement and other
applicable agreements between the shareholders and, where appropriate, produces
a guarantee from a suitable parent company.
There are special provisions which enable Hutchison Telecommunications
(Amsterdam) BV to assign its right to nominate one director to a person who
purchases all of the Partner shares it acquired directly from Matav Investments
Ltd. In addition, if Advent disposes of shares such that its holding differs
from the aggregate holding of the Israeli nominating parties by less than 4.99%
then Advent, if required by the Relationship Agreement, will reduce its
nominees to the board so that the
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number of Advent nominees is the same as the number of nominees of the Israeli
nominating parties taken together.
The agreement also provides that if a party or certain affiliates of a
party become involved in a tender for, or for an interest in, a mobile cellular
telecommunications license in Israel other than the licenses held by Cellcom or
Pelephone, the rights of any directors nominated by such party to attend and
vote at Board meetings may be suspended and, if necessary, they may be removed
from our Board. These provisions do not restrict the activities of Polar
Investment Limited or Polar Communications Limited so long as these entities do
not have nominees on our Board, and the existing interests of the IDB Group in
Cellcom, as these may change in the future with Ministry of Communications'
approval, are also exempted.
All of the above provisions are subject to compliance by our principal
shareholders with the provision of our license which conditions the agreement
of the Ministry of Communications not to cancel our license for certain
breaches upon the principal shareholders retaining at least 51% of each means of control for so long
as this condition of the Ministry of Communications remains in effect.
Chairman
For so long as Advent holds at least 25% of our shares and no other party
to the Relationship Agreement holds more of our shares, Advent is entitled to
nominate the chairman of the Board, who will be one of Advent's nominated
directors.
Executive Committee
In view of the size of our Board, day-to-day management is delegated to an
Executive Committee of the Directors initially comprising three representatives
of Advent and one representative of each of Matav Investments Limited,
Elbit.COM Limited and Eurocom, plus two independent directors. However, a
shareholder is not entitled to a greater number of representatives on the
Executive Committee than it has on the Board. The first chairman of the
Executive Committee is Khoo Chek Ngee.
Chief Financial Officer
For so long as Advent holds at least 25% of our shares, it is entitled to
nominate the Chief Financial Officer who will be appointed, subject only to the
approval of a majority of the directors, other than those appointed by Advent,
including at least one director representing each of the other nominating
parties. This approval will not be unreasonably withheld or delayed by the
directors
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nominated by nominating parties. While Advent holds at least 25% of our shares
it is also entitled to remove the CFO from office, as may the directors, other
than Advent's nominees, so long as they act unanimously, on reasonable grounds
and in consultation with Advent and the Chief Executive Officer.
Restrictions on Directors
The Relationship Agreement contains restrictions on any shareholder that
is an "interested party," as defined in our license, which has holdings in
Cellcom (Israel) Limited, nominating or acting as one of our directors. These
restrictions are intended to ensure compliance with our license and our permit
regarding cross ownership issued to us by the Ministry of Communications.
Those principal shareholders which are Israeli entities may only nominate
citizens and residents of Israel to act as their representative directors. The
representatives nominated by Advent or other non-Israeli shareholders must
include a sufficient number of citizens and residents of Israel so as to ensure
that the majority of members of the Board are citizens and residents of Israel,
for so long as this is required by our license.
Transfer of shares
Other than a requirement to comply with our license and permit and the
terms of our credit facility and to obtain all necessary consents, our
principal shareholders' freedom to transfer their shares is not restricted by
the Relationship Agreement. This is subject to (a) our principal shareholders'
minimum 51% holding (or such other percentage as is specified in our License);
(b) special provisions in relation to transfers by Tapuz to its partners, as
occurred in January 2002; and (c) "tag-along" provisions described below in
relation to transfers by Advent. For the requirements of our license and
permit, see "Item 4B. Information on the Company—Business
Overview—Regulation—Our License—License Conditions" and "Item 4B.
Information on the Company—Business Overview—Regulation—Our Permit Regarding
Cross Ownership." For the terms of our credit facility, see "Item 5B. Operating
and Financial Review and Prospects—Liquidity and Capital Resources."
Minimum 51% threshold
The Ministry of Communications has notified us that it will not terminate
our license as a result of certain breaches which might otherwise be caused
when our ADSs are publicly traded, as long as our principal shareholders retain
an aggregate of 51% of the means of control of Partner. See "Item 3D. Key
Information—Risk Factors—Our telecommunications license imposes certain
restrictions on
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who can own our shares. If these restrictions are breached, we could lose our
license" and "Item 4B. Information on the Company—Business
Overview—Regulation—Our License". In addition to the requirement noted above
in relation to Board composition, the Relationship Agreement requires that our
principal shareholders retain 51% of our shares (or such other percentage as is
specified in our License).
Tag-along with transfers by Advent
If Advent disposes of 4.99% or more of our shares in one transaction or a
series of transactions within any six month period, the other principal
shareholders have the right to "tag-along" by requiring that some of their own
shares be bought instead of an equivalent number of Advent's shares. The number
of shares which the other principal shareholders may sell shall in aggregate be
at most one half of the number of shares Advent proposes to transfer. The
tag-along rights do not apply to:
•
the first transfer by Advent of at least 4.99% of our shares where it
also assigns the right to nominate a director,
•
transfers within the Hutchison Whampoa Limited group provided the
transferee adheres to the Relationship Agreement,
•
transfers pursuant to the Registration Rights Agreement, or
•
transactions effected on an investment exchange on which our
securities are or may become listed.
The tag-along rights expire five years after the date of the Relationship
Agreement or if Advent's shareholding falls below 15% of our shares.
Compulsory transfer in the event of default
If a party to the Relationship Agreement commits certain events of default
described in the agreement, then our Board, minus the representatives of the
defaulting party, may require the defaulting party to offer its shares to the
other parties on a pre-emptive basis. Events of default for this purpose
include a breach of the Relationship Agreement which has a material adverse
effect on Partner, any voluntary or involuntary liquidation, various
insolvency-related events, a party ceasing to carry on business or a breach of
the terms of our credit facility which has a material adverse effect. In the
case of breaches of the Relationship Agreement, the offending shareholder is
penalized in that
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the price at which the shares are to be offered will be market value less a
17.5% discount. Disputes in relation to events of default are to be resolved by
arbitration.
Compliance with our license
The parties to the Relationship Agreement have agreed that they and we
shall at all times comply with the terms of our license. In addition, Elbit.COM
Limited has undertaken to use its best efforts to ensure that its parent,
Elbit, and its associates and any person mentioned in the cross-holdings permit
issued by the Ministry of Communications shall undertake to comply with any
applicable conditions of that permit and the relevant terms of our license.
Each Israeli party to the Relationship Agreement has undertaken to maintain
such portion of the shares as is necessary to ensure that at least 20% of the
shares are held by citizens and residents of Israel. Advent has undertaken to
maintain at least 25% or any other level required by our license for so long as
this is required by our license. See "Item 4B. Information on the
Company—Business Overview—Regulation—Our License—License Conditions."
Other undertakings
Each party has undertaken to exercise its rights as a shareholder or
through its appointees to the Board to ensure that our affairs are conducted in
accordance with the Relationship Agreement, our license and those documents
connected with the credit facility to which it is a party. In particular, the
parties have agreed to procure that we shall not issue any shares or securities
convertible into shares unless, following such issuance, we will be in
compliance with the share pledge requirement in our credit facility.
Guarantees
The obligations of each party to the Relationship Agreement are, unless
the party itself has net assets of $50 million or more, to be guaranteed by
their respective parent companies.
•
Hutchison Telecommunications Limited guarantees the obligations of
Advent Investments Pte Limited and Hutchison Telecommunications
(Amsterdam) BV;
•
Matav-Cable Systems Media Limited guarantees the obligations of Matav
Investment Limited.
•
Elbit Limited guarantees the obligations of Elbit.COM Limited;
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•
Eurocom Communications Limited guarantees the obligations of Tapuz
Cellular Systems Limited; and
•
Eurocom Holding (1997) Limited guarantees the obligations of Eurocom
Communications Limited.
Term and termination
The Agreement continues in full force and effect until we are wound up.
However, the agreement may be terminated if there is an insolvency event in
relation to us. The agreement will terminate in relation to any individual
party after it ceases to hold any share beneficially. For so long as the shares
are pledged, a transfer of 50% or more of the shares held by our principal
shareholders made as part of the foreclosure of such pledges will also cause
the agreement to terminate.
In addition, the undertaking of the parties to the Relationship Agreement,
other than Matav Investments Ltd. and Eurocom Communications Ltd., to vote for
the board nominations of the nominating parties under the Relationship
Agreement will terminate if those parties cease to hold, in the aggregate, (i)
more than 50% of our shares or, (ii) if we offer additional shares to the
public, shares which constitute at least that percentage of our shares which
they held immediately following such offering.
The Supplemental Agreement
Upon the sale of shares in Partner beneficially owned by Matav-Cable
System Media Ltd. to Hutchison Telecommunications (Amsterdam) B.V. on April 24,
2002, a Supplemental Agreement entered into between Matbit Telecommunication
Systems Ltd., Matav Investments Ltd., Elbit.COM Ltd., Advent Investments Pte
Ltd., Hutchison Telecommunications (Amsterdam) B.V., and Matav-Cable Systems
Media Ltd. took effect.
Pursuant to the Supplemental Agreement, Matav Investments Ltd. undertook
that it will not, and that it will use its best efforts to procure that none of
its affiliates will, take any action or allow any event to occur, which would
cause us to become obliged, under the applicable rules of the Bank of Israel restricting loans to related
parties, to repay amounts to, or alter the terms of any existing or subsequent
credit facility with, any bank on terms substantially different from those
applicable to other banks participating in such facility or on terms which
would not apply were it not for the application of such rules. Matav-Cable
Systems Media Ltd. guaranteed the performance of Matav Investments Ltd.'s
obligations set forth in the Supplemental Agreement or arising in connection
with the Supplemental Agreement.
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If Matav Investments Ltd., in breach of its undertaking, causes us to
become obliged as mentioned above under the rules of the Bank of Israel, our
Board of Directors, excluding the representatives of Matav Investments Ltd.,
may require Matav Investments Ltd. to sell the amount of shares that our Board
of Directors determines must be sold, at a price per share equal to 82.5% of
the Market Price, as determined in the Relationship Agreement, in accordance
with the provisions of the Relationship Agreement, in addition to, or as an
alternative, to take such other actions as our Board of Directors and Matav
Investments Ltd. agree will remedy the breach.
Transactions with affiliates
We currently operate under an unwritten arrangement with Eurocom
Communications Ltd., one of our principal shareholders, pursuant to which
Eurocom sells our services or distributes handsets in connection with their
sale of Nokia handsets in twelve outlets. Eurocom receives a commission for the
activation of each handset that it sells to customers as one of our
distributors and for the logistical support related to the supply of handsets.
We also purchase a portion of our Nokia handsets from Eurocom. In the year
ended December 31, 2002, purchases from Eurocom constituted approximately 28%
of all of our handset purchases.
We believe that our distribution arrangement and handset purchases from
Eurocom are on commercial, arms-length terms.
In addition, we have agreements with Eurocom Cellular Communication Ltd.,
a subsidiary of Eurocom Communications Ltd., according to which Eurocom will
provide us with various content and interactive games and the right to use
certain intellectual property.
We have an agreement with Cellact Ltd., a subsidiary of Elbit Ltd.,
according to which Cellact is directly connected to our SMS server so that
Cellact may send large amounts of SMSs to our subscribers and vice-versa.
We have signed an agreement with NonStop Internet 1999 Limited, or
NonStop, a subsidiary of Matav-Cable Systems Media Ltd., one of our
shareholders. This agreement is part of a series of similar agreements with
other providers of content and services, and is in the ordinary course of
business. The agreement will not have a significant financial impact on us. In
June 2001, NonStop assigned all of its rights and obligations under this
agreement to Matav. In December 2001, we agreed with Matav to terminate the
agreement, which termination was effective on February 26, 2002.
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We have a strong relationship and are working with Hutchison Whampoa
Limited, one of our principal shareholders, in connection with the development
of products and services for UMTS third generation mobile communications.
Hutchison is a global leader in UMTS third generation technology and, in
particular the deployment and development of third generation cellular networks
and products and services worldwide.
In August 2002, we signed a Cost-Sharing Agreement, or the CSA, with
Hutchison Telecommunications Limited, or HTL, and certain of its subsidiaries
for the joint acquisition and development of information technology platforms
and software solutions, hardware, content and other services, in connection
with the UMTS third generation business.
The CSA allows us to participate in acquisition and development projects
with other UMTS third generation companies within the Hutchison Whampoa Limited
group, and to benefit from the combined purchasing power and resources of the
group which includes companies in Austria, Australia, Denmark, Hong Kong,
Ireland, Italy, Sweden and the United Kingdom.
As of December 31, 2002, we had given notice of our participation in four
joint contracts. We expect that our share in these contracts in financial terms
(including our share of joint expenses and liabilities) is not material.
We believe that the CSA gives us an advantage unavailable to our
competitors. The CSA gives us an opportunity to maximize economies of scale and
operational efficiencies for development and procurement activities associated
with our 3G business. See Note 14(c) to our consolidated financial statement.
For more information, see "Item 3D. Risk Factors—Risks and uncertainties
in connection with UMTS third generation technology mean that we may not make
an economic return on investment in acquiring UMTS third generation spectrum,
establishing a UMTS third generation network, or developing UMTS third
generation services".
In December 2002, we signed an Interconnect Agreement with Matav-Cable
Systems Media Ltd. See "Item 4B. Business Overview—Interconnection".
Certain of our directors, who are also controlling persons of our
principal shareholders, are also, indirectly, part of the controlling group of
shareholders of Bank Hapoalim B.M., which is a participating bank in our credit
facility. For a description of our credit facility, see "Item 5B. Operating and
Financial Review and Prospects—Liquidity and Capital Resources."
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Foreign mobile radio telephone operator undertaking
Our license requires a foreign mobile radio telephone operator to
undertake to make available to us, if we request it, all know-how in its
possession required to establish and operate a mobile radio telephone system
for the provision of mobile radio telephone communications services, their
marketing and sale. By virtue of Advent's parent corporation being the
controlling corporation of Hutchison Telephone Company Limited, this operator
currently provides this undertaking, under which the know-how is to be provided
to us, if requested, at market prices and on arms-length terms. If Advent's
parent ceases to be the controlling corporation of Hutchison Telephone Company
Limited, Advent's parent corporation will arrange an appropriate alternative
foreign mobile radio telephone operator to provide the required undertaking.
Registration rights
We have entered into a registration rights agreement with our principal
shareholders in which we granted our principal shareholders the right to
require us to register ordinary shares held by them under the Securities Act.
We have agreed that, upon request from any of our principal shareholders, which
request could not have been made until October 26, 2000, we will file a
registration statement under the Securities Act to register ordinary shares
held by them, subject to a maximum of one request in any 6-month period. There
is no limit to the number of registrations that can be requested under the
agreement. The minimum amount of shares that must be included in any
registration requested under this agreement is 2.65% of our outstanding shares.
We have also granted each of the principal shareholders the right to include
their ordinary shares in any registration statement covering offerings of
ordinary shares by us. The registration rights agreement will terminate with
respect to each holder upon the earlier of October 26, 2009 and such time as
the holder can sell its ordinary shares into the United States public market
pursuant to an exemption from the registration requirements of the Securities
Act without regard to holding period, volume or manner-of-sale limitations.
7C. Interests of Experts and Counsel
Not applicable.
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ITEM 8. FINANCIAL INFORMATION
8A. Consolidated financial statements and other financial information
Audited financial statements for the three fiscal years ended December 31,
2002 are included under "Item 18. Financial Statements."
Legal and arbitration proceedings
In addition to the legal proceedings discussed below, we are party to a
number of legal and administrative proceedings arising in the ordinary course
of our business. We do not expect the outcome of such matters in the aggregate
to have a material adverse effect upon our business and financial condition,
results of operations and cash flows.
We have experienced difficulties in obtaining building permits from local
authorities for the erection of antennas, particularly before the signing of
the agreement in principle with the Union of Local Authorities in Israel. As a
result, we, like other mobile telephone operators in Israel, have erected
antenna sites without the issuance of a building permit from the relevant local
or regional authority. Currently, approximately 50% of our antenna sites are
operating without local building permits. In addition, approximately 36% of the
sites (base transceiver stations and microbase transceiver stations) are
operating without permits from the Ministry of the Environment, although all
third party environmental testing necessary for those permits has been
successfully completed. Moreover, a small percentage of antenna sites are
operating without permits from the Civil Aviation Authority and the Israeli
Defense Forces. Applications have been submitted to the relevant local or
regional authority and are at various stages of the approval process for
approximately 20% of our antenna sites, and the application process has not
been commenced for approximately 30% of our sites. We believe that a
portion of the
sites for which the application process has not been commenced do not require
building permits under the Planning and Building Law. The erection of an
antenna site without a required local building permit is a violation of the
Planning and Building Law and, in some cases, has resulted in a demolition
order being imposed on us and in the filing of criminal charges and civil
proceedings by Israeli municipalities against us and our officers and
directors.
As of December 31, 2002, 235 criminal proceedings have been brought
against us concerning the erection of antenna sites without building permits.
127 of those proceedings have also been brought against our officers and
directors. 22 of those proceedings have been brought against us regarding
failure to comply with demolition orders, of which five have been brought
against our
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officers and directors and 19 have been settled. We are currently negotiating
with the relevant local authority to reach a settlement regarding the
relocation of affected sites or obtaining building permits for those sites. 199
of the criminal proceedings brought against us have been settled, with Partner,
but not our directors or officers, admitting guilt and paying a fine, ranging
from NIS 200 to NIS 48,000 per offense. The total amount of fines paid as of
December 31, 2002, is approximately NIS 1.8 million, with NIS 0.5 million of
that paid during 2000, NIS 0.3 million of that paid during 2001 and NIS 0.3
million of that paid during 2002. These settlements also resulted in the
imposition of demolition orders for the relevant sites, the execution of which
have been stayed for a period of time to allow us to obtain the necessary
permits or to relocate the relevant antenna site. 108 of the criminal
proceedings involving our officers and directors have been settled with no
admission of guilt by any of the officers and directors. In addition, currently
68 administrative demolition order proceedings have been brought against us. Of
these, 65 have been settled with the imposition of demolition orders, the
execution of which has been stayed for a period of several months to allow us
to obtain the necessary permits or to relocate the relevant antenna.
There can be no assurance that we will continue to be successful in
settling legal proceedings brought against us and our officers and directors or
that we will not be faced with demolition orders and criminal charges,
including against our officers and directors. See "Item 3D. Key Information—Risk Factors—We have had difficulties
obtaining some of the permits for which we have applied and have not yet
applied for other permits that are required for the erection of our antenna
sites. These difficulties could continue and therefore affect our ability to
erect or maintain antenna sites. This could have an adverse effect on the
extent, quality and capacity of our network coverage which could prevent us
from achieving or maintaining the network coverage and quality requirements
contained in our license and adversely affect our business."
On October 28, 1999, a lawsuit was filed by "Consumer Hotline," an Israeli
consumer organization, in the Haifa District Court alleging a variety of
consumer complaints against us and requesting recognition as a class action
lawsuit. On March 20, 2002, the Haifa District Court decided to strike the
claim because on December 31, 2001, Consumer Hotline lost the special status
required under Israeli law for consumer organizations to file class action
law-suits.
Another claim, involving a substantial amount, which was filed by a
private consumer who had previously asked to join the above class action, may
be brought again before the court. The court had previously frozen the
proceedings of the private consumer's claim, until a decision is made in the
case filed by the consumer organization. On June 20, 2002, legal counsel
representing the consumer organization informed the company of his intention to
resume these proceedings. At this stage, the Company and its legal counsel are
unable to evaluate the probability of success of the claims, if and
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when re-opened, and therefore no provision has been made. See note 8(b)1 to our
audited financial statements.
On July 8, 2001 a claim was filed against us for alleged violation of a
supplier's exclusivity agreement. For filing purposes, the claim was set at NIS
18 million; however, this amount can be increased by the claimant. Since
preliminary proceedings between the parties have yet to take place, and the
claim concerns a contract interpretation issue, the Company and its legal
counsel are unable to evaluate the probability of success of this litigation,
and therefore no provision has been made. See Note 8b(2) to our consolidated
financial statements.
On December 31, 2001, a claim was filed against us and other Israeli
telecommunication companies, together with a request to approve this claim as a
class action. The claim is for air time charged in respect of calls which were
terminated due to causes other than the termination of the call by the parties
thereto. The amount of the claim against us is estimated at approximately NIS
21 million. On January 2003, a mutually-agreed motion to strike out the claim
against the Company was granted by the court. See Note 8b(3) to our
consolidated financial statements.
On March 20, 2002, we received a demand from one of our former
distributors, mainly for an alleged violation of his distribution agreement and
understanding. The amount of the demand against us is set at NIS 130 million
for filing purposes, although the claimant states that his damages far exceed
the above amount. As of December 31, 2002, this demand has not been filed by
way of a legal claim. At this stage, the Company and its legal counsel are
unable to evaluate the probability of success of such a demand if filed by way
of legal claim, and the amount it claims, therefore no provision has been made.
See Note 8b(4) to our consolidated financial statements.
On April 8, 2002, a claim was filed against us, alleging a variety of
consumer complaints and requesting recognition as a class action. The amount of
the claim against us is estimated at approximately NIS 545 million plus
additional significant amounts related to other alleged damages. At this stage,
no hearings have taken place and until the claim is certified as a class
action, the Company and its legal counsel are unable to evaluate the
probability of success of such claim, and therefore no provision has been made.
In addition, the Company and its legal counsel are of the opinion that even if
the request to approve this claim as a class action is granted, and even if the
plaintiff's arguments are accepted, the outcome of the claim will be
significantly lower than the amount mentioned above.
On May 21, 2002, a claim was filed against the Company and other Israeli
telecommunication companies together with a request to approve this claim as a
class action. According to the
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applicants, the defendants have entered into agreements with commercial
entities that offer the public various content services via calls to cellular
telephone numbers. The applicants allege that, in fact, the calls are not
carried out through a wireless but via a fixed line, an act that is in
violation of the law and the license. Accordingly, the applicants claim that
the defendants must refund the public all the amounts that were charged in
connection with these content services agreements. The applicants do not know
the amount of the class action, but estimate it at NIS 600 million. At this
stage, no hearings have taken place, and until the claim is certified as a
class action, the Company and its legal counsel are unable to evaluate the
probability of success of such claim and therefore no provision has been made.
In addition, the Company and its legal counsel are of the opinion that in light
of the facts known at this early stage, the amount mentioned above of the claim
is excessive. See Note 8b(6) to our consolidated financial statements.
Dividend distribution policy
We have never paid cash dividends to our shareholders, and we currently do
not anticipate paying dividends for the foreseeable future. We expect that all
available cash from operations, together with borrowings under our credit
facility and a portion of the proceeds from our initial public offering and our
August 2000 offering of 13% senior subordinated notes due 2010, will be used to
meet our projected capital and other expenditure requirements and to settle or
refinance our projected liabilities as they fall due. In addition, the terms of
our credit facility restrict the amount of dividends we may pay to our
shareholders and the timing of dividend payments.
In the event we declare dividends in the future, we will pay those
dividends in shekels. Under current Israeli regulations, any dividends or other
distributions paid in respect of ordinary shares may be freely repatriated in
non-Israeli currencies at the rate of exchange prevailing at the time of
conversion, provided that Israeli income tax has been paid on or withheld from
such dividends. Because exchange rates between the shekel and the US dollar
fluctuate continuously, a holder of ADSs will be subject to currency
fluctuation generally and, particularly, between the date when dividends are
declared and the date dividends are paid.
8B. Significant changes
No significant change has occurred since the date of our financial statements.
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ITEM 9. THE OFFER AND LISTING
9A. Offer and Listing Details
Our capital consists of ordinary shares, which are traded on the Tel
Aviv Stock Exchange under the symbol "PTNR". American Depositary Shares, or
ADSs, each representing one of the Company's ordinary shares are quoted on the
Nasdaq National Market under the symbol "PTNR" and are traded on the London
Stock Exchange under the symbol "PCCD". The ADSs are evidenced by American
Depositary Receipts, or ADRs, issued by JPMorgan Chase, as Depositary under a
Deposit Agreement, dated as of November 1, 1999, among the Company, JPMorgan
Chase and registered holders from time to time of ADRs. ADSs were first issued
in October 1999.
The table below sets forth, for the periods indicated, the reported
high and low closing quotations, based on the Daily Official List of the London
Stock Exchange, information supplied by the National Association of Securities
Dealers, Inc., and information supplied by the Tel Aviv Stock Exchange.
Tel Aviv Stock
Exchange**
Nasdaq
London Stock Exchange
(NIS per
($ per ADS)
($ per ADS)
ordinary share)
High
Low
High
Low
High
Low
Year Ended December 31,
1999*
Fourth Quarter (from October 27)
25.88
14.88
25.00
14.93
—
—
2000
23.13
4.13
22.50
4.13
—
—
First Quarter
23.13
14.25
22.50
14.83
—
—
Second Quarter
14.81
6.26
15.13
7.03
—
—
Third Quarter
10.00
7.50
10.05
7.43
—
—
Fourth Quarter
7.63
4.13
7.75
4.13
—
—
2001
7.13
3.50
7.10
3.53
37.85
17.73
First Quarter
7.13
4.25
7.10
4.25
—
—
Second Quarter
4.78
3.50
4.63
3.53
—
—
Third Quarter
6.80
3.89
6.95
4.15
37.85
17.73
Fourth Quarter
6.85
4.50
6.95
4.43
30.79
18.90
2002
7.55
3.55
7.38
3.78
33.92
17.26
First Quarter
7.55
4.70
7.38
4.70
33.92
21.29
Second Quarter
5.00
4.00
4.93
4.05
24.04
19.19
Third Quarter
4.77
3.86
4.68
3.88
22.53
18.51
Fourth Quarter
4.50
3.55
4.53
3.78
21.67
17.26
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'
*
Because our ADSs were first issued on October 26, 1999, the high and
low closing quotations for 1999 are the same as those for the Fourth
Quarter.
**
Our ordinary shares began trading on the Tel Aviv Stock Exchange on
July 3, 2001.
Previous Six Months
Tel Aviv Stock
Exchange**
Nasdaq
London Stock Exchange
(NIS per
($ per ADS)
($ per ADS)
ordinary share)
High
Low
High
Low
High
Low
September 2002
4.52
3.96
4.62
4.07
21.85
19.67
October 2002
4.50
3.92
4.43
3.88
21.67
18.52
November 2002
4.08
3.87
4.18
3.92
19.63
18.40
December 2002
4.19
3.55
4.18
3.78
19.95
17.26
January 2003
3.45
2.91
3.58
3.03
16.47
14.72
February 2003
2.97
2.56
2.98
2.68
14.30
12.45
9B. Plan of Distribution
Not applicable.
9C. Markets
Our ADSs are quoted on the Nasdaq National Market under the symbol
"PTNR" and are traded on the London Stock Exchange under the symbol "PCCD". Our
ordinary shares are traded on the Tel Aviv Stock Exchange under the symbol
"PTNR".
9D. Selling Shareholders
Not applicable.
9E. Dilution
Not applicable.
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9F. Expenses of the Issue
Not applicable.
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ITEM 10. ADDITIONAL INFORMATION
10A. Share Capital
Not applicable.
10B. Memorandum and Articles of Association
Purposes and objects of the company
We are a public company registered under the Israeli Companies Law as
Partner Communications Company Ltd., registration number 52-004431-4.
Pursuant to our memorandum of association, we were formed for the
purpose of participating in the auction for the granting of license to operate
mobile radio telephone services in Israel, to provide such services, and without
derogating from the above, we are also empowered to hold any right, obligation
or legal action and to operate in any business or matter approved by the
Company.
Pursuant to section three of our articles of association, our purpose
is to operate in accordance with business considerations to generate profits;
provided, however, that the Board of Directors is entitled to donate reasonable
amounts to worthy causes, even if such donation is not within the frame of these
business considerations.
Pursuant to section four of our articles of association, our objective
is to engage in any legal business.
The powers of the directors
The power of our directors to vote on a proposal, arrangement or
contract in which the director is materially interested is limited by the
relevant provisions of the Companies Law. In addition, the power of our
directors to vote compensation to themselves or any members of their body,
requires the approval of the audit committee and the shareholders at a general
meeting. See "Item 6C. Board Practices—Approval of Related Party Transactions."
Rights attached to shares
Our registered share capital consists of a single class of 235 million
ordinary shares, par value NIS 0.01 per share, of which 181,595,222 ordinary
shares were issued and outstanding as of
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December 31, 2002. All outstanding ordinary shares are validly issued, fully
paid and non-assessable. The rights attached to the ordinary shares are as
follows:
Dividend rights
Holders of ordinary shares are entitled to the full amount of any cash
or share dividend subsequently declared. The Board of Directors may propose a
dividend with respect to any fiscal year only out of profits, in accordance with
the provisions of the Companies Law. Declaration of a dividend requires approval
by an ordinary shareholders' resolution, which may decrease but not increase the
amount proposed by the board of directors. See "Item 10E. Additional
Information—Taxation."
Dormant shares retain the rights to receive dividends or other
distributions to shareholders, and to participate in rights offerings, but no
other rights.
One year after a dividend has been declared and is still unclaimed, the
board of directors is entitled to invest or utilize the unclaimed amount of
dividend in any manner to the benefit of the Company until it is claimed. We are
not be obligated to pay interest or linkage on an unclaimed dividend.
Voting rights
Holders of ordinary shares have one vote for each ordinary share held
on all matters submitted to a vote of shareholders. Such voting rights may be
affected by the grant of any special voting rights to the holders of a class of
shares with preferential rights that may be authorized in the future. The quorum
required for an ordinary meeting of shareholders consists of at least two
shareholders present in person or by proxy who hold or represent, in the
aggregate, at least one third of the voting rights of the issued share capital.
In the event that a quorum is not present within thirty minutes of the scheduled
time, the shareholders' meeting will be adjourned to the same day of the
following week, or the next business day thereafter, at the same time and place,
or such time and place as the Board of Directors may determine. If at such
reconvened meeting a quorum is not present at the time appointed for holding the
meeting, one or more shareholders present in person or by proxy holding or
representing in the aggregate at least 10% of the voting rights in us will
constitute a quorum.
Any shareholder seeking to vote at a general meeting of our
shareholders must first notify us if any of the shareholder's holdings in us
requires the consent of the Minister of Communications. The instructions of a
shareholder will not be valid unless accompanied by a certification by the
shareholder as to whether or not the shareholder's holdings in us or the
shareholder's vote requires the consent of
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the Ministry of Communications due to a breach by the shareholder of the
restrictions on transfer or acquisition of means of control, or provisions
regarding cross-ownership with other mobile telephone operators or shareholdings
or agreements which may reduce or harm competition. If the shareholder does not
provide such certification, his instructions will be invalid and his vote not
counted.
An ordinary resolution, such as a resolution for the election of
directors, the declaration of dividends or the appointment of auditors, requires
approval by the holders of a majority of the voting rights represented at the
meeting, in person or by proxy, and voting thereon. Under our articles of
association, resolutions such as a resolution amending the Memorandum or
Articles of Association or approving any change in capitalization, liquidation,
changes in the objectives of the company, or the name of the company, or other
changes as specified in our articles of association, requires approval of a
special majority, representing the holders of no less than 75% of the voting
rights represented at the meeting, in person or by proxy, and voting thereon.
Under our articles of association our directors are elected by an
ordinary majority of the shareholders at each duly convened annual meeting, and
they serve until the next annual meeting, provided that external directors shall
be elected in accordance with applicable law and/or relevant stock exchange
rules applicable to us. In each annual meeting the directors that were elected
at the previous annual meeting are deemed to have resigned from their office,
excluding an external director, who according to the Companies Law, is elected
for a period of three years. A resigning director may be reelected. Each
Ordinary Share represents one vote. No director may be elected or removed on the
basis of a vote by dormant shares. The ordinary share do not have cumulative
voting rights in the election of directors.
Directors may be appointed also in certain circumstances by an
extraordinary general meeting and by the Board of Directors upon approval of 75%
of the directors. Such director, excluding an external director, shall serve for
a term ending at the next annual general meeting.
Rights in the company's profits
Our shareholders have the rights to share in our profits distributed as
a dividend and any other permitted distribution. See "Item 10B. Rights Attached
to Shares—Dividend Rights."
Rights in the event of liquidation
All of our ordinary shares confer equal rights among them with respect
to amounts distributed to shareholders in case of liquidation.
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Limitations on ownership and control
Ownership and control of our ordinary shares are limited by the terms
of our license and our articles of association. See "Item 4B. Information on the
Company—Business Overview—Our License—License Conditions."
In order to comply with the conditions and restrictions imposed on us
by the Ministry of Communications or under our License in relation to ownership
or control over us, under certain events specified in our articles of
association, the Board of Directors may determine that certain Ordinary Shares
are dormant shares, as defined in the Companies Law. According to our articles
of association, dormant shares bear no rights as long as they are dormant
shares, except the right to receive dividends and other distributions to
shareholders.
Changing rights attached to shares
According to our articles of association, in order to change the rights
attached to any class of shares, the general meeting of the shareholders must
adopt a resolution to change such rights by a special majority, representing at
least 75% of the votes of shareholders participating and voting in the general
meeting, and in case of changing the rights attached to certain class of shares,
the approval by special majority of each class meeting, is required.
Annual and extraordinary meetings
The Board of Directors must convene an annual meeting of shareholders
at least once every calendar year, within fifteen months of the last annual
meeting. Notice of at least twenty-one days prior to the date of the meeting is
required. An extraordinary meeting may be convened by the board of directors, as
it decides or upon a demand of any two directors or 25% of the directors,
whichever is lower, or of one or more shareholders holding in the aggregate at
least 4.99% of our issued capital. An extraordinary meeting must be held not
more than thirty-five days from the publication date of the announcement of the
meeting. See "Item 10B. Rights Attached to Shares—Voting Rights."
Limitations on the rights to own
securities in us
For limitations on the rights to own securities in us see "Item 4B.
Information on the Company—Business Overview—Our License—License Conditions,"
"—Our Permit Regarding Cross Ownership" and "Item 10B. Rights Attached to
Shares—Limitations on ownership and control."
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Limitations on change in control and disclosure duties
For limitations on change in control, see "Item 4B. Information on the
Company—Business Overview—Our License—License Conditions," "Item 4B.
Information on the Company—Business Overview—Our License—Our Permit Regarding
Cross Ownership" and "Item 10B. Rights Attached to Shares—Limitations on
ownership and control."
Changes in our capital
Changes in our capital are subject to the approval of the shareholders
at a general meeting by a special majority of 75% of the votes of shareholders
participating and voting in the general meeting.
10C. Material Contracts
We are not a party to any material contracts other than those entered
into in the ordinary course of business.
10D. Exchange Controls
There are no Israeli government laws, decrees or regulations that
restrict or that affect our export or import of capital or the remittance of
dividends, interest or other payments to non-resident holders of our securities,
including the availability of cash and cash equivalents for use by us and our
wholly owned subsidiary, Partner Future Communications 2000 Ltd., except or
otherwise as set forth under "Item 10E. Additional Information—Taxation."
Under Israeli law (and our Memorandum and Articles of Association),
persons who are neither residents nor nationals of Israel may freely hold, vote
and transfer ordinary shares in the same manner as Israeli residents or
nationals.
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10E. Taxation
Israeli taxation
The following is a summary of the current tax laws of the State of
Israel as they relate to us and to our shareholders and also includes a
discussion of the material Israeli tax consequences for persons purchasing our
ordinary shares or ADSs, both referred to below as the "Shares". To the extent
that the discussion is based on legislation yet to be subject to judicial or
administrative interpretation, there can be no assurance that the views
expressed herein will accord with any such interpretation in the future. This
discussion is not intended and should not be construed as legal or professional
tax advice and does not cover all possible tax considerations.
Israeli Tax Reform
On July 24, 2002, the Israeli Knesset enacted income tax reform
legislation, commonly referred to as the "Tax Reform". The Tax Reform has
introduced fundamental and comprehensive changes into Israeli tax laws. Most of
the legislative changes took effect on January 1, 2003. The Tax Reform has
introduced a transition from a primarily territorial-based tax system to a
personal-based system of taxation with respect to Israeli residents. The Tax
Reform has also resulted in significant amendment of the international taxation
provisions, and new provisions concerning the taxation of capital markets
including the abolishment of currently "exempt investment routes" (e.g., capital
gains generated by individuals from the sale of securities traded on the
Tel-Aviv Stock Exchange). Various issues related to the Tax Reform remain
unclear in view of the legislative language utilized and the lack of
authoritative interpretations at this stage. The analysis below is therefore
based on our current understanding of the new legislation.
It should be noted that under the Tax Reform legislation the Shares are no
longer regarded and defined as "foreign traded securities" and thus certain
associated Israeli tax aspects will accordingly be subject to change as
discussed below.
General corporate tax structure
The regular rate of corporate tax in Israel is 36%.
Our taxable income is determined under the Income Tax (Inflationary
Adjustment) Law 1985, or the "Inflationary Adjustments Law", which attempts to
overcome some of the problems presented to a traditional tax system by rapid
inflation. Generally, the Inflationary Adjustments Law provides tax
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deductions and adjustments to depreciation deductions and tax loss carry
forwards to mitigate the effects resulting from an inflationary economy.
The Israeli Income Tax Ordinance and regulations promulgated there
under allow Foreign-Invested Companies, to adjust their tax returns based on
exchange rate fluctuations of the shekel against the US Dollar rather than
changes in the Israeli Consumer Price Index or "CPI", in lieu of the principles
set forth by the Inflationary Adjustments Law. For these purposes, a
Foreign-Invested Company is a company in which more than 25% of the share
capital in terms of rights to distributions, voting and appointment of
directors, and of the combined share capital, including shareholder loans and
capital notes, is held by persons who are not residents of Israel. A company
that elects to measure its results for tax purposes based on the US Dollar
exchange rate cannot change that election for a period of three years following
the election. We adjust our tax returns based on the changes in the Israeli CPI.
Because we qualify as a Foreign-Invested Company, we are entitled to elect
measurement of our results for tax purposes on the basis of changes in the
exchange rate of the US Dollar in future tax years.
Tax on capital gains of
shareholders
•
GENERAL. Israeli law imposes a capital gains tax on the sale of capital
assets by an Israeli resident and on the sale of capital assets located in
Israel or the sale of direct or indirect rights to assets located in
Israel, including on the sale of our Shares by some of our shareholders
(see discussion below). The Israeli Tax Ordinance distinguishes between
"Real Gain" and "Inflationary Surplus". Real Gain is the excess of the
total capital gain over Inflationary Surplus computed on the basis of the
increase in the Israeli CPI between the date of purchase and the date of
sale. The Real Gain accrued at the sale of an asset purchased on or after
January 1, 2003 is taxed at a 25% rate, both for individuals and for
corporations, as opposed to the previous 36% rate applicable to
corporations, and to the marginal tax rate of up to 50% applicable to
individuals with respect to sale transactions effected prior to January 1,
2003.
Real Gains derived from the disposal after January 1, 2003 of an asset
purchased prior to this date will be subject to capital gains tax at a
blended rate. The previous capital gains tax rate (36% for a
corporation and a marginal tax rate of up to 50% for individuals) will
be applied to the gain amount which bears the same ratio to the total
gain realized as the ratio which the holding period commencing at the
acquisition date and terminating on January 1, 2003 bears to the total
holding period. The remainder of the gain realized will be subject to
capital gains tax at a 25% rate.
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Inflationary Surplus is exempt from tax.
Upon the sale of an asset subject to capital gains tax, a tax advance
of 25% of the capital gain is payable within 30 days of the
transaction. The Assessing Officer may accept the actual amount of tax
payable, if this is lower, provided that a detailed return including a
computation of the tax due is filed within that period. Capital gains
are also reportable on annual income tax returns.
•
TAXATION OF ISRAELI RESIDENTS—SHAREHOLDERS SUBJECT TO THE INFLATIONARY
ADJUSTMENTS LAW. The Inflationary Adjustments Law includes provisions
concerning taxation on gains from the sale of traded securities. These
provisions apply to most corporate shareholders and to certain individuals.
There is some uncertainty as to whether those provisions also apply to
foreign corporations that hold our shares because non-resident companies
are not expressly exempt from them. A shareholder who is subject to the
Inflationary Adjustments Law will be taxed, upon the sale of his or her
Shares, on the full amount of its gain at the tax rate applicable to that
shareholder (36% for a corporation and a marginal tax rate of up to 50% for
individuals). It should be noted that the Tax Reform has not altered
significantly the legal situation concerning this aspect of Israeli
taxation.
•
TAXATION OF ISRAELI RESIDENTS—OTHER SHAREHOLDERS. In July 2001 our
ordinary shares were listed for trading on the Tel Aviv Stock Exchange. As
a result of our dual listing and due to the Tax Reform (inclusion of new
provisions concerning the taxation of capital markets) and that since our
ordinary shares are no longer considered "foreign traded securities", the
tax treatment of our shareholders under Israeli law has changed.
The following is a summary of the most significant Israeli capital
gains tax implications arising with respect to the sale of our Shares
by shareholders who are not engaged in the business of trading
securities or who are not subject to the Inflationary Adjustments Law.
As demonstrated below, the timing of that the shareholder's purchase of
the shares will determine the tax outcomes in this regard.
Our analysis is based partially on guidelines published by the Israeli
Tax Authorities prior to enactment of the Tax Reform concerning the tax
treatment of securities traded in the Tel Aviv Stock Exchange and on
foreign stock exchanges. Accordingly, the analysis may change should
new legislation or amended guidelines be published in the future.
Sale of shares purchased after
January 1, 2003
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The shareholder will be subject to tax at 15% rate on realized real
capital gain. To the extent that the shareholder claims a deduction of financing
expenses, the gain will be subject to tax at a rate of 25%.
Sale of shares purchased after the listing on the Tel Aviv Stock Exchange and
before January 1, 2003
•
The shareholder will be subject to tax on the gain derived commencing
January 1, 2003 at a rate of 15%. The cost value of the shares for the
purpose of the gain computation, will be based on the average price of
the shares during the last three trading days preceding January 1, 2003
or the original cost of the shares, whichever is the higher. To the
extent that the taxpayer claims a deduction of financing expenses, the
gain will be subject to tax at a rate of 25%.
•
The remainder of the gain realized (i.e., the real gain attributed to
the period from the purchase date until January 1, 2003) will be exempt
from Israeli tax.
Sale of shares purchased prior to
the listing on the Tel Aviv Stock Exchange
A shareholder who elected to recognize a tax event at the listing date
on the Tel Aviv Stock Exchange or rescinded an election to defer the
tax event.
If a shareholder elected to recognize a tax event on the date of the
listing of our Shares on the Tel Aviv Stock Exchange, or rescinded an election
to defer the tax event until the date of actual sale of the shares on the Tel
Aviv Stock Exchange, the profit realized will be allocated among three separate
components: (i) profit or loss determined as of the date of listing on the Tel
Aviv Stock Exchange; (ii) profit or loss accrued from the date of listing the
shares on the Tel Aviv Stock Exchange until January 1, 2003 and (iii) Gain (or
loss) accrued from January 1, 2003 until the actual sale of the shares.
Regarding profits determined as of the listing date, the shareholder
generally will be taxed at a rate of 35% for an individual shareholder or 36%
for a corporate shareholder. If such shareholder elected to defer payment of the
tax on the date of listing, the shareholder will be required to pay interest and
linkage to the Israeli CPI on the tax amount from the date of listing.
Profits accrued from the date of listing of the shares on the Tel Aviv
Stock Exchange until January 1, 2003 are generally exempt from capital gains
tax.
Capital gain accrued from January 1, 2003 until the actual sale of the
shares will be subject to tax at a rate of 15%. The cost basis of the shares for
the purpose of the gain computation, will be
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based on the average price of the shares during the last three trading days
preceding January 1, 2003 or the value at the listing date, whichever is higher.
To the extent that the taxpayer claims a deduction of financing expenses, the
gain will be subject to tax at a rate of 25%.
A shareholder who elected to defer the tax event until the actual sale
of the shares
If a shareholder elected to defer the tax event until the date of the
actual sale of the securities and has notified the tax authorities of the
election, the shareholder will generally be taxed at a rate of 35% for an
individual shareholder or 36% for a corporate shareholder on all gains realized
from the sale of the securities.
Under certain interpretations of the law, reduced tax rates may apply
with respect to the gain accrued as from January 1, 2003 until the actual sale
of the shares.
•
TAXATION OF NON-ISRAELI RESIDENTS. As mentioned above, Israeli law
generally imposes a capital gains tax on sales of capital assets, including
securities and any other direct or indirect rights to capital assets
located in Israel. This tax is also applicable to non-residents of Israel
as follows:
•
Foreign investors (individuals and corporations) that are not engaged
in the business of trading securities through a permanent establishment
in Israel and are not subject to the Inflationary Adjustments Law, who
purchased the shares after the listing on the Tel Aviv Stock Exchange
will be exempt from tax on capital gains derived from the sale of the
Shares.
•
Foreign investors (individuals and corporations) that are not engaged
in the business of trading securities and are not subject to the
Inflationary Adjustments Law, who purchased Shares before the listing
on the Tel Aviv Stock Exchange or will be subject to similar capital
gain tax treatment as Israeli residents. The tax applicable to foreign
individual investors will be determined in accordance with the marginal
tax rates of up to 50% and not in accordance to the preferential 35%
tax rate applicable to Israeli individual investors. However, foreign
investors may be exempt under the terms of an applicable bilateral
double taxation treaty.
•
TAXATION OF INVESTORS ENGAGED IN A BUSINESS OF TRADING SECURITIES
Individual and corporate dealers in securities in Israel are taxed at tax
rates applicable to business income.
•
WITHHOLDING AT SOURCE FROM CAPITAL GAINS FROM TRADED SECURITIES. Under the
Tax Reform, Israeli stockbrokers have a duty to withhold tax upon the sale
of traded securities. The applicable withholding tax rate is 15% from the
real gain. As an interim measure for 2003, the stockbroker
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will withhold tax on the consideration received upon the sale at the rate
of 0.5% until June 30, 2003 and at the rate of 1% from July 1, 2003 until
December 31, 2003.
Dividends
We currently do not intend to pay dividends in the foreseeable future.
However, the following Israeli tax consequences would apply in the event of
actual payment of any dividends on ordinary shares or ADSs.
The distribution of dividend income, other than bonus shares (stock
dividends), to Israeli residents who purchased our Shares will generally be
subject to income tax at a rate of 25% for individuals and will be exempt from
income tax for corporations.
Non-residents of Israel (both individuals and corporations) are subject
to income tax on income accrued or derived from sources in Israel, including
dividends from Israeli corporations. The distribution of dividend income, other
than bonus shares (stock dividends), to non-residents of Israel will generally
be subject to income tax at a rate of 25% by way of a tax withholding, unless a
lower rate is stipulated by a treaty between Israel and the shareholder's
country of residence.
Taxation of residents of the United States under the US Treaty
Residents of the United States will generally be subject to withholding
tax in Israel on dividends paid, if any, on Shares (including ADS). Generally,
under the Convention Between the Government of the United States of America and
the Government of the State of Israel with Respect to Taxes on Income, or the US
Treaty, the maximum rate of withholding tax on dividends paid to a holder of
Shares (including ADS) who is a resident of the United States (as defined in the
US Treaty) will be 25%.
The US Treaty exempts from taxation in Israel any capital gain realized
on the sale, exchange or other disposition of Shares (including ADS) by a holder
that (a) is a resident of the United States for purposes of the US Treaty, and
(b) owns directly or indirectly, less than 10% of our voting stock at all times
during the 12-month period preceding such sale, exchange or other disposition.
Purchasers of Shares (including ADS), who are residents of the United
States and who hold 10% or more of the outstanding ordinary shares at any time
during such 12-month period will be subject to Israeli capital gains tax.
However, under the US treaty, residents of the United States (as defined in the
US Treaty) generally would be permitted to claim a credit for this tax against
US federal
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income tax imposed on the sale, exchange or other disposition, subject to the
limitations in US laws applicable to the utilization of the foreign tax credits
generally.
The application of the US Treaty provisions to dividends and capital
gains described above is conditioned upon the fact that such income is not
effectively connected with a permanent establishment (as defined in the US
Treaty) maintained by the non-Israeli resident in Israel.
A non-resident of Israel that has dividend income derived from or
accrued in Israel, from which tax was withheld at the source, is generally
exempt from the duty to file tax returns in Israel in respect of such income,
provided such income was not connected to or derived from a trade or business
conducted in Israel by the tax payer.
Repatriation
Non-residents of Israel who acquire any of the Shares (including ADSs)
of the Company will be able to repatriate dividends, liquidation distributions
and the proceeds from the sale of such ADSs or ordinary shares, in non-Israeli
currencies at the rate of exchange prevailing at the time of repatriation
provided that any applicable Israel income tax has been paid, or withheld, on
such amounts. US holders should refer to the "United States Federal Income
Taxation — Dividends" section below with respect to the US federal tax treatment
of foreign currency gain or loss.
United States federal income
taxation
The following discussion is a summary of the material US federal income
tax considerations applicable to a US holder (as defined below) regarding the
acquisition, ownership and disposition of ordinary shares or ADSs. This summary
is based on provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed US Treasury regulations, administrative
pronouncements, rulings and judicial decisions in effect as of the date of this
Annual Report. All of these authorities are subject to change, possibly with
retroactive effect, and to change or changes in interpretation. In addition,
this summary does not discuss all aspects of US federal income taxation that may
be applicable to investors in light of their particular circumstances or to
investors who are subject to special treatment under US federal income tax law,
including US expatriates, insurance companies, securities broker-dealers,
financial institutions, tax-exempt organizations, persons holding ordinary
shares or ADSs as part of a straddle, hedging or conversion transaction, persons
subject to the alternative minimum tax, persons who acquired their ordinary
shares or ADSs, pursuant to the exercise of employee stock options or otherwise
as compensation, persons having a functional
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currency other than the US dollar, persons owning (directly, indirectly or by
attribution) 10% or more of our outstanding share capital, and persons not
holding the ordinary shares or ADSs as capital assets.
As used herein, the term "US holder" means a beneficial holder of an
ordinary share or an ADS who is:
•
an individual citizen or resident of the United States for US federal
income tax purposes,
•
a corporation or certain other entity created or organized in or under the
laws of the United States or any political subdivision thereof (including
the District of Columbia),
•
an estate whose income is subject to US federal income taxation regardless
of its source, or
•
a trust if (A) a US court is able to exercise primary supervision over the
trust's administration and (B) one or more United States persons have the
authority to control all of the trust's substantial decisions.
If a partnership holds ordinary shares or ADSs, the tax treatment of a
partner generally will depend upon the status of the partner and the activities
of the partnership. If a US holder is a partner in a partnership that holds
ordinary shares or ADSs, the holder is urged to consult its own tax advisor
regarding the specific tax consequences of owning and disposing of ordinary
shares or ADSs.
For US federal income tax purposes, US holders of ADRs will be treated
as owners of the ADSs evidenced by the ADRs and the ordinary shares represented
by the ADSs. The statements of US federal income tax laws set forth assume that
each obligation in the Deposit Agreement and any related agreement will be
performed in accordance with its terms.
Holders of ordinary shares or ADSs should consult their own tax
advisors concerning the specific Israeli, US Federal, state and local tax
consequences of the ownership and disposition of the ordinary shares or ADSs in
light of their particular situations as well as any consequences arising under
the laws of any other taxing jurisdiction. In particular, US holders are urged
to consult their own tax advisors concerning whether they will be treated as
residents of the United States, and therefore be eligible for benefits, under
the US Treaty.
Dividends
We currently do not intend to pay dividends for the foreseeable future.
However, in the event we make any distributions of cash or other property to a
US holder of ordinary shares or ADSs, the US holder generally will be required
to include in gross income as ordinary dividend income the
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amount of any distributions paid on the ordinary shares and ADSs, including the
amount of any Israeli taxes withheld in respect of such dividend, to the extent
that such distributions are paid out of our current or accumulated earnings and
profits as determined for US federal income tax purposes. Distributions in
excess of our earnings and profits will be applied against and will reduce the
US holder's tax basis in its ordinary shares or ADSs and, to the extent in
excess of such tax basis, will be treated as gain from a sale or exchange of
such ordinary shares or ADSs. Dividends paid by us will not qualify for the
dividends-received deduction applicable in certain cases to US corporations.
The amount of any distribution paid in NIS, including the amount of any
Israeli withholding tax thereon, will be included in the gross income of a US
holder of ordinary shares in an amount equal to the US dollar value of the NIS
calculated by reference to the spot rate of exchange in effect on the date the
distribution is received by the US holder or, in the case of ADSs, by the
Depositary. If a US holder converts dividends paid in NIS into US dollars on the
day such dividends are received, the US holder generally should not be required
to recognize foreign currency gain or loss with respect to such conversion. If
the NIS received in the distribution is not converted into US dollars on the
date of receipt, any foreign currency gain or loss recognized upon a subsequent
conversion or other disposition of the NIS will be treated as US source ordinary
income or loss.
Any dividends paid by us to a US holder on the ordinary shares or ADSs
will be treated as foreign source income and will be categorized as "passive
income" or, in the case of certain holders, "financial services income" for US
foreign tax credit purposes. Subject to the limitations in the Code, as modified
by the US Treaty, a US holder may elect to claim a foreign tax credit against
its US federal income tax liability for Israeli income tax withheld from
dividends received in respect of ordinary shares or ADSs. The US Treasury has
expressed concerns that parties to whom ADSs are released may be taking actions
that are inconsistent with the claiming of foreign tax credit for US holders of
ADSs. Accordingly, the discussion above regarding the creditability of the
Israeli withholding tax on dividends could be affected by future actions that
may be taken by the US Treasury. The rules relating to the determination of the
foreign tax credit are complex. Accordingly, if you are a US holder of ordinary
shares or ADSs, you should consult your own tax advisor to determine whether and
to what extent you would be entitled to the credit. US holders who do not elect
to claim foreign tax credit may instead claim a deduction for Israeli income tax
withheld, but only for a year in which the US holder elects to do so with
respect to all foreign income taxes. A deduction does not reduce US tax on a
dollar-for-dollar basis like a tax credit. The deduction, however, is not
subject to the limitations applicable to foreign tax credits.
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Sale or other disposition
Upon the sale or other disposition of ordinary shares or ADSs, a US
holder generally will recognize capital gain or loss equal to the difference
between the US dollar value of the amount realized on the disposition and the
holder's adjusted tax basis, determined in US dollars, in the ordinary shares or
ADSs. Any gain or loss recognized upon the disposition of the ordinary shares or
ADSs will be treated as long-term capital gain or loss if, at the time of the
disposition, the holding period of the ordinary shares or ADSs exceeds one year.
In the case of individual US holders, capital gains generally are subject to US
federal income tax at preferential rates if specified minimum holding periods
are met. The deductibility of capital losses by a US holder is subject to
significant limitations.
In general, gain or loss recognized by a US holder on the sale or other
disposition of ordinary shares or ADSs will be US source income or loss for US
foreign tax credit purposes. Pursuant to the US Treaty, however, gain from the
sale or other disposition of ordinary shares or ADSs by a holder who is a US
resident, for US Treaty purposes, and who sells the ordinary shares or ADSs
within Israel may be treated as foreign source income for US foreign tax credit
purposes.
If a US holder receives NIS upon the sale of ordinary shares, that US
holder may recognize ordinary income or loss as a result of currency
fluctuations between the date of the sale of the ordinary shares and the date
the sales proceeds are converted into US dollars, as described above in
connection with the receipt of dividends.
Information reporting and backup withholding
Dividend payments with respect to ordinary shares or ADSs and proceeds
from the sale or other disposition of ordinary shares or ADSs may be subject to
information reporting to the Internal Revenue Service ("IRS") and possible US
backup withholding at a current rate of 30%. Backup withholding will not apply,
however, to a holder who furnishes a correct taxpayer identification number or
certificate of foreign status and makes any other required certification or who
is otherwise exempt from backup withholding. US persons who are required to
establish their exempt status generally must provide IRS Form W-9 (Request for
Taxpayer Identification Number and Certification). Non-US holders generally will
not be subject to US information reporting or backup withholding. However, such
holders may be required to provide certification of non-US status (generally on
IRS Form W-8BEN) in connection with payments received in the United States or
through certain US-related financial intermediaries.
Backup withholding is not an additional tax. Amounts withheld as backup
withholding may be credited against a holder's US federal income tax liability,
and a holder may obtain a refund of any
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excess amounts withheld by filing the appropriate claim for refund with the IRS
and furnishing any required information.
10F. Dividends and Paying Agents
Not applicable.
10G. Statement By Experts
Not applicable.
10H. Documents on Display
Reports and other information of Partner filed electronically with the
U.S. Securities and Exchange Commission may be found at www.sec.gov. They can
also be inspected without charge and copied at prescribed rates at the public
reference facilities maintained by the SEC in Room 1024, 450 Fifth Avenue, N.W.,
Washington, D.C. 20549 and, as long as our notes are listed on the Luxembourg
Stock Exchange, at the office of the paying agent in Luxembourg. Copies of this
material are also available by mail from the Public Reference Section of the
SEC, at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
10I. Subsidiary Information
Not applicable.
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
We are exposed to market risk, including movements in foreign currency
exchange rates. Where appropriate, we enter into derivative transactions to
hedge underlying exposure to interest rates and foreign currencies. As a matter
of policy we do not enter into transactions of a speculative or trading nature.
Interest rate and foreign exchange exposures are monitored by tracking actual
and projected commitments and through the use of sensitivity analysis.
We have borrowings in US dollars, shekels linked to the Israeli CPI and
unlinked shekels. The following table provides information derived from the
financial statements about these borrowings.
Non-derivative instruments
Book
value(1) (NIS equivalent in
millions,
except percentages)
US Dollar Borrowings
Long term—subordinated notes
829
Fixed interest rate payable on our senior subordinated notes
13
%
NIS Linked to the Israeli CPI
Long-term—fixed
629
Weighted average interest rate payable on fixed rate debt
6.6
%
Unlinked NIS
Long-term—floating
1,839
Weighted average interest rate payable on floating rate debt
10.0
%
Total
3,297
(1)
Book value approximates fair value at December 31, 2002.
Expected Maturity Dates:
Our credit facility is divided into three tranches: A multi-currency
term loan facility of $410 million ("Facility A"), a revolving multi-currency
loan facility of $150 million ("Facility B") and a fixed-term shekel loan
facility of $150 million ("Facility C").
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The total commitments under the Facilities will be reduced during each of the
following years to the following amounts:*
Dollars
in millions
A
B
C
Total
December 31, 2002
410
150
150
710
2003
385
150
150
685
2004
356
150
150
656
2005
266
150
141
557
2006
172
150
114
436
2007
62
150
84
296
2008
0
0
72
72
June 30, 2009
0
0
0
0
On August 10, 2000, the Company completed an offering of $175 million
of unsecured senior subordinated notes due 2010, which have been issued at their
dollar par value. The notes bear interest at the rate of 13% per annum, which is
payable semi-annually on each February 15 and August 15, commencing February 15,
2001. The Company may redeem up to 35% of the aggregate principal amount of the
notes at any time prior to August 15, 2003, provided that immediately after
giving effect to any such redemption, at least 65% of the aggregate principal
amount of the notes remains outstanding.
Foreign exchange
Substantially all of our revenues and a majority of our operating
expenses are denominated in shekels. However, through December 31, 2002, a
material amount of our operating expenses were linked to non-shekel currencies.
These expenses related mainly to the acquisition of handsets where the price
paid by us is based on various foreign currencies. In addition, a substantial
majority of our capital expenditures are incurred in, or linked to, non-shekel
currencies, and our notes are denominated in US dollars and require US dollar
interest payments. Thus, any devaluation of the shekel against the dollar (or
other foreign currencies), will increase the shekel cost of our non-shekel
denominated or linked expenses. Such an increase may have an adverse impact on
our results, which may be material. We hedge some of our foreign currency
commitments, but we do not currently hedge the principal payable on our notes.
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We are exposed from time to time to movements in foreign currency
exchange rates on short-term liabilities to suppliers, denominated in US dollars
or euros. Our hedging strategy is to neutralize and mitigate our currency
exposures by entering into hedging transactions which convert into shekels the
liabilities not denominated in shekels.
We enter into foreign currency forward transactions and purchases and
write foreign currency options in order to protect ourselves against the risk
that the eventual dollar cash flows resulting from the existing assets and
liabilities will be affected by changes in exchange rates. The writing of such
options is part of a comprehensive hedging strategy and is designed to
effectively swap the currencies relating to existing assets and liabilities.
Each of the options written is combined with purchase of an option for the same
period and the same notional amount. We do not hold or issue derivative
financial instruments for trading purposes.
The transactions are mainly designated to hedge the cash flows related
to payments of dollar interest on notes payable as well as those related to
anticipated payments in respect of purchases of handsets and capital
expenditures in foreign currency. However, these contracts do not qualify for
hedge accounting under FAS 133.
The notional amount does not necessarily represent amounts exchanged by
the parties and, therefore, is not a direct measure of our exposure.
The following table provides information derived from the financial
statements about our outstanding foreign exchange instruments.
Derivative instruments
As of
Fair
value at
December 31,
Maturing
December 31,
2002
in 2003
2002
(NIS equivalent
in millions)
Currency options purchased—for the exchange of:
Dollars into NIS
431
431
2.8
Currency options written—for the exchange of:
Dollars into NIS
431
431
(5.7
)
Forward transactions—for the exchange of:
Dollars into NIS
264
264
(1.7
)
Euros into NIS
52
52
2.7
Embedded derivatives—
Dollars into NIS
41
41
(0.1
)
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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
Our Chief Executive Officer and our Chief Financial Officer, after
evaluating the effectiveness of our disclosure controls and procedures (as
defined in US Exchange Act rule 13a-14(c)) within 90 days of the date of this
Form 20-F, have concluded that, as of such date, our disclosure controls and
procedures were effective to ensure that material information relating to us was
made known to them by others within the Company particularly during the period
in which this Form 20-F was being prepared.
There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date
our Chief Executive Officer and our Chief Financial Officer completed their
evaluation, nor were there any significant deficiencies or material weaknesses
in our internal controls requiring corrective actions.
ITEM 16. [RESERVED]
ITEM 17. FINANCIAL STATEMENTS
The company has responded to "Item 18. Financial Statements" in lieu of
responding to this item.
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ITEM 18. FINANCIAL STATEMENTS
The following financial statements are filed as part of this annual report.
Page
Report of Independent Auditors
F-1
Financial Statements:
Balance sheets at December 31, 2001 and 2002
F-2–F-3
Statements of operations for the years ended December 31, 2000, 2001 and 2002
F-4
Statements of changes in shareholders' equity (capital deficiency) for the years ended December 31,
2000, 2001 and 2002
F-5–F-6
Statements of cash flows for the years ended December 31, 2000, 2001 and 2002
F-7–F-8
Notes to financial statements
F-9–F-45
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ITEM 19. EXHIBITS
Exhibit
Number
Description
1.1
Partner's Articles of Association
*1.2
Partner's Certificate of Incorporation
*1.3
Partner's Memorandum of Association
**2.(a).1
Form of Share Certificate
**2.(a).2
Form of Deposit Agreement including Form of ADR Certificate
*2.(b)
Form of Indenture between Partner and The Bank of New York, as trustee, including form of note
**4.(a).1
Relationship Agreement dated October 10, 1999
**4.(a).2
License from the Israeli Ministry of Communications issued April 8, 1998
**4.(a).3
Bank Facility dated August 13, 1998
**4.(a).4
License Agreement for use of the Orange Brand in Israel dated September 14, 1998
**4.(a).5
Brand Support/Technology Transfer Agreement dated July 18, 1999
**4.(a).6
Agreement with Ericsson Radio Systems AB dated May 28, 1998
#4.(a).7
Agreement with LM Ericsson Israel Ltd. dated November 25, 2002
#***4.(a).8
Dealer Agreement with SuperPharm dated February 11, 2001
**4.(a).9
Lease Agreement with Mivnei Taasia dated July 2, 1998
**4.(a).10
Interconnect Agreement with Cellcom dated February 15, 1999
**4.(a).11
Interconnect Agreement with Pelephone dated May 1, 1999
*4.(a).12
Amending and Rescheduling Agreement dated July 9, 2000
4.(a).13
Supplemental Agreement dated April 18, 2002
+4.(a).14
Amendment to Relationship Agreement dated April 23, 2002
***4.(a).15
Amendment No. 1 to License from the Israeli Ministry of Communications issued May 11, 1999
***4.(a).16
Amendment No. 2 to License from the Israeli Ministry of Communications issued September 29, 1999
***4.(a).17
Amendment No. 3 to License from the Israeli Ministry of Communications issued October 3, 1999
***4.(a).18
Amendment No. 4 to License from the Israeli Ministry of Communications issued June 28, 2000
***4.(a).19
Amendment No. 5 to License from the Israeli Ministry of Communications issued September 10, 2000
***4.(a).20
Amendment No. 6 to License from the Israeli Ministry of Communications issued March 19, 2001
+4.(a).21
Amendment No. 7 to License from the Israeli Ministry of Communications issued September 23, 2001
+4.(a).22
Amendment No. 8 to License from the Israeli Ministry of Communications issued December 27, 2001
+4.(a).23
Amendment No. 9 to License from the Israeli Ministry of Communications issued March 13, 2002
+4.(a).24
Amendment No. 10 to License from the Israeli Ministry of Communications issued April 14, 2002
+4.(a).26
Amendment No. 11 to License from the Israeli Ministry of Communications issued April 25, 2002
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Exhibit
Number
Description
4.(a).27
Amendment No. 12 to License from the Israeli Ministry of Communications issued June 26, 2002
4.(a).28
Amendment No. 13 to License from the Israeli Ministry of Communications issued June 30, 2002
4.(a).29
Amendment No. 14 to License from the Israeli Ministry of Communications issued September 11, 2002
4.(a).30
Amendment No. 15 to License from the Israeli Ministry of Communications issued October 24, 2002
4.(a).31
Amendment No. 16 to License from the Israeli Ministry of Communications issued November 26, 2002
4.(a).32
Amendment No. 17 to License from the Israeli Ministry of Communications issued February 2, 2003
+4.(a).33
Amending Agreement to the Facility Agreement dated January 8, 2002
+4.(a).34
Amending Agreement to the Facility Agreement dated January 30, 2002
+4.(a).35
Amending Agreement to the Facility Agreement dated February 6, 2002
+4.(a).36
Amending Agreement to the Facility Agreement dated February 28, 2002
+4.(a).37
Amending Agreement to the Facility Agreement dated March 14, 2002
+4.(a).38
Amending Agreement to the Facility Agreement dated March 24, 2002
+4.(a).39
Amending Agreement to the Facility Agreement of April 2002
+4.(a).40
Amending Agreement to the Facility Agreement dated April 24, 2002
4.(a).41
Amending Agreement to the Facility Agreement dated December 31, 2002
6.
See Note 1q to our financial statements for information explaining
how earnings (loss)  per share information was calculated.
8.
List of Subsidiaries
10.(a).1
Consent of Kesselman & Kesselman
10.(a).2
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
*
Incorporated by reference to our registration statement on Form F-1 (No.
333-12340).
**
Incorporated by reference to our registration statement on Form F-1 (No.
333-10992).
***
Incorporated by reference to our annual report on Form 20-F for the fiscal
year ended December 31, 2000.
+
Incorporated by reference to our
annual report on Form 20-F for the fiscal
year ended December 31, 2001.
#
Confidential treatment requested.
Confidential material has been redacted and has been separately filed
with the Securities and Exchange Commission.
Page 165
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Glossary of Selected
Telecommunications Terms
The following explanations are not intended as technical definitions,
but to assist the reader to understand certain terms as used in this annual
report.
AMPS
Advanced Mobile Phone System; the analogue
cellular telephone technology adopted in the
United States. Also N-AMPS (Narrowband AMPS), a
more frequency-efficient variant of AMPS.
Analog Technology
A technology in which some property of an
electrical signal is varied proportionally to
the input signal being transmitted, stored or
processed.
Base Transceiver Station
("BTS")
Fixed transmitter/receiver equipment in each
cell of a mobile telecommunications network
that communicates by radio with all mobile
telephones in that cell.
Base Station Controller ("BSC")
Monitors and controls one or more base stations
in order to exchange messages, handover mobile
units from cell to cell and perform other
system administrative tasks.
Blocked call
Where a mobile phone call fails because no
channels are available in the cell in which the
user is located.
CDMA
Code Division Multiple Access; a method by
which many users sharing the same radio channel
can be distinguished by unique code numbers.
Cell
In a cellular telephone system, the coverage
area of a single base transceiver station or
one sector therein.
Channel
A frequency or time slot in a
telecommunications system over which distinct
messages can be conveyed.
Churn
The number of customers who are disconnected
from a network, either involuntarily, due to
payment delinquency or suspected fraudulent
use, or voluntarily, as customers switch to
competing networks, relocate outside the
network's service area, or cease using mobile
telephones permanently or temporarily.
Closed User Group
A group of users with a special mutual
relationship (such as working for the same
company or department within a company).
D-AMPS
Digital Advanced Mobile Phone System; a digital
cellular system first implemented in the United
States and intended initially to permit gradual
upgrading of AMPS networks.
Digital Technology
A technology in which a signal is converted to
a stream of numbers which are in turn stored,
processed or transmitted in a binary (on-off)
manner.
Dropped call
When a mobile phone call is involuntarily
terminated.
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Dual band handsets
Handsets that operate on two bands, for
example, GSM 900 and GSM 1800.
GPRS
General Packet Radio Services (GPRS) is a
packet-based wireless communication service
that enables data rates from 56 up to 114 Kbps
and continuous connection to the Internet for
mobile phone and computer users. GPRS is based
on Global System for Mobile (GSM) communication.
GSM
The Global System for Mobile Communications, a
comprehensive digital standard for the
operation of all elements of a cellular
telephone system. GSM originated in Europe, but
is now the most popular digital mobile
telephone standard worldwide.
GSM 900
GSM operation in the 900 MHz frequency band;
the original frequency band allocated to GSM,
later extended by 10 MHz (EGSM).
GSM 1800
GSM operation in the 1800 MHz frequency band;
formerly known as DCS 1800 or PCN, first
allocated for the expansion of mobile network
competition in Europe, now used for the same
purpose in many other areas.
GSM 1900
GSM operation in the 1900 MHz band; primarily
used in North and South America
GSM Association
Formerly known as the GSM Memorandum of
Understanding Association (GSM MoU), an
organization of operators, government
administrations, and equipment and service
suppliers that promotes the development and
promulgation of the GSM standard and relations
between GSM operators.
HSCSD
High Speed Circuit Switched Data is an
infrastructure development which enables the
transmission of data at higher speeds than the
9600 Bps speed previously available on GSM
networks.
Intelligent Network ("IN")
Network architecture that centralizes the
processing of calls and billing information of
calls.
Microcells
A base transceiver station of limited range and
capacity intended to serve a relatively small
area, such as a building or mall.
Mobile Switching Center
("MSC")
A large, computer-based device used to connect
calls within a mobile network and as the
interface of the cellular network to other
networks.
PLMN
A Public Land Mobile Network, or a mobile
telephone network which is available for use by
the public.
PSTN
A Public Switched Telephone Network, or the
fixed (landline) telephone network.
Roaming
The mobile telephone feature that permits
subscribers of one network to use their mobile
telephones and telephone numbers when in
another operator's network.
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SIM roaming
The use of a GSM customer's SIM in a different
handset while roaming in a network that
operates on a frequency band or system
incompatible with the subscriber's own GSM
handset.
SMS
Short message service, a service which enables
mobile telephone users to send and receive
written messages on their handsets.
Subscriber Identity Module
SIM or SIM Card; a small card or chip provided
to each GSM network subscriber that is inserted
into a GSM handset. The SIM is a computer
processor that uniquely identifies a GSM
network subscription and stores the
subscriber's personal phone book, sent and
received text messages, network security codes
and other programs that enable addition network
features.
Switch
Element of a telephone network which connects
telephone calls to and from one user or another
on the same or other networks.
TDMA
Time Division Multiple Access; a method by
which many users can share a single digit radio
channel by dividing it into a number of
repeating part-time channels to which each user
has access in turn.
UMTS
Universal Mobile Telecommunications System, the
"third generation" of mobile telecommunications
standard also referred to as 3G.
Virtual Private Network ("VPN")
A private network provided by means of the
facilities of a public telephone network but
which operates by logic as a closed user group
thereby providing the convenience of a private
network with the economy of scale of a public
network.
WAP
Wireless Application Protocol, a language
specifically developed for mobile telephones
that facilitates internet usage.
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REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
Partner Communications Company Ltd.
We have audited the consolidated balance sheets of Partner
Communications Company Ltd. and its subsidiary (collectively "the Company") as
of December 31, 2001 and 2002 and the related consolidated statements of
operations, changes in shareholders' equity (capital deficiency) and cash flows
for each of the three years in the period ended December 31, 2002. These
financial 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in Israel and in the United States, including those prescribed by the
Israeli Auditors (Mode of Performance) Regulations, 1973. Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether 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 management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above, present fairly, in all material respects, the consolidated financial
position of the Company as of December 31, 2001 and 2002 and the consolidated
results of operations, changes in shareholders' equity (capital deficiency) and
cash flows for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States.
/s/ Kesselman & Kesselman
Tel-Aviv, Israel
Kesselman & Kesselman
March 13, 2003
Certified Public Accountants (Israel)
Kesselman & Kesselman is a
member of PricewaterhouseCoopers International Limited,
a company limited by guarantee registered in England and Wales.
Page F-1
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PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED BALANCE SHEETS
December 31
2001
2002
2002
Convenience
translation
into U.S. $
New Israeli Shekels
(note 1a)
In thousands
A
s s e t s
CURRENT ASSETS:
Cash and cash equivalents
5,272
1,360
287
Security deposit (note 6)
107,794
22,756
Accounts receivable (note 13):
Trade
458,434
518,768
109,514
Other
42,930
50,986
10,763
Inventories
124,512
137,508
29,028
T o t a l  current assets
631,148
816,416
172,348
INVESTMENTS AND LONG-TERM RECEIVABLES:
Non-marketable securities (note 2)
8,244
3,530
745
Security deposit (note 6)
100,869
Accounts receivable—trade (note 13)
3,696
Funds in respect of employee rights upon retirement (note 7)
28,160
42,461
8,964
140,969
45,991
9,709
FIXED ASSETS
, net of accumulated depreciation and
amortization (note 3)
1,749,052
1,864,511
393,606
LICENSE AND DEFERRED CHARGES
,
net of accumulated amortization (note 4)
1,112,959
1,269,348
267,965
T o t a l  assets
3,634,128
3,996,266
843,628
/s/ Amikam Cohen
/s/ Alan Gelman
/s/ Avraham Bigger
Amikam Cohen
Chief Executive Officer
Alan Gelman
Chief Financial Officer
Avraham Bigger
Director
Page F-2
Table of Contents
December 31
2001
2002
2002
Convenience
translation
into U.S. $
New Israeli Shekels
(Note 1a)
In thousands
Liabilities,
Net of Capital Deficiency
Current Liabilities:
Current maturities of long-term bank loans (note 5)
483,897
Accounts payable and accruals:
Trade
524,642
532,987
112,516
Other (note 13)
186,165
202,166
42,678
T o t a l  current liabilities
1,194,704
735,153
155,194
Long-Term Liabilities:
Bank loans, net of current maturities (note 5)
1,818,066
2,467,556
520,911
Notes payable (note 6)
772,800
828,975
175,000
Liability for employee rights upon retirement (note 7)
42,334
60,966
12,870
T o t a l  long-term liabilities
2,633,200
3,357,497
708,781
Commitments and Contingent Liabilities (note 8)
T o t a l  liabilities
3,827,904
4,092,650
863,975
Capital Deficiency (note 9):
Share
capital - ordinary shares of NIS 0.01 par
value: authorized - December 31, 2001
200,000,000 shares and December 31, 2002 -
235,000,000 shares; issued and outstanding -
December 31, 2001 - 178,924,585 shares and
December 31, 2002 - 181,595,222 shares
1,789
1,816
383
Capital surplus
2,298,080
2,293,270
484,119
Deferred compensation
(24,362
)
(6,385
)
(1,348
)
Accumulated deficit
(2,469,283
)
(2,385,085
)
(503,501
)
T o t a l  capital deficiency
(193,776
)
(96,384
)
(20,347
)
3,634,128
3,996,266
843,628
The accompanying notes are an integral part of the financial statements.
Page F-3
Table of Contents
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
2000
2001
2002
2002
Convenience
translation
into U.S. $
New Israeli Shekels
(Note 1a)
In Thousands (Except Per Share Data)
Revenues
, net
2,103,859
3,249,349
4,054,563
855,935
Cost of Revenues
2,161,507
2,719,163
3,069,458
647,975
Gross Profit (Loss)
(57,648
)
530,186
985,105
207,960
Selling and Marketing Expenses
327,881
292,960
308,079
65,037
General and Administrative Expenses
154,637
134,282
143,594
30,313
Operating Profit (Loss)
(540,166
)
102,944
533,432
112,610
Financial Expenses
, net
228,609
400,927
445,180
93,979
Loss on Impairment of Investments in Non-Marketable
Securities (note 2)
8,862
4,054
856
Net Income (Loss) Before Cumulative Effect of a Change
in Accounting Principles
(768,775
)
(306,845
)
84,198
17,775
Cumulative Effect, at Beginning of Year, of a Change
in Accounting Principles (note 1)
3,483
Net Income (Loss) for the Year
(768,775
)
(303,362
)
84,198
17,775
Earnings (Loss) Per Share ("EPS"):
Basic:
Before cumulative effect
(4.30
)
(1.72
)
0.47
0.10
Cumulative effect
0.02
(4.30
)
(1.70
)
0.47
0.10
Diluted:
Before cumulative effect
(4.30
)
(1.72
)
0.46
0.10
Cumulative effect
0.02
(4.30
)
(1.70
)
0.46
0.10
Weighted Average Number of Shares Outstanding:
Basic
178,888,888
178,909,274
179,984,090
179,984,090
Diluted
178,888,888
178,909,274
183,069,394
183,069,394
The accompanying notes are an
integral part of the financial statements.
Page F-4
Table of Contents
Partner Communications Company
Ltd.
(An Israeli Corporation)
Consolidated Statements Of Changes In Shareholders' Equity (Capital Deficiency)
Share capital
Number of
Capital
Deferred
Accumulated
shares
Amount
surplus
compensation
deficit
Total
(In thousands)
New Israeli Shekels:
Balance at December 31, 1999
178,888,888
1,789
2,280,968
(84,619
)
(1,397,146
)
800,992
Changes During the Year Ended December 31, 2000:
Receipts from exercise of stock options granted to employees
on account of shares to be allotted
5
5
Deferred compensation related to employee stock option grants
37,020
(37,020
)
Amortization of deferred compensation related to employee
stock options grants
56,618
56,618
Loss
(768,775
)
(768,775
)
Balance at December 31, 2000
178,888,888
1,789
2,317,993
(65,021
)
(2,165,921
)
88,840
Changes During the Year Ended December 31, 2001:
Exercise of options granted to employees
35,697
*
47
47
Amortization of deferred compensation related to employee
stock option grants net of deferred compensation with
respect to stock options forfeited
(19,960
)
40,659
20,699
Loss
(303,362
)
(303,362
)
Balance at December 31, 2001
178,924,585
1,789
2,298,080
(24,362
)
(2,469,283
)
(193,776
)
Changes During the Year Ended December 31, 2002:
Exercise of options granted to employees
2,670,637
27
4,210
4,237
Amortization of deferred compensation related to employee
stock option grants net of deferred compensation with
respect to stock options forfeited
(9,020
)
17,977
8,957
Net income
84,198
84,198
Balance at December 31, 2002
181,595,222
1,816
2,293,270
(6,385
)
(2,385,085
)
(96,384
)
* Representing an amount less than NIS 1,000
F-5
Table of Contents
Share capital
Number of
Capital
Deferred
Accumulated
shares
Amount
surplus
compensation
deficit
Total
(In thousands)
Convenience translation into u.s. dollars (note 1a):
Balance at January 1, 2002
178,924,585
377
485,135
(5,143
)
(521,276
)
(40,907
)
Changes During the Year Ended December 31, 2002:
Exercise of options granted to employees
2,670,637
6
888
894
Amortization of deferred compensation related
to employee stock option grants net of
deferred compensation with respect to stock
options forfeited
(1,904
)
3,795
1,891
Net income
17,775
17,775
Balance at December 31, 2002
181,595,222
383
484,119
(1,348
)
(503,501
)
(20,347
)
The accompanying notes are an integral part of the financial statements.
F-6
Table of Contents
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31
2000
2001
2002
2002
Convenience
translation
into U.S. $
New Israeli Shekels
(note 1a)
In thousands
Cash Flows From Operating Activities:
Net income (loss) for the year
(768,775
)
(303,362
)
84,198
17,775
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization
431,510
538,267
516,199
108,972
Loss on impairment of investments in non-marketable
securities
8,862
4,054
856
Amortization of deferred compensation related to
employee stock option grants, net
56,618
20,699
8,957
1,891
Liability for employee rights upon retirement
11,581
18,736
18,632
3,933
Accrued interest, exchange and linkage differences on
(erosion of) long-term liabilities
(13,214
)
54,522
91,027
19,216
Accrued interest and exchange differences on security
deposit
(2,574
)
(6,590
)
(6,925
)
(1,462
)
Amount carried to deferred charges
(7,489
)
(22
)
(3,805
)
(803
)
Sundry
(181
)
1,647
839
177
Changes in operating asset and liability items:
Decrease (increase) in accounts receivable:
Trade
(197,308
)
(55,944
)
(56,638
)
(11,957
)
Other
23,970
(14,235
)
(8,056
)
(1,701
)
Increase (decrease) in accounts payable and accruals:
Trade
93,499
57,271
31,909
6,736
Shareholder's current account
20
(2,230
)
Other
84,685
68,068
14,796
3,124
Decrease (increase) in inventories
(65,614
)
36,859
(12,996
)
(2,744
)
Net cash provided by (used in) operating activities
(353,272
)
422,548
682,191
144,013
Cash Flows From Investing Activities:
Purchase of fixed assets
(712,377
)
(601,050
)
(599,769
)
(126,613
)
Proceeds from sale of fixed assets
1,063
1,771
5,737
1,211
Investment in non-marketable securities
(16,446
)
Investment in security deposit
(91,705
)
Purchase of additional spectrum
(207,635
)
(43,833
)
Funds in respect of employee rights upon retirement
(6,712
)
(13,336
)
(14,301
)
(3,019
)
Net cash used in investing activities
(809,731
)
(629,061
)
(815,968
)
(172,254
)
Page F-7
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PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
2000
2001
2002
2002
Convenience
translation
into U.S. $
New Israeli Shekels
(note 1a)
In thousands
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options granted to
employees
5
47
4,237
894
Proceeds from issuance of notes payable, net
684,463
Long-term bank loans received
1,119,032
1,111,869
1,349,326
284,848
Repayment of long-term bank loans
(1,054,725
)
(901,000
)
(1,223,698
)
(258,327
)
Net cash provided by financing activities
748,775
210,916
129,865
27,415
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(414,228
)
4,403
(3,912
)
(826
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
415,097
869
5,272
1,113
CASH AND CASH EQUIVALENTS AT END OF YEAR
869
5,272
1,360
287
SUPPLEMENTARY DISCLOSURE OF CASH FLOW
INFORMATION—CASH PAID DURING THE YEAR:
Interest
164,198
285,465
323,841
68,364
Advances to income tax authorities
1,440
5,617
5,207
1,099
Supplementary information on investing activities not involving cash flows
At December 31, 2000, 2001 and 2002, trade payables include NIS 144,482,000, NIS
148,276,000 and NIS 117,406,000 ($ 24,785,000), respectively, in respect of
acquisition of fixed assets. In addition, at December 31, 2002, trade payables
include NIS 7.2 million ($ 1.5 million) in respect of acquisition of additional
spectrum. These balances will be given recognition in these cash flow statements
upon payment.
The accompanying notes are an
integral part of the financial statements.
Page F-8
Table of Contents
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies, applied on a consistent basis, are as
follows:
a.
General:
Nature of Operations:
1)
Partner Communications Company Ltd. ("the Company") operates a
mobile telecommunications network based upon the Global System
for Mobile Communications ("GSM") Standard in Israel.
2)
The Company was incorporated on September 29, 1997. The
Company operates under a license granted by the Ministry of
Communications to operate a cellular telephone network for a
period of 10 years beginning April 7, 1998. At the beginning
of January 1999, the Company commenced full commercial
operations.
The Company paid a "one-time" license fee of approximately new
Israeli shekels (NIS) 1.6 billion which is presented under
"license and deferred charges". The Company is entitled to
request extension of the license for an additional period of
six years and then renewal for one or more further six year
periods. Should the license not be renewed, the new
license-holder is obliged to purchase the communications
network and all the rights and obligations of the subscribers
for a fair price, as agreed between the parties or as
determined by an arbitrator.
In December 2001, the Company was awarded additional spectrum
(2G band (1800MHz) and 3G band (1900MHz and 2100MHz)).
Following the award of the above spectrum, the Company's
license was amended and extended through 2017. During June
2002, the Minister of Communications amended and extended the
license through 2022.
As to the change in estimate of the useful life of the license
see also note f(1) below.
In consideration for the above additional spectrum the Company
is committed to pay NIS 180 million ($38 million) for the 2G
spectrum in two installments (payable by the end of 2003) and
NIS 220 million ($46 million) for the 3G spectrum in six
installments through
Page F-9
Table of Contents
2006. Out of the above mentioned amounts, approximately NIS 208
million (approximately $44 million) was paid during the year
ended December 31, 2002.
Under the terms of the amended license, the Company has
provided a guarantee in NIS equivalent to $ 20 million to the
State of Israel to secure the Company's adherence to the terms
of the license.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting years. Actual results could
differ from those estimates.
Functional currency and
reporting currency
The functional currency of the Company and its subsidiary is the local
currency New Israeli Shekels — NIS. The consolidated financial
statements have been drawn up on the basis of the historical cost of
Israeli currency and are presented in NIS.
Convenience translation into
U.S. dollars ("Dollars" or "$")
The NIS figures at December 31, 2002 and for the year then ended have
been translated into dollars using the representative exchange rate of
the dollar at December 31, 2002 ($1 = NIS 4.737). The translation was
made solely for convenience. The translated dollar figures should not
be construed as a representation that the Israeli currency amounts
actually represent, or could be converted into, dollars.
Accounting principles
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States
(U.S. GAAP).
b.
Principles of consolidation:
1)
The consolidated financial statements include the
accounts of the Company and its wholly-owned
subsidiary (together — the Group).
2)
Intercompany balances between the Company and its
subsidiary have been eliminated.
Page F-10
Table of Contents
c.
Inventories
Inventories of cellular telephones (handsets) and accessories are
stated at the lower of cost or net realizable value (which reflects the
value to the business of the handsets in the hands of the subscribers).
Cost is determined on the "first-in, first-out" basis.
d.
Non-marketable securities
These investments are stated at cost, less of impairment losses.
e.
Fixed Assets:
1)
These assets are stated at cost, handsets for use
abroad by subscribers are carried by the base stock
method.
2)
Direct consultation and supervision costs and other
direct costs relating to setting up the Company's
communications network and information systems for
recording and billing calls are capitalized to cost
of the assets.
3)
Interest costs in respect of loans and credit which
served to finance the construction or acquisition of
fixed assets — incurred until installation of the
fixed assets is completed — are capitalized to cost
of such assets.
4)
Assets are depreciated by the straight-line method,
on basis of their estimated useful life. Annual rates
of depreciation are as follows:
%
Communications network
10 — 20 (mainly 15)
Computers, hardware and software
for information systems
15-33
Vehicles
20
Office furniture and equipment
7-15
Leasehold improvements are amortized by the
straight-line method over the term of the lease, or
the estimated useful life of the improvements,
whichever is shorter.
During 2002, the Company decided to terminate the
lease agreement for one of its headquarter buildings
on March 2003, in favor of a new building (see note
8a(2)d) and abandon part of its leasehold
improvements.
Page F-11
Table of Contents
Following the abandonment of the leasehold improvements the
amortized balance of the existing leasehold improvements is
amortized on a straight-line basis as of October 1, 2002—over the period of 6 months ending March 31, 2003.
As a result of that change, in 2002, amortization expenses
increased and net income decreased by approximately NIS 7
million (approximately $ 1.5 million) and earnings per share,
basic and diluted, decreased by NIS 0.04 ($ 0.01) compared to
the figures computed based on the amortization rates used
prior to the changes in the estimated useful life.
5)
Computer Software Costs
The cost of internal-use software which has a useful life in
excess of one year is capitalized in accordance with Statement
of Position (SOP) No. 98-1, " Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use."
Subsequent additions, modifications or upgrades to
internal-use software are capitalized only to the extent that
they allow the software to perform a task it previously did
not perform. Software maintenance and training costs are
expensed in the period in which they are incurred. Capitalized
computer software costs are amortized using the straight-line
method over a period of 5 to 7 years.
f.
License and Deferred Charges:
1)
License (see also a(2) above):
The license is stated at cost and is amortized by the
straight-line method over the utilization period of the
license (January 1, 1999—commencement).
Through the period ended December 31, 2001 the license was
amortized over 9.25 years.
Following the extensions of the license (as described in note
1a. above) the amortized balance of the Company's existing
license as well as the cost of the additional spectrum put
into service are amortized on a straight-line basis as
follows: as of January 1, 2002—over the period ending in
2017; as of April 1, 2002—over the period ending in 2022.
The costs relating to 3G band are not amortized since the
utilization period has not yet commenced.
As a result of that change, in 2002, license amortization
expenses (included in "cost of revenues") decreased and net
income increased by approximately NIS 113 million
(approximately $ 24 million) and earnings per share increased
by NIS 0.63 ($ 0.13)
Page F-12
Table of Contents
compared to the figures computed based on the amortization
rates used prior to the changes in the estimated useful life.
Expenses in obtaining loans and credit which served to finance
the license fee—incurred until the commencement of
utilization of the license—are capitalized to cost of the
license.
During the year 2002—NIS 7 million ($ 1.5 million) interest
costs were capitalized to the cost of the license.
2)
Deferred charges:
(a)
Costs relating to the obtaining of long-term credit
lines are amortized using the effective interest rate
stipulated for the borrowing transactions.
(b)
Issuance costs relating to Notes payable (see note 6)
are amortized using the effective interest rate
stipulated for the Notes.
g.
Impairment of Long-Lived Assets
The Company has adopted Statement of Financial Accounting Standards No.
144 (FAS 144), "Accounting for the Impairment or Disposal of Long-Lived
Assets" effective January 1, 2002. FAS 144 requires that long-lived
assets, to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. Under FAS 144, if the sum
of the expected future cash flows (undiscounted and without interest
charges) of the long-lived assets is less than the carrying amount of
such assets, an impairment loss would be recognized, and the assets of
written down to their estimated fair values.
The adoption of FAS 144 did not have any impact on the consolidated
financial position and results of operations.
h.
Cash equivalents
The Company considers all highly liquid investments, which include
short-term bank deposits (up to 3 months from date of deposit) that are
not restricted as to withdrawal or use, to be cash equivalents.
i.
Comprehensive income
The Company has no comprehensive income components other than net
income (loss).
Page F-13
Table of Contents
j.
Revenue recognition
Revenues from telecommunication services primarily consist of charges
for airtime, roaming and value added services provided to the Company's
customers, are recognized upon performance of the services. Revenues
from pre-paid calling cards are recognized upon customer's usage of the
cards. Revenues from sale of handsets and accessories are recognized
upon delivery and the transfer of ownership to the subscriber.
k.
Concentration of credit risks—allowance for doubtful accounts
The Company's revenues are derived from a large number of customers.
Accordingly, the Company's trade balances do not represent a
substantial concentration of credit risk.
An appropriate provision for doubtful accounts is included in the
accounts of the Company. The allowance charged to expenses, determined
as a percentage of specific debts doubtful of collection for the years
ended December 31, 2000, 2001 and 2002 aggregated NIS 33,001,000 NIS
14,696,000 and NIS 12,753,000 ($ 2,692,000) (see also note 13a),
respectively.
The cash and cash equivalents and security deposit as of December 31,
2002 are deposited mainly with leading Israeli banks. Therefore, in the
opinion of the Company, the credit risk inherent in these balances is
remote.
The Company factors most of its long-term trade receivables resulting
from sales of handsets. The factoring is made through clearing
companies, on a non-recourse basis. The transfer of accounts receivable
was recorded by the Company as a sales transaction under the provisions
of Statement of Financial Accounting Standards No.140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. The resulting costs are charged to "financial
expenses-net", as incurred. During the years ended December 31, 2000,
2001 and 2002, the Company factored NIS 98,023,000, NIS 180,302,000 and
NIS 209,568,000 ($44,240,000), respectively, from long-term trade
receivables.
l.
Handsets warranty obligations
Until the year 2002 provision for warranty was not provided for, as the
Company's liability was covered by the handsets suppliers' warranty. As
of 2002, the Company has entered into several agreements under which
the supplier does not provide any warranty but rather provides
additional handsets to satisfy its warranty obligation. In these cases,
the Company provides for
Page F-14
Table of Contents
warranty costs at the same time as the revenues are recognized. The
annual provision is calculated at the rate of 1.5%-3.5% of these sales.
As of December 31, 2002, the provision for warranty and the related
expenses of the year then ended totaled NIS 2,589,000 ($ 547,000).
m.
Advertising expenses
Advertising expenses are charged to the statement of operations as
incurred. Advertising expenses for the years ended December 31, 2000,
2001 and 2002 aggregated NIS 134,969,000, NIS 91,681,000 and NIS
96,061,000 ($ 20,279,000), respectively.
n.
Deferred income taxes
Deferred taxes are determined utilizing the asset and liability method,
based on the differences between the amounts presented in these
financial statements and those taken into account for tax purposes, in
accordance with the related tax laws. Valuation allowances are included
in respect of deferred tax assets when it is more likely than not that
no such assets will be realized (see also note 10).
o.
Foreign currency transactions and balances
Balances in, or linked to, foreign currency are stated on the basis of
the exchange rates prevailing at balance sheet dates. For foreign
currency transactions included in the statements of operations, the
exchange rates at transaction dates are used. Transaction gains or
losses arising from changes in the exchange rates used in the
translation of such balances are carried to financial income or
expenses.
p.
Derivative financial instruments ("Derivatives")
The Company has adopted FAS 133 as of January 1, 2001. FAS 133, as
amended, establishes accounting and reporting standards for
derivatives, including certain derivatives embedded in other contracts,
and for hedging activities. Under FAS 133, all derivatives are
recognized on the balance sheet at their fair value. On the date that
the Company enters into a derivative contract, it designates the
derivative, for accounting purposes, as: (1) hedging instrument, or (2)
non-hedging instrument. Any changes in fair value are to be reflected
as current gains or losses or other comprehensive gains or losses,
depending upon whether the derivative is designated as a hedge and what
type of hedging relationship exists. Changes in fair value of
non-hedging instruments are carried to "financial
expenses—net", on a
current basis.
Page F-15
Table of Contents
The Company occasionally enters into commercial (foreign currency)
contracts in which a derivative instrument is "embedded". This embedded
derivative is separated from the host contract and carried at fair
value when (1) the embedded derivative possesses economic
characteristics that are not clearly and closely related to the
economic characteristics of the host contract and (2) a separate,
stand-alone instrument with the same terms would qualify as a
derivative instrument.
The adoption of FAS 133 resulted in recording additional income of
approximately NIS 3.5 million included in the statement of operations
of 2001 under "cumulative effect, at beginning of year, of a change in
accounting principles", which was recorded against an asset in the
balance sheet, of the same amount. This cumulative effect reflects the
fair value of embedded derivatives (see also note 12b.) as of that
date.
Prior to the adoption of FAS 133, the Company used separate,
stand-alone derivative instruments (as apposed to embedded derivative),
for accounting purposes, as hedging and non-hedging instruments. Gains
and losses on derivatives that were hedged existing assets or
liabilities were recognized in income commensurate with the results
from those assets or liabilities.
Foreign currency derivatives, which are designated to reduce the
Company's exposure to foreign currency risks pertaining to anticipated
transactions and which do not qualify as hedging transactions, were
presented at market value in each of the reported years and the income
or losses in respect thereof are carried to "financial expenses—net"
on a current basis, see also note 12b.
q.
Earnings (loss) per share ("EPS")
Basic EPS is computed by dividing net income (loss) by the weighted
average number of shares outstanding during the years.
Diluted EPS reflects the increase in the weighted average number of
shares outstanding that would result from the assumed exercise of
options, calculated using the treasury-stock-method (in 2000 and 2001,
such effect was not included since it would have been anti-dilutive).
Page F-16
Table of Contents
r.
Stock based compensation
The Company accounts for its employee stock option plans using the
treatment prescribed by APB No. 25, "Accounting for Stock Issued to
Employees" and related interpretations.
Under APB 25, compensation cost for employee stock option plans is
charged to shareholders' equity, on the date of grant of the options,
under "deferred compensation costs" and is then amortized over the
vesting period using the accelerated method of amortization.
FAS No. 123 "Accounting for Stock-Based Compensation", establishes a
fair value based method of accounting for employee stock options or
similar equity instruments, and encourages adoption of such method for
stock compensation plans. However, it also allows companies to continue
to account for those plans using the accounting treatment prescribed by
APB 25. The Company has elected to continue accounting for employee
stock option plans according to APB 25, and accordingly discloses pro
forma data assuming the Company had accounted for employee stock option
grants using the fair value based method as defined in FAS 123.
The weighted average fair value of options granted using the Black &
Scholes option-pricing model during 2000, 2001 and 2002 is NIS 23.25
(below market value—NIS 56.9, at market value—NIS 18.6), NIS 18.08
and NIS16.68 ($3.52), respectively. The fair value of each option
granted is estimated on the date of grant based on the following
weighted average assumptions: weighted average dividend yield of 0%;
expected volatility of 75%, 83% and 69%, respectively; risk-free
interest rate: in dollar terms—2000-6.5%; in NIS terms—2000-8%,
2001-6.9%, 2002-7.7%.; weighted expected life: plan A—2002, 9 years
(2000 and 2001-8 years); Plan B—9 years in each year.
The following table illustrates the effect on net income and earnings
per share assuming the Company had applied the fair value recognition
provisions of FAS 123 to its stock based employee compensation:
Page F-17
Table of Contents
Year ended December 31,
2000
2001
2002
2002
Convenience
translation
New Israeli Shekels
into dollars
In thousands, except per share data
Net income (loss), as reported
(768,775
)
(303,362
)
84,198
17,775
Add: stock based employee Compensation expense, included in reported
net income (loss)
56,618
20,699
8,957
1,891
Deduct: stock based employee Compensation expense determined under fair
value method for all awards
(64,064
)
(59,476
)
(30,029
)
(6,339
)
Pro-forma net income (loss)
(776,221
)
(342,139
)
63,126
13,327
Earning
(loss) per share—
Basic—as reported:
before cumulative effect
(4.30
)
(1.72
)
0.47
0.10
cumulative effect
0.02
(4.30
)
(1.70
)
0.47
0.10
Basic—pro forma:
before cumulative effect
(4.34
)
(1.93
)
0.35
0.07
cumulative effect
0.02
(4.34
)
(1.91
)
0.35
0.07
Diluted—as reported:
before cumulative effect
(4.30
)
(1.72
)
0.46
0.10
cumulative effect
0.02
(4.30
)
(1.70
)
0.46
0.10
Diluted—pro-forma:
before cumulative effect
(4.34
)
(1.93
)
0.34
0.07
cumulative effect
0.02
(4.34
)
(1.91
)
0.34
0.07
The Pro-forma net loss for the years ended December 31, 2000 and 2001 should
have been NIS 776,221,000 and NIS 342,139,000 rather than NIS 769,043,000 and
NIS 303,639,000 as reported in the prior years' reports, respectively. The
Pro-forma net loss per share, basic and diluted, for the years ended December
31, 2000 and 2001 should have been NIS 4.34 and NIS 1.91 rather than NIS 4.30
and NIS 1.70 as reported in the prior years' reports, respectively.
Page F-18
Table of Contents
s.
Recently issued accounting
pronouncements:
1)
FAS 143
In July 2001, the FASB issued FAS 143, "Accounting for Asset
Retirement Obligations" ("FAS 143") . FAS 143
prescribes the accounting for retirement obligations associated with tangible
long-lived assets, including the timing of liability
recognition and initial measurement of the liability. FAS 143
requires that an asset retirement cost should be capitalized
as part of the cost of the related long-lived asset and
subsequently allocated to expense using a systematic and
rational method. FAS 143 is effective for fiscal years
beginning after June 15, 2002 (January 1, 2003 for the
company).
The Company does not expect the adoption of this standard to
have a material effect on its consolidated financial
statements.
2)
FAS 145
In April 2002, the FASB issued FAS No. 145, "Revision of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Connections" ("FAS 145"). Among other
amendments and rescissions, FAS 145 eliminates the requirement
that gains and losses from the extinguishments of debt be
aggregated and, if material, classified as an extraordinary
item, net of the related income tax effect, unless such gains
and losses meet the criteria in paragraph 20 of Accounting
Principles Board Opinion No. 30, "Reporting the Results of
Operation—Reporting the Effects of Disposal of a Segment of
a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions". FAS 145 is partially
effective for transactions occurring after May 15, 2002 and
partially effective for fiscal years beginning after May 15,
2002.
The Company does not expect the adoption of this standard to
have a material effect on its consolidated financial
statements.
3)
FAS 146
In June 2002, the FASB issued FAS No. 146 "Accounting for
Costs Associated with Exit or Disposal activities" ("FAS
146"). FAS 146 addresses financial accounting and reporting
for costs associated with exit or disposal activities and
nullifies EITF 94-3 "Liability Recognition for Certain
Employee Termination Benefits and other Costs to Exit an
Activity (including Certain Costs Incurred in a
restructuring)". FAS 146 required that a liability for a cost
associated with an exit or disposal activity to be recognized
when the liability is incurred. Under EITF 94-3, a liability
for an exit cost as generally defined in EITF 94-3 was
recognized at the date of the commitment to an exit plan. FAS
146 states that a
Page F-19
Table of Contents
commitment to a plan, by itself, does not create an obligation
that meets the definition of a liability. Therefore, FAS 146
eliminates the definition and requirements for recognition of
exit costs in EITF 94-3. It also establishes that fair value
is the objective for initial measurement of the liability. FAS
146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002.
The Company does not expect the adoption of this standard to
have a material effect on its consolidated financial
statements.
4)
FAS 148
In December 2002, the FASB issued FAS No. 148, "Accounting for
Stock-Based Compensation—Transition and Disclosure—an
amendment of FASB Statement No. 123." FAS No. 148 amends FAS
No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based
employee compensation. In addition, FAS No. 148 amends the
disclosure requirements of FAS No. 123 to require prominent
disclosures in the financial statements about the method of
accounting for stock-based employee compensation and the
effect of the method used on reported results. The transition
guidance and annual disclosure provisions of FAS No. 148 are
effective for financial statements issued for fiscal years
ending after December 15, 2002. The Company elected to
continue accounting for employee stock based compensation in
accordance with APB 25 and related interpretations and has
applied the disclosure provisions in FAS No. 148 in these
consolidated financial statements and the accompanying notes.
5)
FIN 45
In November 2002, the FASB issued FASB Interpretation No. 45
"Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others" ("FIN 45"). FIN 45 requires the guarantor to
recognize, at the inception of a guarantee, a liability for
the fair value of the obligation undertaken in issuing the
guarantee. It also elaborates on the disclosures to be made by
a guarantor in its financial statements about its obligations
under certain guarantees that it has issued and to be made in
regard of product warranties. Disclosures required under FIN
45 are already included in these financial statements,
however, the initial recognition and initial measurement
provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002.
The Company does not expect the adoption of FIN 45 to have a
material effect on its consolidated financial statements.
Page F-20
Table of Contents
6)
FIN 46
In January 2003, the FASB issued FASB Interpretation No. 46
"Consolidation of Variable Interest Entities" (FIN 46). Under
this FIN entities are separated into two populations: (1)
those for which voting interests are used to determine
consolidation (this is the most common situation) and (2)
those for which variable interests are used to determine
consolidation. The FIN explains how to identify Variable
Interest Entities (VIE) and how to determine when a business
enterprise should include the assets, liabilities, no
controlling interests, and results of activities of a VIE in
its consolidated financial statements.
The FIN is effective as follows: for variable interests in
variable interest entities created after January 31, 2003 the
FIN shall apply immediately, for variable interests in
variable interest entities created before that date, the FIN
shall apply—for public entities—as of the beginning of the
first interim or annual reporting period beginning after June
15, 2003.
The Company does not expect the adoption of this FIN to have
any effect on its consolidated financial statements.
t.
Reclassification
Certain comparative figures have been reclassified to conform
to the current year presentation.
Page F-21
Table of Contents
NOTE 2 – INVESTMENTS IN
NON-MARKETABLE SECURITIES:
The Company and its subsidiary have entered into agreements with a
number of technological companies in the early stages of development of cellular
products (hereafter—the start-up companies). Under the agreements, the Group
is to supply infrastructure and support services, which the start-up companies
need to develop their products, in consideration of options and shares in those
companies. In some cases, the Group is also entitled to royalties on future
sales of the products of the start-up companies. Based on the opinion of the
financial advisors of the Group and the early stages of those companies, the
fair value of the securities granted to the Group, on the grant date and as of
December 31, 2002, is not material.
The Group's holdings in the start-up companies (current and fully
diluted) do not exceed 15% of the share capital of any one of them and does not
give the Group significant influence over any one of them. Therefore, the
investments therein are presented on a cost basis.
During 2002, the Company has recorded an impairment loss of
approximately NIS 4.1 million (approximately $0.9 million)
(2001—approximately
NIS 8.9 million) in respect of the above investments, based on valuations by the
Company's financial advisor.
Page F-22
Table of Contents
NOTE 3 – FIXED ASSETS:
a.
Composition of fixed assets—net, is as follows:
December 31
2001
2002
2002
Convenience
translation
New Israeli Shekels
into U.S. $
in thousands
Communications network
1,989,474
2,398,907
506,419
Computers, hardware and software for information systems
370,620
471,079
99,447
Vehicles
28,372
24,955
5,268
Office furniture and equipment
28,723
31,641
6,679
Leasehold improvements
93,393
140,376
29,634
Cellular telephones—base stock
6,309
6,309
1,332
2,516,891
3,073,267
648,779
Less—accumulated depreciation and amortization
767,839
1,208,756
255,173
1,749,052
1,864,511
393,606
Depreciation and amortization in respect of fixed assets totaled NIS
254,992,000, NIS 361,265,000 and NIS 446,970,000 ($94,357,000) for the
years ended December 31, 2000, 2001 and 2002, respectively.
b.
Fixed assets include interest expenses, direct consultation and
supervision costs and other direct costs of establishing the cellular
communications network and information systems, which were capitalized
(before commencing full commercial operations) in respect of:
December 31
2001
2002
2002
Convenience
translation into
New Israeli Shekels
dollars
in thousands
Communications network
69,858
69,858
14,747
Computers, hardware and software
15,566
15,566
3,286
85,424
85,424
18,033
L e s s—accumulated depreciation
38,814
51,752
10,925
Depreciated balance
46,610
33,672
7,108
c.
As to pledges on the fixed assets—see note 11.
Page F-23
Table of Contents
NOTE 4 – LICENSE AND DEFERRED CHARGES:
December 31
2001
2002
2002
Convenience
translation
New Israeli Shekels
into dollars
in thousands
a. License (note 1a(2))
1,570,901
1,792,714
378,449
Less—accumulated amortization
509,443
571,485
120,643
1,061,458
1,221,229
257,806
b. Deferred charges—in respect of:
Obtaining long-term credit lines
52,191
55,996
11,821
Notes payable
22,017
22,017
4,648
74,208
78,013
16,469
Less—accumulated amortization
22,707
29,894
6,310
51,501
48,119
10,159
1,112,959
1,269,348
267,965
License and deferred charges amortization expenses for the years ended
December 31, 2000, 2001 and 2002 totaled NIS 176,517,000 NIS 177,002,000 and NIS
69,229,000 ($14,615,000), respectively, see also note 1f.
The expected license amortization expenses for the next five years are
as follows:
New
Convenience
Israeli
translation
Shekels
into dollars
in thousands
Year ended December 31:
2003
58,408
12,329
2004
64,256
13,565
2005
64,256
13,565
2006
64,256
13,565
2007
64,256
13,565
Page F-24
Table of Contents
NOTE 5 – LONG-TERM BANK LOANS
In December 2002, the Company entered into an Amending Agreement in
connection with its primary secured bank credit facility, with Bank Leumi B.M.,
Bank Hapoalim B.M., Israel Discount Bank Ltd., The First International Bank of
Israel Ltd., United Mizrahi Bank Ltd., Mercantile Discount Bank Ltd. and
Citibank N.A., which amends the bank facility agreement dated August 1998
between the Company and the above mentioned banks, as amended from time to time.
The amended facility is divided into three tranches: A multi-currency
term loan facility of $410 million ("Facility A"), a revolving multi-currency
loan facility of $150 million ("Facility B") and a fixed-term NIS loan facility
of $150 million ("Facility C").
The bank facility is a dollar denominated facility and it may be drawn
in different currencies, see c. below.
a.
Status of the facility at December 31, 2002 is as follows:
Amounts
The total
Amounts
available
facility
drawn
for drawing
Dollars in millions
Facility A
410
381
29
Facility B
150
138
12
Facility C
150
150
710
*519
191
Page F-25
Table of Contents
b.
The amounts outstanding, classified by linkage terms and interest
rates, are as follows:
December 31
December 31,
2002
2001
2002
2002
Weighted
average
interest rates
Amount
%
Convenience
translation
New Israeli Shekels
into dollars
In thousands
In NIS—linked to the Israeli consumer price
index (CPI)(1)
6.6
1,076,689
629,056
132,796
In NIS—unlinked (2)
10.0
1,225,274
1,838,500
388,115
2,301,963
2,467,556
*520,911
(1)
Linkage terms apply both to principal and interest.
(2)
The loans bear interest at the "on-call" rate (a varying inter-bank
rate in Israel), prime rate or fixed unlinked rate.
*
The amounts outstanding differ from the amounts drawn, due to differing
linkage terms.
c.
Facilities A and B, may be drawn in NIS, US dollars or Euros, provided
that not less than 60% of the outstanding Facilities A and B shall, at
any time, be in NIS and that only up to 40% of the outstanding
facilities A and B may be in US dollars or Euros. Facility C, may be
drown only in NIS.
d.
There is a range of options as to how interest is calculated on
borrowings under the amended facility. These options include rates
based on LIBOR, the bond rate, fixed linked rate, fixed unlinked rate,
on-call rate and prime rate. The margin for facility A and B is 0.90%
per annum and can be reduced down to 0.45% on fulfillment of some terms
specified in the agreement. The margin for facility C is 1.25% per
annum and may not be reduced.
Page F-26
Table of Contents
e.
The total commitments under the Facilities will be reduced during each
of the following years to the following amounts*:
Dollars
in millions
A
B
C
Total
December 31, 2002
410
150
150
710
2003
385
150
150
685
2004
356
150
150
656
2005
266
150
141
557
2006
172
150
114
436
2007
62
150
84
296
2008
0
0
72
72
June 30, 2009
0
0
0
0
*
In April 2002, the Company's credit facility was amended to reflect the
participation of Bank Hapoalim in the credit facility on the same terms
as the other lending banks. Prior to April 2002, the portion of this
loan (NIS 483,897,000), which had been advanced to the Company was
required to be repaid on March 31, 2002 because of the restrictions of
Bank of Israel relating to certain common ownership interests in the
bank and the Company. As a result of the above amendment, the relevant
balances owed to Bank Hapoalim under the credit facility, which were
recorded in the Company's annual financial statements for the year
ended December 31, 2001 as short-term liabilities were classified in
the balance sheet as of December 31, 2002 into long-term liabilities.
f.
Facility A may be drawn through March 31, 2003 and shall be repaid
until June 30, 2008. Facility B may be drawn and repaid until June 30,
2008. Facility C may be drawn through December 31, 2004 and shall be
repaid until June 30, 2009.
g.
Under the amended facility the Company is required, inter alia, to
fulfill certain operational conditions and to maintain certain
financial ratios. If the Company defaults on the covenants, the banks
are entitled to demand early repayment of the credit facility—in
whole or in part. The Company believes that it is in compliance with
all covenants stipulated by the amended facility. Under the amended
facility, the Company has undertaken not to transfer any amounts,
including dividends, to its shareholders, except in cases specified in
the Agreement.
h.
As to pledges to secure loans and liabilities and restrictions placed
with respect thereto, see note 11.
Page F-27
Table of Contents
NOTE 6 – NOTES PAYABLE:
On August 10, 2000, the Company completed an offering of $175 million
of unsecured Senior Subordinated Notes due 2010, which have been issued at their
dollar par value. The Notes have been registered under the U.S. Securities Act
of 1933. The net proceeds from the offering (approximately $170.5 million after
deducting commissions and offering expenses) were used mainly to repay a portion
of the indebtedness under the credit facility.
The Notes bear interest at the rate of 13% per annum which are payable
semi-annually on each February 15 and August 15, commencing February 15, 2001.
The Company may redeem up to 35% of the aggregate principal amount of the Notes
at any time prior to August 15, 2003, provided that immediately after giving
effect to any such redemption, at least 65% of the aggregate principal amount of
the Notes remains outstanding.
On December 31, 2002, the Notes closing price was 109 points.
Commission fees and offering expenses in respect of the Notes
aggregated approximately NIS 22 million. These expenses are presented as
deferred charges and the amortization in respect thereof is included in
"financial expenses, net".
The Company is obligated to keep a restricted deposit in the amount of
one year of interest payment until December 31, 2003, which was deposited and is
presented in the balance sheet under "security deposit". The deposit is
denominated in dollars and bears an annual interest as of December 31, 2002 of
1.3%.
Page F-28
Table of Contents
NOTE 7 – LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT:
a.
Israeli labor laws and agreements require payment of severance pay upon
dismissal of an employee or upon termination of employment in certain
other circumstances. The Company's severance pay liability to its
employees, mainly based upon length of service and the latest monthly
salary (one month's salary for each year worked), is reflected by the
balance sheet accrual under the "liability for employee rights upon
retirement". The Company records the liability as if it was payable at
each balance sheet date on an undiscounted basis. The liability is
partly funded by purchase of insurance policies and the amounts funded
are included in the balance sheet under investments and long-term
receivables, as "funds in respect of employee rights upon retirement".
The policies are the Company's assets and under labor agreements,
subject to certain limitations, they may be transferred to the
ownership of the beneficiary employees.
b.
The severance pay expenses for the years ended December 31, 2000, 2001
and 2002 were approximately NIS 16,151,000 NIS 21,113,000 and NIS
24,094,000 (approximately $ 5,086,000) respectively.
Page F-29
Table of Contents
NOTE 8 – COMMITMENTS AND CONTINGENT LIABILITIES:
a.
Commitments:
1)
Royalty Commitments
The Company is committed to pay royalties to the Government of
Israel on its "income from cellular services" as defined in
the Regulations (see below), which includes all kinds of
turnover of the licensee from the granting of Bezeq services
under the license—including airtime, roaming services and
non-recurring connection fees, but excluding: bad debts,
income transferred to another holder of a communications
license or payments to another communication licensee in
respect of interconnection, payments for roaming services to
foreign operators and expenses related to the sale of end
equipment.
On June 18, 2001, the Knesset's Finance Committee approved the
"Telecommunications (Royalties) Regulations, 2001"
(hereafter—the Regulations). The principal change to the old
regulations was the reduction of the percentage of royalties
payable by mobile phone companies from 8% to 5% in 2001, 4.5%
in 2002 and the further gradual reduction thereof to 3.5% in
2004. In addition, the basis in respect of which the royalties
are paid has been expanded (as described above). The amendment
is effective as from January 1, 2001.
The royalty expenses for the years ended December 31, 2000,
2001 and 2002 were approximately NIS 116,846,000, NIS
112,201,000 and NIS 117,281,000 (approximately $ 24,758,000),
respectively, and are included under "cost of revenues".
2)
Operating leases
The Company has entered into operating lease agreements as
follows:
a)
Lease agreement for its headquarters facility in Rosh
Ha'ayin for a twenty year period commencing in June 1998.
The Company has an option to shorten the lease period by
five to fifteen years. The rental payments are linked to
the Israeli CPI.
b)
Lease agreements for service centers and retail stores for
a period of two to five years. The Company has an option to
extend the lease periods for up to twenty additional years
(including the original lease periods). The rental payments
are linked partly to the dollar and partly to the Israeli
CPI.
c)
Lease agreements in respect of cell sites throughout Israel
are for periods of two to three years. The Company has an
option to extend the lease periods up to ten additional years (including the original lease periods).
The lease fees are partly linked to the dollar and are
partly linked to the Israeli CPI.
Page F-30
Table of Contents
d)
Lease agreement for additional building for the head office
in Rosh Ha'ayin, for a period of 16 years commencing in
November 2002. The Company has options to shorten the lease
period by five to ten years. The rental payments are linked
to the Israeli CPI.
e)
The minimum projected rental payments (based upon
agreements in force as of December 31, 2002) for the next
five years, at rates in effect at December 31, 2002, are as
follows:
Convenience
New Israeli
translation
Shekels
into dollars
In thousands
Year ended December 31
2003
101,192
21,362
2004
56,510
11,929
2005
30,818
6,506
2006
26,097
5,509
2007
16,586
3,501
2008 and thereafter
15,883
3,353
247,086
52,160
f)
The rental expenses for the years ended December 31, 2000,
2001 and 2002 were approximately NIS 68 million, NIS 93
million, and NIS 113 million (approximately $ 24 million),
respectively.
3)
At December 31, 2002, the Company is committed to acquire
fixed assets for approximately NIS 41 million (approximately $
9 million).
4)
At December 31, 2001, the Company is committed to acquire
handsets for approximately NIS 203 million (approximately $ 43
million).
5)
As to the Company commitment to pay NIS 202 million
(approximately $ 43 million) regarding the award of the new
spectrum, see note 1a.
Page F-31
Table of Contents
b.
Contingent Liabilities:
1)
On October 28, 1999, an Israeli consumer organization lodged a
claim against the Company, alleging a variety of consumer
complaints and requested that this claim be recognized as a
class action. While the amount of the claim was substantial,
the ultimate liability could not be determined because of the
considerable uncertainties that exist.
On March 20, 2002, the Haifa District Court decided to strike
the claim, because the consumer organization lost, on December
31, 2001, a special status required under Israeli law for
consumer organizations to file class action claims.
Another claim, involving a substantial amount, which was filed
by a private consumer who had previously asked to join the
above class action, may be brought again before the court. The
court had previously frozen the proceedings of the private
consumer's claim, until a decision was made in the case filed
by the consumer organization.
On June 20, 2002, legal counsel representing the consumer
organization informed the Company of his intention to resume
these proceedings.
At this stage, the Company and its legal counsel are unable to
evaluate the probability of success of the claims, if and when
re-opened, and therefore no provision has been made.
2)
On July 8, 2001 a claim was filed against the Company for
alleged violation of supplier's exclusivity agreement. For
filing purposes, the claim was set at NIS 18 million; however,
this amount can be increased by the claimant.
At this stage, since preliminary proceedings between the
parties are yet to take place, and the claim concerns a
contract interpretation issue, the company and its legal
counsel are unable to evaluate the probability of success of
the said litigation, and therefore no provision has been made.
3)
On December 31, 2001, a claim was filed against the Company
and another Israeli telecommunication companies together with
a request to approve this claim as a class action. The claim
is for air time charged in respect of calls, which were
terminated due to causes other than the termination of the
call by the parties thereto. The amount of the claim against
the Company is estimated at approximately NIS 21 million.
On January 2003, a mutually-agreed motion to strike out the
claim against the Company was granted by the court.
4)
On March 20, 2002, the Company received a demand by one of the
company's former distributors, mainly for alleged violation of
his exclusive distribution agreement.
Page F-32
Table of Contents
The amount of the demand against the Company is set at NIS 130
million for filing purposes, although the claimant states that
his damages far exceed the above amount.
To the date of these financial statements, this demand has not
been filed by the way of a legal claim.
At this stage, the Company and its legal counsel are unable to
evaluate the probability of success of the demand if filed by
the way of legal claim, and the amount of the claim, therefore
no provision has been made.
5)
On April 8, 2002, a claim was filed against the Company,
together with a request to approve this claim as a class
action, alleging a variety of consumer complaints. The amount
of the claim against the Company is estimated at approximately
NIS 545 million plus additional significant amounts related to
other alleged damages.
At this stage, no hearings have taken place and unless and
until the claim is certified as a class action, the Company
and its legal counsel are unable to evaluate the probability
of success of such claim, and therefore no provision has been
made.
In addition, the Company and its legal counsel are of the
opinion that even if the request to approve this claim as a
class action is granted, and even if the plaintiff's arguments
are accepted, the outcome of the claim will be significantly
lower than the abovementioned amount.
6)
On May 21, 2002, a claim was filed against the Company and
other Israeli telecommunication companies together with a
request to approve this claim as a class action. According to
the applicants, the defendants have entered into agreements
with commercial entities that offer the public various content
services via calls to cellular telephone numbers. The
applicants allege that, in fact, the calls are not carried out
by wireless but via a fixed line, an act that is in violation
of the law and the license. Accordingly, the applicants claim
that the defendants must refund the public all the amounts
that were charged in connection with said content services
agreements. The applicants do not know the amount of the class
action, but estimate it at NIS 600 million.
At this stage, no hearings have taken place and unless and
until the claim is certified as a class action, the Company
and its legal counsel are unable to evaluate the probability
of success of such claim, and therefore no provision has been
made. In addition, the Company and its legal counsel are of
the opinion that in light of those facts known at this early
stage, the abovementioned amount of the claim is excessive.
Page F-33
Table of Contents
7)
The Company does not have building permits for many of its
cell sites and as a result is involved in numerous legal
actions (including criminal proceedings against officers and
directors) relating to this issue. Most of these proceedings
have been settled under plea bargain arrangements, whereby the
Company has paid fines of insignificant amounts.
Management, based upon current experience and the opinion of
legal counsel, does not believe that these legal actions will
result in significant costs to the Company. The accounts do
not include a provision in respect thereof.
8)
The Company is a party to various claims arising in the
ordinary course of its operations. Management, based upon the
opinion of its legal counsel, is of the opinion that the
ultimate resolution of these claims will not have a material
effect on the financial position of the Company. The accounts
do not include a provision in respect thereof.
Page F-34
Table of Contents
NOTE 9 – SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY):
a.
Share Capital:
The Company's shares are traded on the London Stock Exchange ("LSE")
and, in the form of American Depository Receipts ("ADRs"), each of
which represents one ordinary share, on the U.S. over the counter
market ("Nasdaq—NSM"). During 2001, the company listed its shares in
the Tel-Aviv stock exchange (TASE) according to the dual listing
regulations. On December 31, 2002, the closing price per ADR on the NSM
was $3.55; the shares were quoted on the LSE on that date at $3.72,
and in TASE at NIS 17.26 ($3.64).
Under the provisions of the license granted to the Company (note
1a(2)), restrictions are placed on transfer of Company shares and
placing liens thereon. The restrictions include the requirement that
the advance written consent of the Minister of Communications be
received prior to transfer of 10% or more of the Company's shares to a
third party.
On December 26, 2001, the Company filed a shelf registration statement
on Form F-3 with the United States Securities and Exchange Commission
for future offerings of its securities. Under the shelf registration,
the company can raise up to $400 million from the issue of ordinary
shares and debt securities.
b.
Employee Stock Option Plans:
1)
a.
On March 3, 1999, the Company's Board of Directors
approved an employee stock option plan (hereafter—Plan A), pursuant to which 5,833,333 ordinary shares
were reserved for issuance upon the exercise of
5,833,333 options to be granted to key employees
without consideration of which 729,165 options were
later cancelled. Through to December 31, 2002—5,505,557 options were granted pursuant to Plan A, of
which 573,834 options have been forfeited and
2,706,334 options have been exercised.
The options will vest in five equal annual batches
over a period of five years from the beginning date
of employment of each employee, unless otherwise
provided in the grant instrument, provided the
employee is still in the Company's employ. An option
not exercised within 8 years from the date of its
allotment shall expire. The exercise price per share
of the options granted through December 31, 2000,
which is denominated in dollars, is $0.343. During
2002, the Company granted options under plan A in
accordance with the terms of plan B, including the
exercise price, vesting schedule and expiration date (see b. below).
Page F-35
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As of December 31, 2002—172,445 options of plan A
are available for future grant to the Company's
employees. The exercise price of these remaining
options is pursuant to the terms of plan B (see b.
below) unless otherwise provided in the grant
instrument.
b.
In October 2000, the Company's Board of Directors
approved an employee stock option plan (hereafter—Plan B), pursuant to which 4,472,222 ordinary shares
were reserved for issuance upon the exercise of
4,472,222 options to be granted to employees without
consideration. An option not exercised within 9 years
from the date of its allotment shall expire. The
options will vest in four equal annual batches over a
period of four years from the date of grant of the
option, provided the employee is still in the
Company's employ. Through to December 31, 2002—5,317,555 options were granted pursuant to Plan A, of
which 931,833 options have been forfeited.
The exercise price, which is denominated in NIS, is
equal to the market price of the Company's shares on
the date on which the options are granted. As of
December 31, 2002—86,500 options of plan B are
available for future grant to the Company's
employees.
c.
The ordinary shares derived from the exercise of the
options shall confer the same rights as the other
ordinary shares of the Company.
d.
The Plans are subject to the terms stipulated by
Section 102 of the Israeli Income Tax Ordinance.
Inter alia, the Ordinance provides that the Company
will be allowed to claim as an expense for tax
purposes the amounts credited to the employees as a
benefit, when the related tax is paid by the
employee. In December 2002, the Company signed an
agreement with the tax authorities concerning the tax
liabilities of its employees regarding the benefit
arising from the options granted to them. According
to the agreement, the individual tax rate on the
taxable income received by the employees in
connection with the benefit arising from the options
will be reduced; in exchange, the Company will defer
the deduction of such taxable income as an expense,
for a period of 4 years from the date it commences
paying income taxes.
The agreement applies only to employees who have joined the agreement, and relates to
(1) options that are exercised by December 31, 2002 and (2) options that vest
by
Page F-36
Table of Contents
December 31, 2003 and are
exercised by March
31, 2004. In each case, the trustee must have held the options
for a period of 24 months from the date on which they were
granted.
2)
Following is a summary of the status of the plans as of
December 31, 2000, 2001 and 2002 and the changes therein
during the years ended on those dates:
Year ended December 31
2000
2001
2002
Weighted
Weighted
Weighted
average
average
average
exercise
exercise
exercise
Number
price*
Number
price*
Number
price*
NIS
NIS
NIS
Balance at beginning of year
4,655,285
1.424
8,541,669
12.296
8,962,235
12.746
Changes during the year:
Granted**
4,336,119
24.219
1,063,708
19.286
768,000
20.976
Exercised and paid
(3,383
)
1.386
(32,314
)
1.440
(2,670,637
)
1.591
Forfeited
(446,352
)
14.418
(610,828
)
19.286
(448,488
)
16.747
Balance outstanding at end of year
8,541,669
12.296
8,962,235
12.746
6,611,110
18.001
Options exercisable at December 31
1,723,147
1.386
3,501,109
7.386
2,728,806
17.740
**Below market value
523,119
1.386
**At market value
3,813,000
27.350
1,063,708
19.286
768,000
20.976
*
Includes options under plan A, the exercise price of which is weighted
based on the applicable date's exchange rate.
The following table summarizes information about options outstanding at
December 31, 2002:
Options outstanding
Options exercisable
Weighted
Number
average
Weighted
Number
Weighted
outstanding at
remaining
average
exercisable
average
December 31,
contractual
exercise
at December
exercise
Range of exercise price
2002
life
price
31,2002
price
NIS
Years
NIS
NIS
1.625
1,898,235
3.9
1.625
938,795
1.625
17.25-22.23
1,779,208
7.8
20.06
258,427
19.33
27.35
2,933,667
6.9
27.35
1,531,584
27.35
1.625-27.35
6,611,110
6.3
18.001
2,728,806
17.740
c.
Dividends
As to restrictions with respect to cash dividend distributions, see
note 5g.
Page F-37
Table of Contents
NOTE 10 – TAXES ON INCOME:
a.
Measurement of Results for Tax Purposes under the Income Tax
(Inflationary Adjustments) Law, 1985
Under this law, results for tax purposes are measured in real terms,
having regard to the changes in the Israeli CPI. The Company and its
subsidiary are taxed under this law.
b.
Tax Rates Applicable to Income of the Company and its Subsidiary
The income of the Company and its subsidiary are taxed at the regular
rate of 36%.
c.
Losses Carried Forward to Future Years
At December 31, 2002, the Group had carryforward losses of
approximately NIS 2,000 million (approximately $ 422 million). The
carryforward tax losses are linked to the Israeli CPI and can be
utilized indefinitely.
d.
Deferred Income Taxes
The deferred tax asset in respect of the balances of temporary
differences (mostly in respect of carryforward losses, see c. above)
and the related valuation allowance as of December 31, 2001 and 2002,
are as follows:
December 31
2001
2002
2002
Convenience
translation
New Israeli Shekels
into dollars
In Thousands
Deferred tax asset
745,703
823,072
173,754
Less—valuation allowance
(745,703
)
(823,072
)
(173,754
)
—,—
—,—
—,—
During the year 2002, the Company had utilized approximately NIS 100
million ($ 21 million) of its carryforward losses to offset its taxable
income for the year.
e.
Tax Assessments
The Company and its subsidiary have not been assessed for tax purposes
since incorporation.
Page F-38
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NOTE 11 – LIABILITIES SECURED BY PLEDGES AND RESTRICTIONS PLACED IN RESPECT OF LIABILITIES
At December 31, 2002, balances of liabilities of the Company in the
amount of NIS 2,468 million ($ 521 million), are secured by fixed charges on the
fixed assets (including leasehold rights), share capital and insurance rights,
and by floating charges on the assets. The Company has also undertaken under the
facility agreement (see note 5) not to register any further charges on its
assets, with certain exceptions.
NOTE 12 – FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:
a.
Linkage of Monetary Balances:
1)
As follows:
December 31, 2002
In or linked
to foreign
currencies
Linked to the
(mainly dollars)
Israeli CPI
Unlinked
In Thousands
NIS:
Assets
109,467
12,095
533,306
Liabilities
997,492
634,141
2,354,727
Convenience Translation into Dollars:
Assets
23,109
2,553
112,583
Liabilities
210,575
133,870
497,092
2)
Data regarding the dollar exchange rate and the Israeli CPI:
Exchange rate
of one dollar
Israeli CPI*
At December 31:
2002
NIS 4.737
182.01 points
2001
NIS 4.416
170.91 points
2000
NIS 4.041
168.53 points
1999
NIS 4.153
168.53 points
Increase (decrease)
during the year:
2002
7.3
%
6.5
%
2001
9.3
%
1.4
%
2000
(2.7
)%
0.0
%
*
Based on the index for the month ending on each balance sheet date, on
the basis of 1993 average = 100.
Page F-39
Table of Contents
b.
Derivative Financial Instrument—Foreign Exchange Risk Management
The Company enters into foreign currency forward transactions and
purchases and writes foreign currency options in order to protect
itself against the risk that the eventual dollar cash flows resulting
from the existing assets and liabilities will be affected by changes in
exchange rates. The writing of such options is part of a comprehensive
hedging strategy and is designed to effectively swap the currencies
relating to existing assets and liabilities. Each of the options
written is combined with purchase of an option for the same period and
the same notional amount. The Company does not hold or issue derivative
financial instruments for trading purposes.
The transactions are mainly designated to hedge the cash flows related
to payments of dollar interest on notes payable as well as those
related to anticipated payments in respect of purchases of handsets and
capital expenditures in foreign currency. However, these contracts do
not qualify for hedge accounting under FAS 133.
As the counterparties to the foreign currency options and forward
transactions are Israeli banks, the Company considers the inherent
credit risks remote.
The notional amounts of foreign currency derivatives as of December 31,
2001 and 2002 are as follows:
December 31
2001
2002
2002
Convenience
translation
New Israeli Shekels
into dollars
(In Millions)
Currency options purchased—for the exchange of dollars into NIS
55
431
91
Currency options written—for the exchange of dollars
into NIS
431
91
Forward transactions—for the exchange of:
Dollars into NIS
242
264
56
Euros into NIS
34
52
11
Embedded
derivatives—Dollars into NIS
238
41
9
The derivatives financial instruments are for a period of up to 1.5
years. As of December 31, 2002, the remaining contractual lives are for
periods up to 1 year.
Page F-40
Table of Contents
c.
Fair Value of Financial Instruments
The financial instruments of the Company as of December 31, 2002
consist mainly of non-derivative assets and liabilities (items included
in working capital and long-term liabilities); the Company also has
some derivatives, which are presented at their fair value.
In view of their nature, the fair value of the financial instruments
included in working capital is usually identical or close to their
carrying value. The fair value of long-term loans approximates the
carrying value, since they bear interest at rates close to the
prevailing market rates.
Regarding the fair value of Notes payable see note 6.
The fair value of derivatives as of December 31, 2002, is a liability
of approximately NIS 2.0 million ($ approximately
0.4 million) (2001—an asset of approximately NIS 8.0 million).
Page F-41
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NOTE 13 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:
a.
Accounts Receivable:
December 31
2001
2002
2002
Convenience
translation
NIS
into dollars
In thousands
1)     Trade (current and long-term)
The item is presented after the deduction of:
(a)     Deferred interest income*
(2,355
)
(1,040
)
(220
)
(b)     Allowance for doubtful accounts
(61,869
)
(74,622
)
(15,753
)
*
Long-term trade receivables (including current maturities) as of
December 31, 2001 and 2002 in the amount of NIS 12,776,000 and NIS
4,561,000 ($963,000), respectively, bear no interest. These balances
are in respect of handsets sold in installments (mostly 36 monthly
payments).
Income in respect of deferred interest is the difference between the
original and the current amount of the debt. The current amount is
computed on the basis of the interest rate relevant to the date of the
transaction (8.8%—9.5%).
2)
Other:
December 31
2001
2002
2002
Convenience
translation
NIS
into dollars
In thousands
Government institutions
9,596
12,144
2,563
Derivatives instruments
7,987
Prepaid expenses
13,984
24,040
5,075
Sundry
11,363
14,802
3,125
42,930
50,986
10,763
Page F-42
Table of Contents
b.
Accounts Payable and
Accruals—Other:
December 31
2001
2002
2002
Convenience
translation
NIS
into dollars
In thousands
Employees and employee institutions
69,405
57,424
12,122
Provision for vacation and recreation pay
17,743
20,578
4,345
Government institutions
4,023
23,704
5,004
Income received in advance
34,613
40,979
8,651
Accrued interest on long-term liabilities
58,989
49,030
10,350
Sundry
1,392
10,451
2,206
186,165
202,166
42,678
c.     Financial Expenses, Net:
Year ended December 31
2000
2001
2002
2002
Convenience
translation
NIS
into dollars
In thousands
Financial income
(5,980
)
(19,193
)
(13,354
)
(2,819
)
Exchange rate differences
(23,180
)
82,666
69,797
14,734
CPI Linkage differences
2,683
21,893
35,723
7,541
Factoring costs
5,203
9,006
9,614
2,030
Financial expenses
249,883
306,555
350,377
73,966
Less—capitalized interest
(6,977
)
(1,473
)
228,609
400,927
445,180
93,979
Page F-43
Table of Contents
d.
Diluted EPS
Following are data relating to the net income (loss) and the weighted
average number of shares that were taken into account in computing the
basic and diluted EPS (the effect of the inclusion of the options for
the years 2000 and 2001 is anti-dilutive):
Year ended December 31
2000
2001
2002
2002
Convenience
translation
New
Israeli Shekels
into dollars
in
thousands
Net income (loss) used for the computation of basic
and diluted EPS (in thousands)
(768,775
)
(303,362
)
82,698
17,458
Weighted average number of shares used in computation
of basic EPS
178,888,888
178,909,274
179,984,090
179,984,090
Add—net additional shares from assumed exercise of
employee stock options
3,479,287
4,593,060
3,085,304
3,085,304
Weighted average number of shares used in computation
of diluted EPS
182,368,175
183,502,334
183,069,394
183,069,394
Page F-44
Table of Contents
NOTE 14 – TRANSACTIONS AND BALANCES WITH RELATED PARTIES:
a.
Transactions with related parties:
Year ended December 31
2000
2001
2002
2002
Convenience
translation
New Israeli Shekels
into dollars
In thousands
Acquisition of handsets from related party
273,078
300,024
185,237
39,104
Financial expenses, net
73,270
60,202
81,212
17,144
Selling commissions and maintenance expenses
25,120
26,807
20,624
4,354
b.
Balances with related parties:
December 31
2001
2002
2002
Convenience
translation
NIS
into dollars
In thousands
Cash and cash equivalents
2,617
643
136
Current liabilities
510,283
7,200
1,520
Long-term liabilities
354,417
692,572
146,205
c.
Cost sharing agreement
The Company has entered into a Cost Sharing Agreement ("The agreement")
with Hutchison Whampoa Limited and certain of its wholly own
subsidiaries (hereafter—"the Hutchison group"). The principal purpose
of the agreement is to regulate the sharing of costs associated with
various joint procurement and development activities relating to the
future roll out and operation of a 3G Business.
The agreement sets out the basis upon which expenses and liabilities
are paid or discharged by the Hutchison group companies in connection
with the joint procurement or development activities.
Under the agreement, the Company has the right to decide, and give
notice of, which of the joint projects it wishes to participate in.
As of December 31, 2002, the Company had given notice of its
participation in four projects. The Company's expected share in these
projects in financial terms (including its share of joint expenses and
liabilities) is not material.
Page F-45
Table of Contents
SIGNATURES
The Company hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
Partner Communications Company Ltd.
By:
/s/ Alan Gelman
Chief Financial
Officer
March 14, 2003
By:
/s/ Amikam Cohen
Chief Executive Officer
March 14, 2003
Table of Contents
CERTIFICATIONS
I, Amikam Cohen, certify that:
(1)
I have reviewed this annual report on Form 20-F of Partner
Communications Company Ltd.;
(2)
Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
(3)
Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
(4)
The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a)
designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
(b)
evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
(c)
presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
(5)
The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a)
all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b)
any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
Table of Contents
(6)
The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 14, 2003
/s/ AMIKAM COHEN
Chief Executive Officer
Table of Contents
I, Alan Gelman, certify that:
(1)
I have reviewed this annual report on Form 20-F of Partner
Communications Company Ltd.;
(2)
Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
(3)
Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
(4)
The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a)
designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
(b)
evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
(c)
presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
(5)
The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a)
all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b)
any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
(6)
The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly
Table of Contents
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 14, 2003
/s/ ALAN GELMAN
Chief Financial Officer
Table of Contents
EXHIBIT INDEX
Exhibit
Number
Description
1.1
Partner's Articles of Association
*1.2
Partner's Certificate of Incorporation
*1.3
Partner's Memorandum of Association
**2.(a).1
Form of Share Certificate
**2.(a).2
Form of Deposit Agreement including Form of ADR Certificate
*2.(b)
Form of Indenture between Partner and The Bank of New York, as trustee, including form of note
**4.(a).1
Relationship Agreement dated October 10, 1999
**4.(a).2
License from the Israeli Ministry of Communications issued April 8, 1998
**4.(a).3
Bank Facility dated August 13, 1998
**4.(a).4
License Agreement for use of the Orange Brand in Israel dated September 14, 1998
**4.(a).5
Brand Support/Technology Transfer Agreement dated July 18, 1999
**4.(a).6
Agreement with Ericsson Radio Systems AB dated May 28, 1998
#4.(a).7
Agreement with LM Ericsson Israel Ltd. dated November 25, 2002
#***4.(a).8
Dealer Agreement with SuperPharm dated February 11, 2001
**4.(a).9
Lease Agreement with Mivnei Taasia dated July 2, 1998
**4.(a).10
Interconnect Agreement with Cellcom dated February 15, 1999
**4.(a).11
Interconnect Agreement with Pelephone dated May 1, 1999
*4.(a).12
Amending and Rescheduling Agreement dated July 9, 2000
4.(a).13
Supplemental Agreement dated April 18, 2002
+4.(a).14
Amendment to Relationship Agreement dated April 23, 2002
***4.(a).15
Amendment No. 1 to License from the Israeli Ministry of Communications issued May 11, 1999
***4.(a).16
Amendment No. 2 to License from the Israeli Ministry of Communications issued September 29, 1999
***4.(a).17
Amendment No. 3 to License from the Israeli Ministry of Communications issued October 3, 1999
***4.(a).18
Amendment No. 4 to License from the Israeli Ministry of Communications issued June 28, 2000
***4.(a).19
Amendment No. 5 to License from the Israeli Ministry of Communications issued September 10, 2000
***4.(a).20
Amendment No. 6 to License from the Israeli Ministry of Communications issued March 19, 2001
+4.(a).21
Amendment No. 7 to License from the Israeli Ministry of Communications issued September 23, 2001
+4.(a).22
Amendment No. 8 to License from the Israeli Ministry of Communications issued December 27, 2001
+4.(a).23
Amendment No. 9 to License from the Israeli Ministry of Communications issued March 13, 2002
+4.(a).24
Amendment No. 10 to License from the Israeli Ministry of Communications issued April 14, 2002
+4.(a).26
Amendment No. 11 to License from the Israeli Ministry of Communications issued April 25, 2002
Table of Contents
Exhibit
Number
Description
4.(a).27
Amendment No. 12 to License from the Israeli Ministry of Communications issued June 26, 2002
4.(a).28
Amendment No. 13 to License from the Israeli Ministry of Communications issued June 30, 2002
4.(a).29
Amendment No. 14 to License from the Israeli Ministry of Communications issued September 11, 2002
4.(a).30
Amendment No. 15 to License from the Israeli Ministry of Communications issued October 24, 2002
4.(a).31
Amendment No. 16 to License from the Israeli Ministry of Communications issued November 26, 2002
4.(a).32
Amendment No. 17 to License from the Israeli Ministry of Communications issued February 2, 2003
+4.(a).33
Amending Agreement to the Facility Agreement dated January 8, 2002
+4.(a).34
Amending Agreement to the Facility Agreement dated January 30, 2002
+4.(a).35
Amending Agreement to the Facility Agreement dated February 6, 2002
+4.(a).36
Amending Agreement to the Facility Agreement dated February 28, 2002
+4.(a).37
Amending Agreement to the Facility Agreement dated March 14, 2002
+4.(a).38
Amending Agreement to the Facility Agreement dated March 24, 2002
+4.(a).39
Amending Agreement to the Facility Agreement of April 2002
+4.(a).40
Amending Agreement to the Facility Agreement dated April 24, 2002
4.(a).41
Amending Agreement to the Facility Agreement dated December 31, 2002
6.
See Note 1q to our financial statements for information explaining
how earnings (loss)  per share information was calculated.
8.
List of Subsidiaries
10.(a).1
Consent of Kesselman & Kesselman
10.(a).2
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
*
Incorporated by reference to our registration statement on Form F-1 (No.
333-12340).
**
Incorporated by reference to our registration statement on Form F-1
(No. 333-10992).
***
Incorporated by reference to our annual report on Form 20-F for the fiscal
year ended December 31, 2000.
+
Incorporated by reference to our annual report on Form 20-F for the
fiscal year ended December 31, 2001.
#
Confidential treatment requested.
Confidential material has been redacted and has been separately filed
with the Securities and Exchange Commission.