20-F

As filed with the Securities and Exchange Commission May 18, 2006

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, 2005
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 152,538,362

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

YES o NO x

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

YES o NO x

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

If this is an annual report, indicate by checkmark whether the Registrant is a shell company (as defined by Rule 12(b)(2) of the Exchange Act.

YES o NO x

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

Large Accelerated Filer o Accelerated Filer x Non-Accelerated Filer o

TABLE OF CONTENTS

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	5
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE	5
ITEM 3. KEY INFORMATION	5
ITEM 4. INFORMATION ON THE COMPANY	18
ITEM 4A. UNRESOLVED STAFF COMMENTS	42
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS	42
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	50
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	63
ITEM 8. FINANCIAL INFORMATION	67
ITEM 9. THE OFFER AND LISTING	69
ITEM 10. ADDITIONAL INFORMATION	70
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	78
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	80
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	80
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	80
ITEM 15. CONTROLS AND PROCEDURES	80
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT	80
ITEM 16B. CODE OF ETHICS	80
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES	80
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES	81
ITEM 17. FINANCIAL STATEMENTS	81
ITEM 18. FINANCIAL STATEMENTS	81
ITEM 19. EXHIBITS	82
GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS	84

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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 subsidiaries, Partner Future Communications 2000 Ltd. and Partner Land-Line Communications Solutions LLP (of which Partner Future Communications 2000 Ltd. serves as the general partner and the Company serves as the limited partner), 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, 2005 of NIS 4.603= 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”.

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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:

— the effects of the high degree of regulation in the telecommunications market in which we operate;

— regulatory developments relating to tariffs, including interconnect tariffs;

— the difficulties associated with obtaining all permits required for building and operating of antenna sites;

— the requirement to indemnify planning committees in respect of claims made against them relating to the depreciation of property values or to alleged health damages resulting from antenna sites;

— alleged health risks related to antenna sites and use of telecommunication devices;

— the effects of vigorous competition in the market in which we operate and for more valuable customers, which may decrease prices charged, increase churn and change our customer mix, profitability and average revenue per user, and the response of competitors to industry and regulatory developments;

— 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 (3G) network and business strategy, including risks relating to the operations of new systems and technologies, 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, and the risk that the use of internet search engines by our 3G customers will be restricted;

— the risks associated with technological requirements, technology substitution and changes and other technological developments;

— 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;

— regulatory developments related to the implementation of number portability;

— fluctuations in foreign exchange rates;

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— 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;

— the availability and cost of capital and the consequences of increased leverage; and

— the results of litigation filed or that may be filed against us.

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.

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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

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, 2005 prepared in accordance with US GAAP. The selected financial data for each of the years in the three-year period ended December 31, 2005 and at December 31, 2005 and 2004 are derived from our consolidated financial statements set forth elsewhere in this annual report. The selected financial data for each of the years ended December 31, 2002 and December 31, 2001 and at December 31, 2003, 2002 and 2001 are derived from our audited financial statements not appearing in this annual report. 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,
	2001			2002		2003		2004			2005			2005
	New Israeli Shekels In thousands (except per share data)													Convenience translation into US$
Statement of Operations Data
Revenues, net
Services		2,972,079			3,766,584		4,117,887		4,615,781			4,619,932			1,003,679
Equipment		277,270			287,979		349,832		524,956			503,007			109,278
Cost of revenues		3,249,349			4,054,563		4,467,719		5,140,737			5,122,939			1,112,957
Services		2,187,612			2,499,534		2,586,707		2,885,077			3,022,480			656,633
Equipment		531,551			569,924		549,749		729,937			743,872			161,606
		2,719,163			3,069,458		3,136,456		3,615,014			3,766,352			818,239
Gross profit		530,186			985,105		1,331,263		1,525,723			1,356,587			294,718
Selling and marketing
expenses		292,960			308,079		314,008		325,244			272,900			59,287
General and administrative
expenses		134,282			143,594		162,387		181,133			180,781			39,275
Operating profit		102,944			533,432		854,868		1,019,346			902,906			196,156
Financial expenses, net		400,927			445,180		321,710		260,545			345,448			75,048
Loss on impairment of
investments in non-marketable
securities		8,862			4,054		3,530		-			-			-
Income (loss) before tax		(306,845	)		84,198		529,628		758,801			557,485			121,108
Tax benefit (tax expenses)		-			-		633,022		(287,248	)		(202,898	)		(44,080	)
Income (loss) before
cumulative effect of a
change in accounting
principles		(306,845	)		84,198		1,162,650		471,553			354,560			77,028
Cumulative effect, at
beginning of year, of a
change in accounting
principles		3,483			-		-		-			-
Net income (loss) for the year		(303,362	)		84,198		1,162,650		471,553			354,560			77,028

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	Year ended December 31,
	2001			2002			2003			2004			2005			2005
	New Israeli Shekels In thousands (except per share data)															Convenience translation into US$
Earnings (loss) per
ordinary share and per ADS
Basic:
Before cumulative effect		(1.72	)		0.47			6.39			2.57			2.19			0.48
Cumulative effect		0.02			-			-			-			-
		(1.70	)		0.47			6.39			2.57			2.19			0.48
Diluted:
Before cumulative effect		(1.72	)		0.46			6.34			2.56			2.17			0.47
Cumulative effect		0.02			-			-			-			-
		(1.70	)		0.46			6.34			2.56			2.17			0.47
Weighted average number
of shares outstanding
Basic:		178,909,274			179,984,090			181,930,803			183,389,383			161,711,125			161,711,125
Diluted:		178,909,274			183,069,394			183,243,157			184,108,917			163,617,272			163,617,272
Other Financial Data
Capital expenditures, net		599,493			556,376			232,293			600,944			486,421			105,675
EBITDA(1)		656,369			1,052,240			1,379,830			1,575,996			1,568,616			340,780
Statement of Cash Flow Data
Net cash provided by
operating activities		422,548			682,191			1,031,492			1,272,802			1,006,324			218,623
Net cash used in
investing activities		(629,061	)		(815,968	)		(376,769	)		(673,616	)		(546,692	)		(118,768	)
Net cash provided by
(used in) financing
activities		210,916			129,865			(652,309	)		(598,349	)		(460,235	)		(99,986	)
Balance Sheet Data (at year end)
Current assets		631,148			816,416			865,319			1,057,148			1,170,976			254,395
Investments and long-term
receivables		140,969			45,991			72,630			165,815			264,456			57,452
Fixed assets, net		1,749,052			1,864,511			1,694,584			1,843,182			1,768,895			384,292
License and deferred
charges, net		1,112,959			1,269,348			1,325,948			1,325,592			1,321,167			287,023
Deferred income taxes		-			-			413,752			94,442			86,505			18,793
Total assets		3,634,128			3,996,266			4,372,233			4,486,179			4,611,999			1,001,955
Current liabilities (2)		1,194,704			735,153			760,256			859,741			986,995			214,424
Long-term liabilities (2)		2,633,200			3,357,497			2,536,413			2,039,363			2,809,653			610,396
Total liabilities		3,827,904			4,092,650			3,296,669			2,899,104			3,796,648			824,820
Shareholders' equity
(capital deficiency)		(193,776	)		(96,384	)		1,075,564			1,587,075			815,351			177,135
Total liabilities and
shareholders' equity		3,634,128			3,996,266			4,372,233			4,486,179			4,611,999			1,001,955

(1) EBITDA represents earnings (loss) before interest, taxes, depreciation and amortization. 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 flow 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.

(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.

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	Year ended December 31,
	2001			2002			2003			2004			2005			2005
	New Israeli Shekels In thousands															Convenience translation into US $
Reconciliation Between Operating Cashflow and EBITDA
Net cash provided by
operating activities		422,548			682,191			1,031,492			1,272,802			1,006,324			218,624
Liability for employee
rights upon retirement		(18,736	)		(18,632	)		(15,540	)		(16,302	)		(9,430	)		(2,049	)
Accrued interest, exchange
and linkage differences on
long-term liabilities		(54,522	)		(91,027	)		67,438			10,258			(108,411	)		(23,552	)
Amount carried to deferred
charges		22			3,805			-			-			13,820			3,002
Accrued interest, exchange
and linkage differences on
security deposit		6,590			6,925			(8,877	)		-			-			-
Sundry		-			-			-			-			-			-
Increase (Decrease) in
accounts receivable:
Trade		55,944			56,638			(22,721	)		225,860			262,262			56,976
Other		14,235			8,056			5,557			13,615			26,970			5,859
Decrease (Increase) in
accounts payable and accruals:
Trade		(57,271	)		(31,909	)		93,444			(135,600	)		(112,857	)		(24,518	)
Shareholder - current account		2,230
Related parties		-			-			-			-			(10,513	)		(2,284	)
Other		(68,068	)		(14,796	)		(47,541	)		(41,613	)		75,884			16,486
Increase (Decrease) in
inventories		(36,859	)		12,996			(34,647	)		(1,205	)		107,667			23,391
Increase in asset retirement
obligation								(1,228	)		(464	)		92			20
Financial Expenses(*)		393,739			437,993			312,453			248,645			316,806			68,826
EBITDA		656,369			1,052,240			1,379,830			1,575,996			1,568,614			340,781

(*) Financial expenses excluding any charge for the amortization of deferred financial costs.

	At December 31,
	2003			2004			2005
Industry Data
Estimated population of Israel (in thousands)(1)		6,748			6,870			6,986
Estimated Israeli mobile telephone subscribers (in thousands)(2)		6,618			7,217			7,851
Estimated Israeli mobile telephone penetration(3)		98	%		105	%		113	%

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	Year ended December 31															Three months ended
	2001			2002			2003			2004			2005			March 31, 2005			June 30, 2005			Sept. 30, 2005			Dec. 31, 2005
Partner Data
Subscribers (000's) (at period end)(4)		1,458			1,837			2,103			2,340			2,529			2,372			2,409			2,480			2,529
Pre-paid		389			540			639			700			754			706			719			739			754
Post-paid (private)		829			1,004			1,117			1,207			1,268			1,216			1,227			1,255			1,268
Post-paid (business)		240			293			347			433			507			450			463			486			507
Share of total Israeli
subscribers (at period end)(5)		27	%		29	%		31	%		32	%		32	%		32	%		32	%		32	%		32	%
Average monthly usage per
subscriber (mins.)(6)		318			280			277			286			294			288			296			306			287
Average monthly revenue per
subscriber including
inroaming (NIS)(7)		214			183			171			170			156			157			157			162			148
Churn rate(8)		5.8	%		10.9	%		13.6	%		12	%		13.6	%		3.9	%		3.6	%		3.2	%		3.1	%
Subscriber acquisition costs
per subscriber (NIS)(9)		458			470			362			295			282			229			263			363			256
Estimated coverage of
Israeli population (at
period end)(10)		97	%		97	%		97	%		97	%		97	%		97	%		97	%		97	%		97	%
Number of operational base
stations (at period end)		1,882			2,035			2,138			2,243			2,252			2,233			2,260			2,244			2,252
Number of microsites out of
total number of operational
base stations (at period		703			726			729			723			714			709			716			723			714
Number of employees
(full time equivalent)
(at period end)(11)		2,523			2,685			2,769			3,164			3,403			3,113			3,192			3,475			3,403

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(1) The population estimates are published by the Central Bureau of Statistics in Israel.

(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 Communications Israel Ltd., or Pelephone, and Cellcom Israel Ltd., or Cellcom, or by their shareholders and from Partner subscriber data at December 31, 2003, 2004 and 2005.

(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, visitors, 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 pre-paid customers. 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 our average monthly usage per subscriber by (i) dividing, for each month in such period, the total number of minutes of usage, excluding inroaming usage, during such month by the average of the number of our 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 the relevant year, the Partner revenue during the month, excluding revenue from equipment sales and including revenue from foreign network operators for calls made by their roaming customers while in Israel using our network, by the average number of Partner subscribers during that month, and (ii) dividing the sum of all 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. Our churn rate includes subscribers who have not generated revenue for us 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. From July 2002, we refined our criteria for reporting active subscribers. As a result, we have included in churn for this period those subscribers who generated minute revenues only from incoming calls directed to their voice mail.

(9) Subscriber acquisition costs, or 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 equipment revenues”; commissions paid to dealers, distributors and sales personnel – in “selling and marketing expenses”; and revenues received from sales of handsets – in “equipment revenues”.

(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) 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.

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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.

	2001		2002		2003		2004		2005
Average(1)		4.220		4.736		4.512		4.480		4.485
High		4.416		4.994		4.924		4.634		4.741
Low		4.067		4.437		4.283		4.308		4.299
End of period		4.416		4.737		4.379		4.308		4.603

(1) Calculated based on the average of the exchange rates on the last day of each month during the relevant period.

	November 2005		December 2005		January 2006		February 2006		March 2006		April 2006
High		4.741		4.662		4.658		4.725		4.717		4.671
Low		4.64		4.579		4.577		4.664		4.658		4.503

On May 17, 2006, the exchange rate was NIS 4.433 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.

3D. Risk Factors

We operate in a highly regulated telecommunications market which limits our flexibility to manage our business. In particular, the regulator’s decisions may materially adversely affect our results of operations.

        Our business is highly regulated. We are subject to government regulation regarding telecommunications licenses, antitrust, 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:

— reducing tariffs, including roaming, call and/or SMS termination tariffs (as described below under ” – We may be adversely affected by regulatory developments relating to interconnect tariffs”);

— adopting policies and imposing new regulations for the erection of antenna sites;

— changing the method of calculating call duration;

— implementing number portability in the cellular market in Israel (as described below under ” – We may be adversely affected by regulatory developments relating to number portability”);

— increasing the rate of royalties to be paid to the State of Israel;

— broadening the range of the types of revenues on which royalties are paid;

— setting policies and imposing new regulations governing electronic trade and content services, including 3G content services;

— changing the regulation affecting our roaming business;

— limiting our ability to charge for unanswered calls directed into voicemail or to charge for the initial seconds of such calls; and

— otherwise limiting the prices that we may charge our customers.

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        Further risks and uncertainties result from the fact that changes in such laws, regulations or government policy may not be adopted or implemented in the manner that we expect and may be further amended, interpreted or enforced in an unexpected manner or in a manner adverse to us.

We may be adversely affected by regulatory developments relating to interconnect tariffs.

        The Ministry of Communications reduced call termination tariffs from NIS 0.50 per minute to NIS 0.45 per minute at the beginning of 2003. In addition, the Ministry of Communications amended our license and the relevant regulations, reducing SMS termination tariffs from NIS 0.38 to NIS 0.285 effective May 1, 2004.

        In November 2004, the Ministry of Communications issued regulatory changes further reducing call termination tariffs, effective March 1, 2005, from NIS 0.45 to NIS 0.32, with additional reductions mandated as follows: effective March 1, 2006, to NIS 0.29 per minute; effective March 1, 2007, to NIS 0.26 per minute; and effective March 1, 2008, to NIS 0.22 per minute. At the same time, the Ministry of Communications reduced SMS termination tariffs, effective March 1, 2005, from NIS 0.285 to NIS 0.05, with an additional reduction mandated effective March 1, 2006 to NIS 0.025. The tariffs described above are now adjusted each March to conform to the CPI. In response to the tariff reductions described above, we have implemented cost-cutting measures as well as price increases and repackaging our tariff plans. Depending on the effectiveness of such steps, and other factors such as general market conditions, these regulatory changes may negatively impact our revenues and profits.

        At the same time as it announced the regulatory changes described above, the Ministry of Communications also indicated that it intends to start implementing a process to bring about unification of rates for calls terminating both on and off an operator’s network. Preliminary hearings with the cellular operators in Israel on this matter commenced in August 2005, and the Ministry of Communications has yet to publish a decision. These changes, if implemented, could also adversely affect our revenues and profits.

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 and may result in criminal or civil liability to us or to our officers and directors.

        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. The erection and operation of most 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, such as:

— 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.

In addition, as part of our 3G network build out, we are erecting additional antenna sites and making modifications to our existing antenna sites, for which we may be required to obtain new consents and approvals.

        Like our competitors, we have experienced difficulties in obtaining some of these consents and permits, especially from local building authorities. As of December 31, 2005, approximately 30% of our antenna sites were operating without local building permits or applicable exemptions. A substantial portion of these are microsites. We believe that a portion of the sites operating without permits from local authorities do not require local building permits under the Planning and Building Law 1965. In addition, some of the building permits we have received are not compatible with the antenna sites for which they were obtained. If we continue to experience difficulty in obtaining approvals for the erection of antenna sites, this could adversely affect our existing network, delay the erection of additional antenna sites to our network and adversely impact our 3G network build-out. 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.

        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. 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 an approval to connect the repeaters to our 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, or any other receptors that we believe do not require a building permit, it could have a negative impact on our ability to obtain permits for our repeaters. Recently, the Non-Ionizing Radiation Law (5766-2006) was enacted, and defines the various powers of the Ministry of the Environment as they relate, inter alia, to the grant of permits for antenna sites and sets standards for permitted levels of non-ionizing radiation emissions and reporting procedures. Pursuant to this law, which will enter into effect on January 1, 2007, a request for an operating permit from the Ministry of Environment with respect to either new sites or existing sites would require a building permit for such site(s). If we will continue to face difficulties in obtaining building permits from the local planning and building committee, we may fail to obtain also operation permits from the Ministry of Environment. Operation of an antenna site without a permit from the Ministry of Environment may result in criminal and civil liability to us or to our officers and directors.

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        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. We may be further faced with additional demolition orders, monetary penalties and criminal charges, including against our officers and directors.

In connection with certain building permits, we may also be required to indemnify certain planning committees in respect of claims against them relating to the depreciation of property values or to alleged health damage that result from antenna sites, which may have a material adverse effect on our financial condition and results of operations.

        The extent of our potential liability in connection with alleged health risks relating to antenna sites or in connection with alleged depreciation in the value of nearby properties as a result of the building of antenna sites may be increased as a result of various developments. For a description of alleged health damage relating to antenna sites, see risk factor below, “- There are alleged health risks related to antenna sites and the use of mobile telecommunications devices, including handsets. The actual or perceived health risks of mobile telephone communications devices could have a material adverse effect on our business, operations and financial condition.”

        Under the Planning and Building Law, 1965, local planning committees may be held liable for the depreciation of the value of nearby properties as a result of approving a building plan. Since National Building Plan 36 was approved, some planning committees have started to require that, as a precondition for issuing new permits for antenna sites, we submit an undertaking to indemnify the committee against claims for depreciation in the value of nearby properties as a result of issuing a permit to build, and the building of, antenna sites. Under the Non-Ionizing Radiation Law, which imposes criminal sanctions for non-compliance with its dictates, as of January 2006, the National Council for Planning and Building was granted the power to determine the level of indemnification that must be undertaken by cellular companies as a precondition for obtaining a building permit for a new or existing antenna site that requires such a permit. The National Council has decided that until National Building Plan 36 is amended to reflect a different indemnification amount, cellular companies will be required to undertake to indemnify the committees in full against all losses resulting from claims against a committee for reduction in property values. Thus, at present, in order to obtain a building permit for a new or existing antenna site, we must provide full indemnification for the reduction of property value. We cannot predict whether the legal requirement to provide full indemnification will be adopted in the amended National Building Plan 36, nor can we predict when the National Building Plan 36 will be amended. To date, we have provided to local authorities 24 letters of undertaking to provide such indemnification for the benefit of such local authorities within 30 days from the enactment of a law or a final court decision requiring such indemnifications. Such indemnifications expose us to risks which are difficult to quantify or mitigate and which may have a material adverse effect on our financial conditions and results of operations. In addition, the requirement to provide such indemnifications in connection with new building permits may impede our ability to obtain such building permits for existing antenna sites or to expand our network with the erection of new antenna sites.

        Further, there have been a number of attempts, by local planning committees to include mobile phone operators in claims against such committees for the depreciation in value of nearby properties as a result of the erection of antenna sites. If the local planning committees succeed in including mobile phone operators in these actions, it may expose us to significant liability and have a material adverse effect on our financial condition and results of operation. For more information, see “- 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 and may result in criminal or civil liability to us or to our officers and directors.”

There are alleged health risks related to antenna sites and the use of mobile telecommunications devices, including handsets. The actual or perceived health risks of mobile telephone communications devices could have a material adverse effect on our business, operations and financial condition.

        A number of studies have been conducted to examine the health effects of wireless phone use and antenna sites, and some of these studies have been construed as indicating that wireless phone use causes adverse health effects. Media reports have suggested that radio frequency emissions from antenna sites, wireless handsets and other mobile telecommunication devices may raise various health concerns and may interfere with various electronic medical devices, including hearing aids and pacemakers. While, to the best of our knowledge, the handsets that we market comply with the applicable laws that relate to acceptable Specific Absorption Rate (“SAR”) levels, we rely on the SAR levels published by the manufacturer of these handsets and do not perform independent inspections of the SAR levels of these handsets. As the manufacturers’ approvals refer to a prototype handset, we have no information as to the actual level of SAR of the handsets along the lifecycle of the handsets, including in the case of handset repair.

        Several lawsuits have been filed out of Israel against operators and other participants in the wireless industry alleging adverse health effects and other claims relating to radio frequency transmissions to and from handsets and other mobile telecommunications devices. We may be subject to potential future litigation relating to these health concerns.

        Furthermore, we do not expect to be able to obtain insurance with respect to such liability. If it will ever occur that health risks existed or that there was a deviation from SAR standards which would result in a health risk from sites or handsets, this would have a material adverse effect on our business, operations and financial condition, including through exposure to potential liability, a reduction in subscribers, reduced usage per subscriber and increased difficulty in obtaining sites for base stations.

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Competition from existing competitors may require us to increase our subscriber acquisition and customer retention costs, decrease our tariffs, and may increase our churn rate.

        We compete primarily with Cellcom and Pelephone, two of the other mobile telephone network operators in Israel, and we also compete with MIRS. Because of the ease of switching between cellular operators, we have already faced and may continue to 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. These developments may adversely affect our market share, financial condition and results of operations.

        During 2003, Cellcom and Pelephone launched new technologies enabling faster transfers of data: EDGE technology, in the case of Cellcom, and CDMA-1x, in the case of Pelephone. In 2004, further technological enhancements were introduced by our competitors, Cellcom announcing commercial service over UMTS coverage and Pelephone announcing the implementation and commercial offering of EV-DO technology. In 2005 Cellcom expanded its UMTS spectrum and began to implement High-Speed Downlink Packet Access (“HSDPA”) technologies in preparation for a future launch of its 3.5G technologies. If Cellcom or Pelephone successfully maximizes the potential of these technologies before we benefit more fully from our 3G technology, we will be at a competitive disadvantage.

        To the extent that land-line telephones are used instead of mobile telephones, we also compete with Bezeq, the incumbent land-line operator in Israel. Bezeq completed during 2004 its acquisition of 100% of the shares of Pelephone, and that may enable Pelephone to offer combined packages of land-line, mobile telephone and other telecommunication services, subject to regulatory approval.

        The following have either launched land-line service, have been granted a license for such service or have applied for such a license. We are at a competitive disadvantage relative to operators who may be able to offer combined packages of land-line, mobile telephone and other communications services.

— HOT, a group jointly owned by the three cable companies in Israel, ("HOT") launched land-line telephone service;

— Golden Lines was granted a land-line telephone service license and has started to recruit subscribers to this service;

— GlobeCall Communication Ltd. ("Globecall"), a company wholly-owned by IDB, which also controls Cellcom, was granted a land-line telephone service license;

— A partnership controlled by Cellcom was recently granted a land-line telephone service license; and

— Other telecommunication companies, including Barak and Netvision, have also applied for a land-line telephone service.

        We may also face competition from additional land-line operators, if additional land-line licenses are granted. The Ministry of Communications may also choose to grant additional mobile telephone operator licenses, which may further intensify competition in the mobile market in Israel. The Ministry of Communications may also opt to grant licenses to mobile virtual network operators (“MVNOs”), who may use Partner’s infrastructure or other cellular operators to offer mobile telephone services.

        Increased competition may require us to increase our subscriber acquisition 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 each of 2002 and 2003, and then a slightly lower churn in 2004 as compared to 2003. In 2005, we experienced a higher churn rate than that experienced in 2004, primarily due to the prepaid sector. Competition, including increased competition resulting from the introduction of number portability, may further increase our level of churn.

Recent statements by the Israeli Commissioner of Restrictive Trade Practices have indicated that he may seek a change in the law that could result in increased anti-trust regulation on the mobile telephone industry in Israel, which could have a material adverse effect on our revenues and financial results.

        In recent statements, the Israeli Commissioner of Restrictive Trade Practices has expressed his view that the mobile telephone industry in Israel operates as an oligopoly and that the Israeli government should intervene to regulate prices. In part, the Commissioner based his statements on the increase in prices by the mobile telephone operators as a result of the Ministry of Communications’ decision to lower call termination tariffs. The chairman of the Knesset’s Economic Committee announced that the committee would act to declare the mobile telephone operators as an oligopoly. Such a finding could result in increased regulatory intervention (including with regard to tariffs and tariffing practices), the application of certain limitations on our conduct and increased litigation.

        Additional regulation, including as a result of our being declared, together with the other mobile telephone operators in Israel, as part of an oligopoly, could materially and adversely affect our revenues and our financial results.

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Our subscriber growth rate, and consequently our revenue growth rate, has begun to slow, because Israel’s mobile telephone services market is highly penetrated, making it more difficult for us to obtain new subscribers than in the past and retain existing subscribers.

        Although Israel’s mobile telephone services market has experienced substantial growth, and we have experienced substantial subscriber growth since our commercial launch in 1999, the Israeli market for mobile telephone services is now highly penetrated, and the growth of the overall Israeli market and of our own subscriber base has been slower than in the past. According to data from the Central Bureau of Statistics, the population of Israel at the end of December 2005 was approximately 7.8 million. According to a recent report issued by a research company, at December 31, 2005, Israel’s mobile telephone market penetration is estimated to be 113%. This may include dormant subscribers as well as subscribers who are not included in the Israeli population figures, such as Palestinians, visitors, and foreign workers. Because the Israeli market for mobile telephones is highly penetrated, it is not growing at the same rate as in the past, and our own subscriber growth is not developing at the same rate as in the past. Similarly, whereas in the past our revenue growth has largely resulted from growth in the overall market, our future revenues will depend significantly on our ability to retain existing subscribers 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 32% at December 31, 2005, our market share growth has slowed since 2003, and we expect this trend to continue.

High handset prices, delays in the development of handsets, services and network compatibility and components, and supplier interoperability may hinder the deployment of 3G technology and may increase the costs related to both subscriber acquisition and subscriber retention. If we are unable to successfully develop attractive 3G services for our subscribers or if the Ministry of Communications is successful in restricting the use of internet search engines by our 3G customers, our results of operations will be adversely affected.

        Establishing a 3G network and developing services requires investing substantial capital resources. There is no assurance that subscribers will adopt 3G services, how widespread the usage of these new services will be, how many subscribers will be willing to pay for these services and new devices and whether the revenue generated from these services will justify the costs involved in establishing and operating our 3G networks. If we are unable to develop attractive 3G services for our subscribers, we may be required to write off all or a portion of our investment and our results of operations would be adversely affected.

        High handset prices may make our 3G offering less attractive to potential subscribers or increase costs related to SAC as well as costs related to retaining subscribers (SRC), as the costs of providing handsets and upgrades to customers will increase. We also rely on applications developers to develop services that will stimulate demand for our 3G network. 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 3G network will be adversely affected.

        We have selected both Nortel Networks and Ericsson to supply the infrastructure necessary to build-out our 3G network. We were one of the first 3G networks in the world to be built with Nortel equipment, and we cannot assure you that Nortel, together with Ericsson, will be able to successfully deliver all of the requirements of our network, including interoperability with our existing GSM network. We also cannot assure that the Nortel and Ericsson equipment will successfully interoperate. 3G handsets may not be available at reasonable prices or in the timeframe required or in the amounts needed. If we cannot obtain and offer reasonably priced devices, technologically proven network equipment or software with sufficient functionality or speed from Nortel, Ericsson, or other suppliers, or if we experience delays in the delivery or functional deployment of devices, handsets and related network equipment or software, our ability to further develop our 3G network, and our customers’ ability to access it, will be impaired.

        A recent amendment to our general license imposed by the Ministry of Communications extends to our 3G network restrictions regarding adult services accessed via our cellular technologies. These new restrictions restrict access not only to adult-content internet sites, but also access via our internet portal to popular internet search engines, such as Google, that could potentially facilitate a search for such adult-content internet sites. We have filed a petition challenging the legality of the restrictions imposed by the Ministry of Communications. See “Regulations – Our License.” If we are unsuccessful in our challenge to this amendment to our general license, our ability to generate revenues from our 3G network could be adversely affected.

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 existing or future technologies, including land-line and cordless technologies, satellite-based personal communications services, private and shared radio networks, wireless broadband access services, voice over Internet Protocol services, wireless fidelity, or Wi-Fi, technologies, Wimax, and other communications services that have the technical capability to handle mobile telephone calls and to interconnect with the land-line telephone network. The effect of emerging and future technological changes, including the convergence of technologies and the introduction of new competitors with the ability to provide mobile telecommunication services to customers while mobile, or 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 3G technologies, will not become obsolete or subject to competition from new technologies in the future, nor can we predict the effect of competition from new technologies in the future on our financial condition or results of operations.

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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. These operators could also gain market share at our expense by offering lower prices to our customers.

        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. Our license also requires us, upon demand by the Minister of Communications, to permit other operators to provide telecom services using our network. Such access to our network would 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 or we may be required to invest additional capital in order to enable additional use of our network. 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. In addition, operators, such as MVNOs, could offer mobile telecommunication services to our current customers at prices that are lower than our prices, thereby reducing our market share. If the Ministry of Communications sets those tariffs too low, this may adversely affect our financial condition.

Our company is controlled by a single shareholder.

        As of March 31, 2006, our controlling shareholder, Hutchison Telecommunications International Limited, or Hutchison Telecom, held approximately 51.6% of our shares.

        Hutchison Telecom has the ability to influence our business through its ability to control all actions that require shareholder approval and through its representatives on our Board of Directors. Hutchison Telecom is not obligated, however, to provide us with financial support or to exercise its rights as a shareholder in our best interests or the best interests of our minority shareholders and noteholders, and it may engage in activities that conflict with such interests. If the interests of our controlling shareholder conflict with the interests of our other shareholders and noteholders, those shareholders and noteholders could be disadvantaged by the actions that this controlling shareholder chooses to pursue. In addition, our controlling shareholder may cause our business to pursue strategic objectives that may conflict with the interests of our other shareholders and noteholders.

We benefit from our relationship with Hutchison Telecom and Hutchison Whampoa, who are global leaders in the mobile telecommunications market. We cannot assure you that we will continue to enjoy the benefits of this relationship.

        Hutchison Telecom and its major shareholder, Hutchison Whampoa Limited, or HWL, are global leaders in the mobile telecommunications market, and we rely on and benefit from the assistance, knowledge and experience of Hutchison Telecom and HWL, for example, in connection with our ability to access supply of 3G handsets on favorable pricing terms. In December 2005, HWL announced the acquisition by Orascom Telecom Holding S.A.E. of an indirect 19.3% interest in Hutchison Telecom. See below “- Our telecommunications license imposes certain restrictions on who can own our shares. If these restrictions are breached, we could lose our license.” We cannot assure you that Hutchison Telecom will continue to be our controlling shareholder or that HWL will continue to be a major shareholder of Hutchison Telecom. Nor can we assure you that if Hutchison Telecom ceases to be our controlling shareholder, or HWL ceases to be a major shareholder of Hutchison Telecom, that we will continue to enjoy the benefits of our relationship with Hutchison Telecom and HWL that we currently do.

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 of potential abuse by individuals, groups, businesses or other organizations that use our mobile telecommunications services and avoid paying for them. The effects of such fraudulent activities may be, among others, a loss of revenue 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 fraudulent activities, if they occur in the future, will not materially affect our financial condition and results of operations.

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We are dependent upon our ability to interconnect with other telecommunications carriers. We also depend on Bezeq and other suppliers 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 land-line, mobile telephone and international operators in Israel in order to complete calls between our customers and parties on the land-line or other mobile telephone networks. All land-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 interconnect agreements with Pelephone, Cellcom and MIRS, the other mobile telephone network operators in Israel, and with the Israeli international operators Bezeq International, Barak, Netvision, Internet Gold and Exfone. We have an operating arrangement with Golden Lines. We are currently operating without any formal interconnect 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. 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 during the privatization process and as the liberalization of the telecommunications market in Israel 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 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 license is valid until February 2022. Our license may be extended for an additional six-year period upon our request to the Ministry of Communications and confirmation from the Ministry that we have met certain performance requirements. 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.

        Furthermore, 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 US$10 million to guarantee our performance under our license. If we are found to be in material breach of our license, the guarantee may be forfeited and our license may be revoked.

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 a certain minimum of the economic and voting interest, and certain other defined means of control, of our company be owned by Israeli citizens and residents or entities in their control. If this requirement were not complied with, we could be found to be in breach of our license and our license could be revoked. The Ministry of Communications amended our license effective April 14, 2005, reducing the required holdings by Israeli citizens and residents from 20% to 5%, which shall be held by our founding shareholders who are Israeli entities or their approved substitutes, and requiring that these shareholders appoint, at least, 10% of our board of directors. In addition, according to the amendment, among other things (i) we are required to appoint a Committee for Security Matters consisting only of members who have security clearance and security compatibility to be determined by the General Security Service and (ii) the Minister of Communications shall be entitled to appoint an observer to our board of directors and its committees subject to certain qualifications and confidentiality undertakings. See “Item 4B. Regulation.” 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 relating to transfers or acquisitions of means of control or control of Partner 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 until such time as the consent of the Ministry of Communications has been obtained. Second, the breach of the limits could be the basis for revoking our license unless our founding shareholders or their approved substitutes hold an aggregate of at least 26% of our ordinary shares.

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        In December 2005, HWL, Hutchison Telecom’s major shareholder, announced the acquisition by Orascom Telecom Holding S.A.E., or Orascom Telecom, of an indirect 19.3% interest in Hutchison Telecom, representing an indirect 9.98% interest in Partner at that time. As part of that transaction and, subject to the receipt of consent from the Ministry of Communications, Orascom Telecom may acquire a number of additional shares that represents approximately 3.69% of Hutchison Telecom’s total outstanding shares. HWL (Hutchison Telecom’s major shareholder) and Orascom Telecom also entered into a shareholders agreement extending certain corporate governance rights in respect of Hutchison Telecom. We have been informed that the Ministry of Communications is currently reviewing the transaction to ensure that no breach of our license has occurred as a result of this transaction. If the Ministry of Communications decides that a breach were to have occurred, this could be a basis for revoking our license or imposing new license conditions.

Our marketing strategy is, in part, 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. 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.

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 Nortel, Ericsson and 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 any of these suppliers is unable to satisfy our equipment requirements. Our results of operations could be adversely affected if Nortel, 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.

We may be adversely affected by regulatory developments relating to number portability.

        Pursuant to legislation passed on March 29, 2005, the Ministry of Communications is putting regulatory measures into place that would require mobile and land-line telephone operators to implement number portability, which would permit mobile and land-line network subscribers in Israel to change network operators without having to change their telephone numbers. According to the legislation, each operator must institute the necessary technology in its system for number portability by April 30, 2006, complete all necessary coordination with the other operators by July 31, 2006, and implement the number portability plan by September 1, 2006 (an extension of up to three months may be granted under certain circumstances). Because this will eliminate one of the major barriers that we believe currently prevents subscribers from changing network operators, we expect that number portability will increase competition in our industry and increase churn and may increase subscriber acquisition and retention costs. In addition, we cannot be sure how implementation of number portability will affect the overall functioning of our network and billing systems. Partner is a member of a 12-operator forum (including land-line, cellular, and international call operators) involved in a program plan to implement number portability. As of December 31, 2005, the head of the forum had notified the General Manager of the Ministry of Communications as well as the Minister of Finance that the operators will not be able to implement the plan by September 1, 2006, as scheduled, and requested an extension of approximately one year to implement the program. If we do not receive such an extension, we will probably not meet the statutory deadline, and we may be exposed to legal claims and financial sanctions that may have an adverse financial impact on us. Furthermore, we expect to incur material expenditures during 2006 in order to meet the technological challenges presented by the requirement to comply with the expected regulatory measures implementing number portability.

        Although we cannot predict with certainty the consequences of number portability, including the response of mobile telephone subscribers following the implementation of number portability, these developments may have a material adverse effect on our business and on the overall functioning of our system.

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, 2005, 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 (including with respect to our 3G networks) are incurred in, or linked to, non-shekel currencies. 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. Material changes in exchange rates may cause the amounts that we must invest to increase materially in shekel terms.

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        We hedge a portion of our foreign currency commitments. As of December 31, 2005, the notional amounts of our foreign currency derivatives were approximately US$28 million. Our derivative transactions are mainly designed to hedge the cash flows related to anticipated payments in respect of purchases of handsets and capital expenditures in foreign currency.

        Our bank credit facility borrowings and Notes due 2012 are currently in shekels, most of which 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 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. We enter into derivative transactions in order to protect ourselves from an increase in the CPI. As of December 31, 2005, the notional amounts of our CPI derivatives were approximately NIS 1,500 million (or approximately two-thirds of our CPI exposure).

Identification of significant deficiencies or material weaknesses as a result of our implementation of procedures designed to comply with Section 404 of the Sarbanes-Oxley Act of 2002 relating to evaluation of our internal control over financial reporting may have an adverse impact on our financial condition and results of operations and the trading price of our shares.

Commencing with our annual report on Form 20-F for the year ending December 31, 2006, we will include a report from our management relating to its evaluation of our internal control over financial reporting as required under Section 404 of the U.S. Sarbanes-Oxley Act of 2002. As a consequence of systems and procedures currently being reviewed and implemented to comply with these requirements, we may uncover circumstances that may be determined to be significant deficiencies or material weaknesses, or that may otherwise result in disclosable conditions. Although we intend to take prompt measures to remediate any such identified significant deficiencies or material weaknesses in our internal control structure, measures of this kind may involve significant effort and expense, and any disclosure of such significant deficiencies, material weakness or other disclosable conditions may result in a negative market reaction.

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 and political instability within Israel or its neighboring countries are likely to cause our revenues to fall and harm our business.

        Ongoing violence between Israel and its Arab neighbors and Palestinians may have a material adverse effect on the Israeli economy, in general, and on our business, financial condition or results of operations.

        Some of our directors, officers and employees are currently obligated to perform annual reserve duty. Additionally, all 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.

        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 circumstances, the government also has the right to withdraw temporarily some of the spectrum granted to us. We cannot assure you that we are fully prepared for every disaster or emergency situation, or that we could recover fully from any such occurrence. This may materially harm our ability to provide services to our subscribers in such emergency circumstances.

Our high leverage could adversely affect our financial health.

        We are highly leveraged. On December 31, 2005, our total long-term indebtedness was approximately NIS 2,688 million ($584 million). This debt represents approximately 76.7% of our total capitalization (bank loans plus Notes payable plus shareholders’ equity) on December 31, 2005. Our credit facility and the indenture governing the Notes due 2012 currently permit us to incur additional indebtedness, subject to some limitations.

        Our substantial debt could adversely affect our financial health by, among other things:

— increasing our vulnerability to adverse economic, industry or business conditions or increases in prevailing interest rates, particularly because a substantial portion of our borrowings is linked to the Israeli consumer price index, or CPI;

— limiting our flexibility in planning for, or reacting to, changes in our industry and business as well as the economy generally;

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— 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

— limiting our ability to obtain the additional finance we need to operate, develop and expand our business.

Our credit facility contains a number of restrictions and obligations that limit our operating and financial flexibility.

        Our credit facility contains a number of restrictive covenants 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 certain acquisitions or engage in mergers or consolidations, incur borrowing (other than permitted borrowings, as defined), make any substantial change to the nature of our business or engage in any other business. Our credit facility also contains covenants regarding achieving certain levels of financial ratios during the term of the facility.

        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 could result in an acceleration of our outstanding debt under our credit facility and restrict our ability to obtain additional funds, which could have a material adverse effect on our business, financial condition or results of operations.

We cannot assure that we will distribute dividends in the future, nor the amounts of any such dividends.

        In the third quarter of 2005, our Board of Directors and shareholders approved the distribution of our first cash dividend, in the amount of NIS 0.57 per share, totaling approximately NIS 86.4 million. In the first quarter of 2006, our Board of Directors and shareholders approved the distribution of an additional cash dividend in the amount of NIS 0.65 per share (totaling approximately NIS 100 million). In the second quarter of 2006, we adopted a dividend policy targeting a payout ratio of 60% of net income over 2006. As part of this policy, our Board of Directors approved the distribution of a cash dividend of NIS 0.45 per share (totaling approximately NIS 70 million) for the first quarter of 2006. Restrictions under Israeli Law and those contained in our credit facility limit the amount of dividends we may pay. In addition, our board may not decide to distribute dividends in the future.

The recently enacted Class Actions Law, 2006 may increase our exposure to class action lawsuits.

        The recently enacted Class Actions Law, 2006, inter alia, expands the causes of action for which a class of litigants may bring suit. The new law may increase the number of requests for approval of class actions against the Company and may increase our legal exposure as a result of such class action lawsuits and, as a result, may materially and adversely affect our financial results.

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: 972-54-7814-888). 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.

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— 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 June 2000, we introduced our pre-paid subscriber plan, known as “Big Talk.”At December 31, 2004, we had 700,000 subscribers, or approximately 30% 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) in 13% unsecured senior subordinated notes due 2010.

— 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 December 2001, the Ministry of Communications awarded us two bands of spectrum: 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.

— In June 2002, our license was extended until February 2022.

— In December 2002, we amended our senior credit facility in order to further tailor it to our business plan.

— By August 2003, we had over 2,000,000 subscribers.

— In November 2003, we entered into a framework agreement with Nortel Networks to supply what is expected to be Israel’s first third generation UMTS wireless network.

— In December 2004, we commercially launched our 3G network, having implemented our “soft launch” in June 2004.

— In March 2005, we completed a debt offering, raising NIS 2.0 billion in a public offering in Israel of the Notes due 2012. In April 2005 we entered into a new credit facility as part of our 2005 Refinancing, consisting of a $450 million term loan facility and a $100 million revolving loan facility, replacing our previous bank facility. In May 2005, we exercised an option to reduce the term facility from $450 million to $150 million.

— In April 2005, we used approximately NIS 1,074 million of the proceeds from our 2005 Refinancing to repurchase approximately 33.3 million shares from our Israeli founding shareholders, representing approximately 18.1% of our outstanding shares immediately before the repurchase.

— In August 2005, we redeemed our outstanding $175 million 13% Senior Subordinated Notes, due 2010.

— In the third quarter of 2005, our Board of Directors and shareholders approved the distribution of our first cash dividend, in the amount of NIS 0.57 per share, totaling approximately NIS 86.4 million to our shareholders of record as of September 26, 2005.

— On January 22, 2006, we signed an agreement with MED I.C. – 1 (1999) Ltd., a transmission and hosting company, to purchase its fiber-optic transmission business for approximately $14.8 million, subject to certain adjustments, in order to enable us to reduce our transmission costs as well as to provide our business customers with bundled services of transmission of data and voice. Completion of the transaction is subject to the satisfaction of various closing conditions, including, approval by the Ministry of Communications.

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— In the first quarter of 2006, our Board of Directors and shareholders approved the distribution of an additional cash dividend in the amount of NIS 0.65 per share (totaling approximately NIS 100 million) to our shareholders of record as of April 10, 2006.

— In the second quarter of 2006, we adopted a dividend policy targeting a payout ratio of 60% of net income over 2006. As part of this policy, our Board of Directors approved the distribution of a cash dividend of NIS 0.45 per share (totaling approximately NIS 70 million) for the first quarter of 2006 to shareholders of record as of June 6, 2006.

Our net capital expenditures for the first fiscal quarter of 2006 were approximately NIS 67.7 million. For more information on our capital expenditures for the last three financial years, 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 and on December 1, 2004, commercially launched our UMTS third generation, or 3G, service. We received our mobile telephone license in April 1998 and commenced full commercial operations of our digital GSM mobile telephone network in January 1999. Since then, we have expanded rapidly, and on December 31, 2005, we had approximately 2.59 million subscribers, representing an estimated 32% of total Israeli mobile telephone subscribers at that date. During the twelve months ended December 31, 2005, we increased our customer base by approximately 8.07%. At December 31, 2005, approximately 50% of our private subscribers had post-paid tariff plan contracts with us, approximately 30% of our subscribers were in pre-paid subscriber plans, and approximately 20% of our total subscribers were business subscribers. As of December 31, 2005, we also had more than 100,000 3G customers, all of whom are post-paid subscribers.

        We market our services by capitalizing on the strong international Orange brand and the experience of our largest shareholder, Hutchison Telecom. 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 have also received awards recognizing our high standards of customer service. In 2005 we were named by both Globes Israeli business daily newspaper as well as by the Israeli daily newspaper, Yediot Ahronot, as the number-one provider of customer service in Israel in the telecommunications market.

        We currently operate our GSM network in the 900 MHz and 1800 MHz bands. Our GSM network covers approximately 97% of the Israeli population. Our GSM services include standard and enhanced GSM services, as well as value-added services and products such as roaming, voice mail, voice messaging, color picture messaging, icon, ringtone and game downloads, information services, 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.

        Our 3G network, which as of the end of 2005 covered approximately 92%, of the Israeli population, offers a wide range of new services, such as video calls, a new portal of content services including a rich selection of video-based services under the “obox live” brand, and the transmission of data at speeds of up to 384 Kbps.

        In March 2006, we soft launched HSDPA to the business sector, which is a technological enhancement to our 3G services and offers subscribers the ability to access our 3G services at higher speeds. We offer an HSDPA data card modem which enables our subscribers to access our network at higher speeds. We soft launched HSDPA with limited coverage in the center of Israel and plan to expand the coverage area gradually.

        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, 2001, 2002, 2003, 2004 and 2005:

Market Share*	2001			2002			2003			2004			2005
Partner		27	%		29	%		31	%		32	%		32	%
Cellcom		41	%		39	%		35	%		34	%		33	%
Pelephone		28	%		28	%		30	%		30	%		30	%
MIRS		4	%		4	%		4	%		4	%		5	%

* Based on information contained in published reports issued by, and public statements made by, Pelephone and Cellcom or by their respective shareholders and from Partner subscriber data. The figures for MIRS are our estimates.

        We operate in one business segment, 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 wholly owned by Bezeq, the land-line operator in Israel. The major beneficial owner of Bezeq following Bezeq’s privatization during 2005 is an entity comprised of the S.C.G. Group (Haim Saban), the Apax Fund, and Arkin Communications (Mori Arkin). Pelephone currently operates nationwide mobile telephone networks in Israel using both the N-AMPS analog and the CDMA digital system and recently upgraded its network to CDMA1x. The major beneficial shareholders of Cellcom are Discount Investment Corporation Ltd, DIC Communications Ltd., and PEC Israel Economic Corporation. Cellcom operates nationwide mobile telephone networks based on GMS 1800 MHz and D-AMPS technologies. In 2004, further technological enhancements were introduced by our competitors, with Cellcom announcing commercial service over UMTS/HSDPA spectrum and Pelephone announcing the implementation and commercial offering of EV-DO technology. MIRS is an Enhanced Specialized Mobile Radio, or “trunking,” iDEN network. MIRS’s major shareholder is Motorola Communications (Israel) Ltd.

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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 land-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 operations 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.

        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 7.9 million subscribers at December 31, 2005, representing approximately 113% of the Israeli population.

        In an auction process completed in December 2001, the Ministry of Communications awarded us the two additional 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. 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.

— 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, 2005 of 113% representing approximately 7.9 million subscribers. This may include dormant subscribers and subscribers to multiple networks as well as other subscribers who are not included in the Israeli population figures, such as Palestinians, visitors, and foreign workers.

— Multiple Different Mobile Telephone Technologies. The four mobile telephone licensees in Israel have systems based on multiple technologies. Pelephone uses the N-AMPS analog, the CDMA and CDMA1x digital systems, and the EVDO system, and Cellcom uses the D-AMPS,GSM/GPRS, EDGE, and UMTS/ High Speed Downlink Pack Technologies (HSDPA) systems. MIRS uses an iDEN system. We are currently one of two network operators using a GSM digital system and a UMTS system. GSM is an advanced, internationally accepted technology, and according to an industry source, was used by approximately 1.8 billion people worldwide as of March 31, 2006.

— 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 aim is to continue to increase profitability and to maintain subscriber growth. To achieve this objective, we are pursuing the following strategies:

— Achieve Leadership in 3G Services. We believe that demand for 3G services will provide an important source of future mobile subscriber growth and usage in Israel. As a result, we are leveraging our brand and our outstanding reputation for network quality, innovation, and customer service to develop our 3G business in order to benefit from that growth. We aim to offer desirable content and to make our 3G services widely accessible and affordable.

— Retain the Strength of our Brand. We believe that a focused marketing strategy based upon the strong international Orange brand is critical to our subscriber growth and loyalty. In light of the benefits that our strong brand gives us, we intend to continue to promote our brand, including in connection with our 3G services, in order to maximize these advantages. We also intend to support our brand by continuing to focus on customer service, innovation and the quality of our network.

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— Be First in Technology. We believe that we have benefited historically from being a first-mover in technology, and aim to retain this first-mover advantage in order to drive our future subscriber growth. We believe that we will have an advantage in our ability to gain subscribers by continuing to capitalize on technological innovation in this manner in the future.

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:

— 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 marketing activities have resulted in wide-scale recognition of the Orange brand in Israel.

— 3G Services. As of December 31, 2005, we had an Israeli nationwide UMTS network, which offers high speed data, advanced video content and video telephony. Cellcom does not yet have a nationwide UMTS network, and Pelephone has an EVDO network without the ability to offer video calling. We believe that as of December 31, 2005, we offered the market’s most advanced and comprehensive 3G services.

— Focus on Customer Service. We believe we provide outstanding customer service through quick, simple and reliable handling of customer needs and interactions, which we have achieved through investments in technology and training of customer service skills. In 2004, we were named by the Israeli Management Institute as the best provider of customer service in Israel for the third year in a row in the telecommunications market. In 2005, we were named by both Globes Israeli business daily newspaper, as well as by the Israeli daily newspaper, Yediot Ahronot, as the number one provider of customer service in Israel in the telecommunications market. We also believe that we have achieved high customer loyalty, as evidenced by our customer churn rate of 13.6%for the year ended December 31, 2005.

— High Quality Network and Technology Leadership. We believe that we set high standards for network quality and 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. Additionally, we believe that we are a recognized leader in the development and provision of mobile services in Israel and worldwide

— Beneficial Relationship with Hutchison Telecom. Our largest shareholder, Hutchison Telecom and its major shareholder, HWL, are global leaders in the 2G and 3G mobile telecommunications market. Hutchison Telecom has a substantial interest in a 3G operating company in Hong Kong, and HWL has a substantial interest in 3G operating companies in Austria, Australia, Denmark, Ireland, Italy, Sweden and the United Kingdom. We derive benefits from the knowledge and experience of Hutchison Telecom and HWL and from a cost sharing agreement with certain members of the HWL group of companies for the joint acquisition and development of information technology platforms and software solutions, hardware, content and other services in connection with our 3G business. In particular, our relationship with Hutchison Telecom and HWL enhances our competitive position in the provision of 3G services by giving us access to supply of 3G handsets on favorable terms.

— Strong Financial Performance and Financial Position. Our net cash provided by operating activities less net cash used in investing activities has improved significantly and has grown from negative NIS 1,163.0 million in the year ended December 31, 2000 to positive NIS 459.6 million in the year ended December 31, 2005.

— Strong and Motivated Management Team. Since our inception, we have been able to attract a number of Israeli senior managers from the telecommunications, high-tech and consumer products industries. Our management team has a strong track record of successfully managing our company from our start-up phase in 1998 to our position today as the leading provider of GSM and UMTS services in Israel. We believe that our 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, simplicity, 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.

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        Our marketing strategy is based on the concept of high value for money and introducing advanced services for subscribers. In order to carry out our strategy, we offer our subscribers competitive tariffs, technologies and services that we believe are advanced, including our 3G services as well as our GPRS services. During 2005, the primary objective of our marketing strategy was to increase our 3G subscriber base and 3G usage by our customers.

        We commercially launched our 3G network on December 1, 2004, having implemented our “soft launch” in June 2004, when we distributed 3G handsets to selected customers for the purpose of evaluating the quality of our 3G network and services. As of December 31, 2004, we had approximately 8,000 3G subscribers, and as of December 31, 2005 we had more than 100,000 3G subscribers. As of the end of 2005, our 3G network covered approximately 92% of the population of Israel. During 2006 we plan to further expand our 3G population coverage. Our 3G network offers a wide range of new services, such as video calls, which are currently offered exclusively by us; a new portal of content services including a rich selection of video-based and MP3 based services under the “obox live” bran;, and the transmission of data at speeds of up to 384 Kbps. We have concluded content agreements with a variety of content providers and suppliers in the Israeli television and entertainment industry. As a result of our relationship with Hutchison Telecom and HWL, we have a supply of 3G handsets on favorable pricing terms. As of December 31, 2005, we offered our 3G services with four different handsets and one 3G data card.

        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. During 2005, our main advertising activities focused on promoting the subscribership and usage of the 3G services. Our marketing strategy focuses on promoting our services to various segments of the Israeli population, and we have extended this to our 3G services. We advertise our services in several languages. In addition to traditional media, we promote our brand and services by sponsoring and initiating cultural and community programs, such as a special events program on the Passover holiday, a three-day international music festival held in the Haifa harbor, a lecture by the conductor and author, Benjamin Zander, for our business customers and the International Film Festival, a major cultural event in Israel that takes place every year in Jerusalem and attracts international attention. We usually focus our sponsorship activities on events which are of an international nature to support the international value of the brand. We use the distinctive Orange Brand logo in all our promotional activities and advertising.

        At December 31, 2005, approximately 20% 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.”

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. Our most basic service is telephony service – provided on both our GSM/GPRS network and our UMTS/HSDPA network. Our basic offer includes international dialing, roaming, voice mail, short message services, intelligent network services, content based on our mobile portal, data and fax transmission and other services. Our use of HSCSD, GPRS, UMTS and HSDPA technologies enables high speed data transmission. All our content services are unified under the obox brand; our 2G and 2.5G content services are all branded as obox; and our 3G services are branded as obox live. Our orange obox services enable the downloading of rich applications and content and WAP browsing, while our obox live services are enhanced by the video and audio capabilities of our UMTS network. Our MMS services enable subscribers to send photos, multimedia and animation from handset to handset and from handset to web. We also offer 24-hour, seven-day a week customer service, as well as handset repair and replacement services, to subscribers who acquire these services.

        We received and maintain 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 have introduced tariff plans aimed at bringing innovation to the Israeli mobile communications market. Our tariff plans offer features attractive to business users such as: the charging of fees based on airtime usage without adding the interconnect charges imposed by other mobile and land-line providers for calls made by our subscribers that terminate on third party networks, and the provision of discounts for calls to designated numbers within a subscriber’s calling circle. In addition, we usually offer handset subsidies to customers joining these tariff plans.

        Our tariff plans aimed at private customers usually have no contractual obligations for a minimum subscription period. Such plans feature a certain number of free minutes for calls made between family members and offer limited handset subsidies. The elements of our tariff plans for private customers are packaged and marketed in various ways to create tariff packages attractive to target markets, including families, soldiers, Orthodox Jews, Arab and Russian communities, teens and students.

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        We offer our 3G customers similar rate plans to those that we offer to our 2G customers, but with an additional fixed monthly fee. In all of our 3G rate plans, video call minutes are charged at the same rate as voice call minutes. We also offer a pre-paid plan. Upon purchase of a phone card or prepayment 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. Our pre-paid plans enable us to compete in the growing pre-paid mobile services market.

International Roaming

        Israelis are frequent travelers. According to the Israel Central Bureau of Statistics, in 2005, more than 3.7 million overseas departures of Israelis were recorded, and almost 1.9 million people visited Israel during 2005. Roaming allows a mobile phone subscriber to place and to receive calls while in the coverage area of a network to which he or she does not subscribe and to be billed for such service by his or her home network. 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. The Ministry of Communications may introduce new regulations that would limit our revenues from roaming services. See “Item 4. Information on the Company – 4B. Business Overview – Regulation.”

        At December 31, 2005, we had open commercial roaming relationships with 347 operators in 162 countries or jurisdictions. We also have agreements with satellite operators, providing global coverage, requiring the use of unique handsets, some of which can be used with the standard customer SIM card. 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.

        On December 31, 2005, we had 3G roaming agreements with operators in 22 countries, enabling our 3G roamers to experience video calls, high speed data and video and audio content while abroad. Since we operate our GSM services on the 900 MHz band, which is the most widely-used among GSM operators worldwide in terms of handsets, and also on the 1800 MHz band, all of our roaming enabled subscribers may roam to most countries where we have roaming capability using their own handsets without modification. In some countries cellular networks use either the 1900 MHz band of GSM or other technologies (GSM 850, CDMA or UMTS) with which we have established international roaming. 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 countries that deploy GSM 1900 frequency with networks using GSM 1900. Other subscribers who advise us of their intention to visit those countries are either loaned 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, or are given the option to rent such handsets at their destination upon their arrival. Since the launch of our 3G network, UMTS networks around the world are becoming gradually available to our 3G subscribers.

Value-Added Services

        In addition to standard GSM value-added services, including voice mail, Short Message Service (SMS), voice messaging, fax mail, 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 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.

        Our main focus throughout 2005 was to market and develop our 3G services. During the year we launched our 3G content portal, which we branded as “obox live” and consists of advanced video and audio streaming and downloads. The main value-added services we currently offer include the following:

— Blackberry. This service offers customers one of the most advanced mail solutions. We offer the Blackberry handset along with the Blackberry service, with Hebrew support for emails and SMS messages.

— Call back. While roaming, this service allows subscribers to return calls to Israel at discounted rates.

— Content Download. This service enables the downloading of rich applications and content, including games, interactive screensavers and polyphonic ringtones. Our 3G users can also download specially edited video clips, MP3 songs, MP3 ringtones and other content items. A small portion of our 2.5G customers can also download several video and MP3 items over our GPRS network. In order to use these download services, the users have to own specific handsets.

— Fun Tone. Personal ring back tone which is subject to the customer preference, from a wide international library of music tracks or other types of audio elements (e.g. sound effects) which is heard when dialing to this customer.

— High Speed Data. We offer high speed data transfer through circuit switched technology (via an infrastructure development that 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), through GPRS (a technology that enables the packet transfer of data in an “always on” mode, at speeds of up to 20-30 Kbps) and through UMTS (a technology that enables the packet transfer of data in an “always on” mode, at speeds of up to 384 Kbps).

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— Information and Content Services. We provide voice, text-based, MMS-based and video-based information and content services. The voice-based information services are provided through IVR platforms, which include interactive information services and radio programs. Text based information services are provided through our current SMS and WAP technologies. Interactive information services include services such as: news headlines, sport news and results, weather reports in Israel and abroad, daily horoscopes and more. Some of these services are provided through our MMS or video-based technologies as well, and are offered to subscribers who own certain types of handsets. For purposes of these services we have relationships with content providers.

— MMS Services. These services enable subscribers to send photos, multimedia and animation from handset to handset and from handset to e-mail, from handset to web album and from a web album to handsets, based on Multimedia Message Services (MMS) platform and on a web MMS storage album.

— Orange Hotspots. A service that allows access from laptops to wireless networks, using WIFI technologies, from thousands of locations in Israel, overseas, and from airplanes.

— Orange mail. Mobile e-mail services that enable access to e-mail accounts (private or business accounts) Through our WAP portal.

— Organizational Voice Recognition. A service that allows for voice recognition of the names listed in a customer’s global contact list. The customer is able to dial a number and ask for the contact person and the system connects the customer to that person.

— PC to Mobile Video Calling. This service allows 3G subscribers to speak with any other party using an internet camera. This service expands the video telephony available to customers who do not have a 3G handset or are not within the 3G coverage area.

— SIM Backup. This service allows customers to backup their phonebook entries on the SIM card on a network server. If the SIM card or phone is lost, the subscriber does not lose his contact list.

— Speed Detectors. This service allows subscribers to receive a notice about speed detectors in their vicinity.

— Vehicle Fleet Management. This service provides a comprehensive system for businesses to manage their vehicle fleet. It allows tracking the position, speed and direction of vehicles, which helps speed up delivery times, cut running costs and improve customer service. It provides the ability to assess at a glance which driver is best placed to respond to the next call, optimizing driver time, cutting fuel costs and improving efficiency. In addition, it provides the option to communicate with drivers via text messages.

— Video and Audio Streaming. We provide our 3G customers (and a small portion of our 2.5G customers) the ability to watch video clips and to listen to full music tracks without downloading them to their handset. These services offer a wide range of information and entertainment clips to view and listen to, and enable the customer to watch live television broadcasts.

— Video Calls. This service enables our 3G users (while in our 3G coverage area and with a 3G handset) to speak with each other through video conferences – to hear and to see the other party simultaneously.

— Video Mail. This service enables our 3G subscribers to send and receive video messages if the receiver is not available.

— Virtual Private Network. User groups can be formed in multiple layers, and the members can then reach each other through short dialing codes, like extension numbers. This service is mostly used among business customers.

— 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.

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Handsets

        We provide handsets to our 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.

        We currently offer a range of different handset models supplied by a number of manufacturers. We offer handsets to satisfy our subscribers’ roaming needs in the 900 MHz, 1800 MHz and 1900 MHz bands and recently in 2100 MHz (UMTS) as well. Not all handsets support all band ranges. 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. We have begun selling some innovative handsets with enhanced applications, including multicolor, large screens with high resolution displays, high quality music performance and MMS capabilities. Pursuant to the launch of our 3G network, we sell 3G handsets that enable customers to make video calls, consume video and MP3 audio-based content services and use laptops with high-speed rates of data transmission.

Customer Division

        Our Customer Division incorporates all service, sales and distribution channels, and on December 31, 2005, had approximately 2,400 full-time employees, including managers, sales representatives and service representatives.

Customer Service

        Our customer support and service provides several channels for our customers: call centers, walk-in centers and self-services, such as IVR, web-based services and via SMS.

        Call Centers. Guided by our aim to provide high quality service, our call-center services are divided into several sub-centers as follows: customer segment (business, private and pre-paid) and specialized support and services (finance, network, international roaming and data transfer related issues). The call center services are provided in four languages: Hebrew, Arabic, English and Russian.

        Walk-in Centers. We currently operate 36 Partner owned service and sales centers covering almost all areas of Israel. These centers provide a face-to-face, uniformly designed, contact channel and offer all services that we provide to customers: sales, handset upgrade, handset maintenance and other services (finance, rate-plan changes, subscription to new services etc.). Several of these centers are focused on sales to both private and small business customers. These stores are located in central locations, such as shopping malls in Tel Aviv and its periphery, Jerusalem, Haifa and Be’er-Sheba. 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 agreements for different periods of up to twenty years including the initial lease period . The average size of our retail stores and service centers is approximately 230 square meters. See also Note 8a(3)(b) to our consolidated financial statements.

        Self-Service. We provide our customers with various self-service channels, such as IVR, web-based services and service via SMS. These channels provide general and specific information, including tariff plans, account balance, billing related information and roaming tariffs. They also provide customers information regarding trouble shooting and handset-operation, and enable customers to activate and de-activate services and to download content.

        All of our service channels are monitored and analyzed regularly in order to assure the quality of our services and to detect areas of which require improvement.

Sales and Distribution

        We apply a multi-channel approach to target various market segments and to coordinate our sales strategy.

        We distribute our services and products primarily through:

— Direct sales channels, which consist of Partner-owned sales centers and business sales representatives; and

— Indirect sales channels, which consist of traditional networks of specialized dealers and non-traditional networks of retail chains and stores that account for the majority of our sales.

Direct Sales Channels

        Orange Sales and Service Centers – All of our walk-in centers serve as sales centers. The face-to-face contact enables customers to get “a feel and a touch” of new handsets and services demonstrated by our representatives. The “feel and touch” approach enables us also to promote in particular our 3G products and services.

        Direct Sales Force: Our sales force is comprised of sales representatives, account managers and area managers, targeting business customers.

— A team of regional representatives and customer account managers, located in five regional offices, supports small to medium-sized businesses. This team primarily focuses on small- and medium-sized enterprises, which tend to use more airtime and yield higher margins.

— A team of corporate representatives and customer account managers services large corporate customers.

— Specialized VIP representatives provide service to opinion leaders and prominent individuals.

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— A “door to door”sales-force focuses on small business customers.

— A telemarketing department conducts direct sales by phone (to private and business customers), initiates contacts to prospective customers and coordinates appointments for the sales representatives.

        Our sales force undergoes regular training to improve their skills 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.

Indirect Sales Channels

        Traditional Dealer Networks. On December 31, 2005, we had agreements with 35 traditional dealers providing 44 points of sale, 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. Most of our dealers specialize in sales for post-paid customers, and others specialize on sales for pre-paid customers and distribution of pre-paid handsets to sub-dealers. Our dealers are highly professional and some of them have previous experience selling cellular services in Israel. In addition, we have specific dealers that target different 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. Our dealer managers visit dealers on a regular basis to provide information and training, answer questions and solve any problems that may arise. We pay our dealers competitive commissions and provide handset subsidies. 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 specialized 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. At December 31, 2005, our services were sold in 96 “Super-Pharm” stores nationwide in a variety of formats, including Partner shop-in-shops, kiosks, wall-unit displays and at front counters. In 2005, approximately 13% of our new subscribers were recruited through sales by “Super-Pharm”. Under our agreement with “Super-Pharm”, Super-Pharm sells our network services in their stores, and we cooperate with them in establishing a chain of stores called “Super-Link” that is dedicated to selling communications services and equipment. The agreement between the parties, which has received the approval of the Israeli Commissioner for Restrictive Trade Practices, is in effect until May 31, 2006.

        In addition, we continue to develop our distribution network with other non-traditional dealers, such as the “Cellular Center for Vehicles”, which has approximately 34 locations for the sale, installation and maintenance of car kits, and “Auto Depot”, which has nine such locations. 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.

        All indirect sales channels are supported by a specialized “dealer support” call center providing information, support and coordination of appointments of car-set installations.

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 our dealers or from us can be charged 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.

        Most of our subscribers pay for the handsets in 36 installments, which is charged directly to their credit card or to their monthly bill. If the customer opts to pay for the installment via his monthly bill, the outstanding installment payments are not secured.

        Subscribers are billed monthly for airtime charges and charges per services. 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 card issuer does not grant the approval, 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 eight handsets (or four in certain circumstances) 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.

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Our Network

        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, 2005, we have made net capital expenditures of NIS 3,429 million ($745 million) in our network infrastructure and other related fixed assets.

Overview

        The “first generation” of wireless communication, based on analog technology, provides simple voice telephony. The “second generation” of wireless communication, 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 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 services at speed rates that are higher than the rates offered through “second generation” technology. Packet data rates vary from 20 Kbps-44 Kbps, depending mainly on handset capabilities. Approximately 55% of our customers who have GPRS enabled handsets use and pay for GPRS services.

        Third generation wireless communication, which offers full interactive multimedia capabilities at data rates of up to 384 Kbps, are bringing wire-free networks significantly closer to the capabilities of land-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 wire-free telecommunications. HSDPA is also part of 3G technology and enhances network output and performance. In March 2006, we soft launched HSDPA to the business sector, which offers subscribers the ability to access our 3G services at higher speeds. We offer an HSDPA data card modem which enables our subscribers to access our network at higher speeds. We soft launched the HSDPA with limited coverage in the center of Israel and plan to expand the coverage area gradually. HSDPA standards provide for download rates ranging from 1.8 Mbps, which is the current standard for roll-out, to up to 14.4 Mbps, which is envisaged for 2007.

Infrastructure

        On December 31, 2005, our GSM network consisted of 1,549 macrobase transceiver stations and 714 microbase transceiver stations, all linked to 30 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 4,190 transmission links. Ericsson and Nokia supply our base station controller and base transceiver station sites for our GSM and GPRS network.

        On December 31, 2005, our UMTS network consisted of 1,280 macrobase transceiver base stations and 110 microbase and indoor transceiver stations, all linked to eight radio network controllers. The base station subsystem is controlled by one mobile switching center and one media gateway. The base transceiver stations, the mobile switching center and the radio network controllers are interconnected by approximately 1,400 transmission links. Nortel Networks and Ericsson supply our 3G UTRAN and core network equipment.

        In addition, our network is interconnected with two public switched telephone companies: Bezeq and HOT, in several locations across Israel. Our network is also directly connected to the mobile networks of Pelephone, Cellcom, Mirs and the six Israeli international operators, Bezeq International, Barak, Golden Lines, Internet Gold, Netvision and Exfone, and indirectly to the land-line and mobile telephone networks of Paltel.

        Our transmission network is made up of leased lines from Bezeq and Cellcom and our own microwave links. Currently most of our transmission network consists of leased lines. As our GSM network currently covers 97% of the Israeli population, we are now selectively expanding the capacity of our GSM network primarily in urban areas by adding infrastructure to improve outdoor and indoor coverage. We plan to continue increasing the capacity of our GSM network due to the growth of voice and data in the GPRS traffic.

        On January 22, 2006, we signed an agreement with MED I.C. – 1 (1999) Ltd., a transmission and hosting company, to purchase its fiber-optic transmission business for approximately $14.8 million, subject to certain adjustments, in order to enable us to reduce our transmission costs as well as to provide our business customers with bundled services of transmission of data and voice. Completion of the transaction is subject to the satisfaction of various closing conditions, including approval by the Ministry of Communications.

        Our UMTS network covers the highly populated areas of Israel, including Tel Aviv and the Dan metropolitan area, Jerusalem, Haifa, Beer Sheba as well as smaller cities and major highways. We are continuing to expand and improve the coverage, capacity and quality of our UMTS network to additional areas. Current UMTS population coverage exceeds 92%.

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Network Design

        Our primary design objective is to build a UMTS mobile telephone network engineered to provide high voice, video and packet quality, call reliability, high capacity and high coverage quality and to maintain technological 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 follow high quality standards which exceed those set forth in our license. The quality parameters that we seek to satisfy are those that we believe are important to mobile phone users: voice quality, high data rate packet sessions, low “blocked call” rate, low “dropped call” rate and deep indoor penetration, especially in densely populated areas or areas of special commercial interest. The two main examined parameters used to measure network performance for voice and packet data are the setup call success rate and the drop calls rate. 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 our UMTS network, which shares locations with the GSM sites. We use monitoring probes and counters to ensure network quality.

        Our transmission network design confers the following benefits: (i) necessary bandwidth for GSM and UMTS 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.

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. Following a possible rearrangement of spectrum in the 900 MHz band, an additional 900 MHz spectrum may be offered to operators in the future. If one of our competitors is allocated this additional spectrum and not us, our network may face interference and we will no longer be the sole GSM operator operating both in the 900 MHz frequency band and in the 1800 MHz frequency band.

Other Systems

        On December 1, 2004 we commercially launched our UMTS network with advanced applications and services including, among others, a 3G content portal offering a variety of services such as live TV broadcasts, JAVA games, maps and directions application, wide range of music (MP3) services and an e-commerce movie ticketing application.

        We have installed a video gateway and a streaming server, enabling us to offer our customers a full range of video services on their 2.5G and 3G handsets.

Site Procurement

        Once a new coverage area has been identified, our technical staff determines 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 most of these antennas require building permits from local or regional authorities, as well as a number of additional permits from governmental and regulatory authorities, such as:

— 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.

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Suppliers

        Our network utilizes standard equipment, which is available from a limited number of suppliers. In November 2003, we entered into a framework agreement with Nortel Networks to supply us with our UMTS wireless network. Under the agreement, Nortel supplies us with mobile switching centers, radio network controllers, Node B’s and other UMTS equipment In September 2005, we entered into a framework agreement with Ericsson as a second vendor for 3G UMTS/HSDPA infrastructure equipment. 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. 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. 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.”

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 the Israeli telecommunications operators – Bezeq, Cellcom, Pelephone, MIRS, Bezeq International, Barak Golden Lines, Golden Lines and HOT. Our network is indirectly interconnected to the network of Netvision, Exfone, Internet Gold and Paltel through the Bezeq network for the purpose of bilateral transfer of calls. We are in the process of interconnecting our network to that of Golden Lines and GlobeCall which have recently been granted special licenses for the provision of land-line telephony.

        We are currently operating without any formal interconnect 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.

        We currently pay Bezeq an interconnection fee based on a tariff structure set forth in the Interconnection Regulations (Telecommunications and Broadcasts) (Fees for Interconnection) (2000).

        We have formal interconnect 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 interconnect agreements with Cellcom, Pelephone and MIRS do not contain any pricing terms. The interconnection tariffs charged by Cellcom, Pelephone and MIRS are set forth in the Interconnection Regulations (Telecommunications and Broadcasts) (Fees for Interconnections) 2000 that, coupled with a change to the mobile telephone operators’ licenses, imposes a uniform call termination tariff for all mobile telephone operators. In addition we have a formal interconnect agreement with HOT, which came into effect in May 2005 and will remain in effect for five years. The interconnect agreement with HOT renews automatically for additional five-year terms. The agreement can be terminated on 90 days’ written notice by either party. The interconnection fees under our agreement with HOT are set by the Interconnection Regulations (Bezeq and Broadcasts) (Fees for Interconnection) (2000). Because we transfer and receive all traffic to and from Paltel’s network through the Bezeq network, we pay Bezeq a transit fee for each call. In the beginning of 2004, the Ministry of Communications amended our license and the relevant regulations, reducing SMS termination tariffs from NIS 0.38 to NIS 0.285 effective May 1, 2004. In November 2004, the Ministry of Communications issued regulatory changes significantly reducing call termination tariffs, effective March 1, 2005, from NIS 0.45 to NIS 0.32, with additional reductions mandated as follows: effective March 1, 2006, to NIS 0.29 per minute; effective March 1, 2007, to NIS 0.26 per minute; and effective March 1, 2008, to NIS 0.22 per minute. At the same time, the Ministry of Communications reduced SMS termination tariffs, effective March 1, 2005, from NIS 0.285 to NIS 0.05, with an additional reduction mandated effective March 1, 2006 to NIS 0.025. A recent regulatory change linked call termination tariffs and SMS termination tariffs to the CPI, such that the call termination tariffs were adjusted to NIS 0.2969 per minute and the SMS termination tariffs were adjusted to NIS 0.0256. The tariffs described above will be adjusted each March to conform to changes in the CPI. In response to the tariff reductions described above, we implemented cost-cutting measures as well as price increases and repackaging of our tariff plans. Depending on the effectiveness of such steps, and other factors such as general market conditions, these regulatory changes may negatively impact our revenues and profits. See ” – Regulation – Telecommunications Law” below.

        We have written interconnect agreements with Bezeq International, Barak, Netvision, Internet Gold and Exfone. We currently have an operating arrangement with Golden Lines. The Ministry of Communications regulation and the change to the mobile telephone operators’ licenses also impose a uniform call termination tariff for incoming international calls of NIS 0.25 per minute. This rate will be reduced to NIS 0.22 per minute, in line with the reduction in termination tariffs for incoming domestic calls, effective March 1, 2008 (adjusted to conform to changes in the CPI).

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Competition

        There are currently four mobile telephone network operators in Israel: Partner, Cellcom, Pelephone and MIRS. The major beneficial shareholder of Cellcom is IDB . Cellcom operates nationwide mobile telephone networks based on GSM 1800 MHz, EDGE and D-AMPS, technologies. Cellcom is expected to launch is UMTS service in 2006. For more information, see “Item 3D. Risk Factors–Competition from existing competitors may require us to increase our subscriber acquisition costs and customer retention costs and increase our churn rate”. Our second competitor is Pelephone. During 2004, Bezeq, the land-line operator in Israel, completed its acquisition of 100% of the shares of Pelephone. The major beneficial owner of Bezeq, following Bezeq’s privatization during 2005, is an entity comprised of the S.C.G. Group (Haim Saban), the Apax Fund, and Arkin Communications (Mori Arkin). Pelephone currently operates nationwide mobile telephone networks in Israel using both the N-AMPS analog and the CDMA and CDMA1 xRTT, as well as the EV-DO technology. 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 shareholder is Motorola Communications (Israel) Ltd.

        According to our estimations, at December 31, 2005, Cellcom had approximately 2,603,000 customers, representing approximately 33% of the Israeli mobile telecommunications market; Pelephone had approximately 2,345,000 paying customers, representing approximately 30% of the Israeli mobile telecommunications market and MIRS had over 375,000 users, representing approximately 5%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, tariffs, value-added services and the quality of customer services.

        In the sense that land-line telephony may, in some instances, be an alternative to cellular telephony, we also compete with Bezeq, which has been the only incumbent land-line operator in Israel until recently, when HOT launched a land-line telephone service on a very limited basis. In 2006, GlobeCall, Golden Lines and Cellcom were also granted special licenses for the provision of land-line telephony. Other telecommunications companies, including Barak and Netvision, have been reported to have applied for similar licenses. We requested such a license in early May 2006 as well.

        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 land-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, adopting and implementing new systems, including Customer Relations Management, or CRM, systems, which have contributed to our customers’ satisfaction with our service, as well as 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 CRM 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. We have completed upgrading our systems to support data packet switching services for 2.5 and third generation. Our “Vantive” CRM system is becoming obsolete and we contracted with IBM to implement a new CRM system based upon “Seibel” software.

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 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.

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        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. 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 regulatory framework under which we operate consists also of the Planning and Building Law, 1965, the Consumer Protection Law, 1981, and the Non-Ionizing Radiation Law, 2006. Additional areas of Israeli law may be relevant to our operations, including antitrust law, specifically the Restrictive Trade Practices Law, 1988, the Class Actions Law, 2006, and administrative law. The Israeli telecommunications market is in a state of transition, 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, such as was the case with Bezeq, whose privatization was completed this past year. As a result, there is a possibility that changes may take place in the regulatory framework described below.

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.

        General licenses, which relate to telecommunications activities over a public network or for the granting of nationwide services or international telecommunications services, have been awarded to Bezeq, and to HOT, to the four mobile telephone operators, Pelephone, Cellcom, Partner and MIRS, and to the six international operators, Barak, Bezeq International, Golden Lines, Netvision, Internet Gold and Exfone. In addition, the Ministry of Communications may issue additional mobile telephone operator and other licenses in the future.

        In 2003, the Ministry of Communications decided to open the international call market to new competitors. However, the Ministry notified that it will not allow mobile operators to enter the international call market, at this stage.

        On November 30, 2004, following a hearing process, the Ministry of Communications published a preliminary policy on Voice over Broadband, or VoB, services. The policy, among other things, allows licensed third parties (“VoB operators”) to use the access infrastructure of Bezeq and of HOT, to provide VoB services to customers, charging customers directly, with no need to pay to the access owner any usage fees. The policy indicates that usage of cellular operators’ infrastructure will be discussed and decided at a later date. Due to strong reactions from Bezeq and from HOT, the Ministry of Communications re-opened the hearing process on December 29, 2004, and responses were required to be submitted by January 30, 2005. However, due to the resignation of the Minister of Communications, the hearings have not yet proceeded.

        On June 21, 2004, the Ministry of Communications published a draft license form, for potential providers willing to commit to license terms and be awarded a license to provide domestic land-line (wireline and wireless) services to customers, competing with Bezeq and HOT, on a non-universal service basis. Services provided under such license must be precisely defined by the provider, must be provided to customers in a region, or regions, defined by the provider and must be provided to a defined type of customer. Under the terms of such license, the provider must demonstrate aggregate revenues of no less than NIS 50 million within 3 years from the launching of the services. The license term is 20 years. We and various companies, including Golden Lines, Cellcom and Globecall, have requested this license. Golden Lines and Cellcom have already been granted this license.

        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.

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        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 and SMS termination tariff. In November 2004, the Ministry of Communications announced regulatory changes significantly reducing call termination tariffs and SMS termination tariffs, effective March 1, 2005, with additional reductions mandated for the coming years. In addition, the Ministry of Communications further announced that billing units will be reduced from the present intervals of up to 12 seconds to 1 second, effective December 31, 2008. Furthermore, the Ministry of Communications also indicated that it intends to start implementing a process to bring about unification of rates for calls terminating both on and off an operator’s network, and disallow charging the customer with a separate interconnect tariffs. Preliminary hearings with the cellular operators in Israel on this matter commenced in August 2005, and the Ministry of Communications has yet to publish a decision. 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.

        The Ministry of Communications is evaluating the cost of roaming and may introduce new regulations that would limit fees charged by Israeli cellular companies for calls made by foreign network operators’ customers while in Israel using our network as well for calls made by our own customers using their handsets abroad. Because we consider roaming charges to be a significant source of revenue, such regulatory limits could adversely affect our revenues.

        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, among other, 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 provided a rate of 4% in 2003 and a rate of 3.5% in 2004 and 2005. In November 2004, the Ministry of Communications announced that from January 2006 the rate of royalties payments will be reduced annually by 0.5% to a level of 1%.

        New Numbering Plan. The Ministry of Communications instructed all mobile network operators to implement as of April 20, 2004, a new national numbering plan, which gives each mobile operator a single prefix and adds a new digit to the beginning of each subscriber’s current number. We have implemented the plan successfully, providing us with a range of eight million numbers for our customers.

        Number Portability. On March 29, 2005, amendment to the Telecommunications Law requires the Minister of Communications to put into place a mobile number portability plan and, separately, a fixed number portability plan by September 1, 2006 (a three-month extension may be granted under certain circumstances), with the technological capacity to effect such implementation to be established by the companies by April 30, 2006, and coordination efforts with the other mobile telephone operators to be put in place by July 31, 2006. The number portability plan would permit mobile network subscribers in Israel to change operators without having to change their telephone numbers. Because this will eliminate one of the major barriers that we believe currently prevents subscribers from changing network operators, we expect that this will increase competition in our industry and churn rates and may increase subscriber acquisition and retention costs. Partner is a member of a 12-operator forum (including land-line, cellular, and international call operators) involved in a program plan to implement number portability. As of December 31, 2005, the head of the forum had notified the General Manager of the Ministry of Communications as well as the Minister of Finance that the operators will not be able to implement the plan by September 1, 2006, as scheduled, and that a program delay is requested. If we do not receive such an extension, we will not meet the statutory deadline, and we may be exposed to legal claims and financial sanctions that may have an adverse financial impact on us. The forum has submitted to the Antitrust Commissioner a formal request to allow the forum members to establish a central clearinghouse, owned by the operators, for administrative purposes related to number portability.

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.

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        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. In particular, the regulator’s decisions may materially adversely affect our results of operations”.

        Furthermore, in recent statements, the Israeli Commissioner of Restrictive Trade Practices has expressed his view that the mobile telephone industry in Israel operates as an oligopoly and that the Israeli government should intervene to regulate prices In part, the Commissioner based his statements on the increase in prices by the mobile telephone operators as a result of the Ministry of Communications’ decision to lower call termination tariffs. The chairman of the Knesset’s Economic Committee announced that the committee would act to declare the mobile telephone operators as an oligopoly. Such a finding could result in increased regulatory intervention (including with regard to tariffs and tariffing practices), the application of certain limitations on our conduct and increased litigation.

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. The suit is pending.

        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, the Minister of Communications amended and extended the license through 2022.

        The cost of the license fees is NIS 180 million for the GSM 1800 spectrum, payable in two installments and NIS 220 million for the UMTS third generation spectrum, payable in six installments. We have one installment left on the UMTS third generation spectrum in the amount of NIS 22 million plus interest.

        Under the terms of the amended license, we have provided a $10 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.”

        On February 18, 2004, the Minister of Communications appointed a tender committee for allocating additional spectrum bands to existing and new mobile network operators. The committee was responsible for the process of holding a tender in which the Ministry of Communications would extend the licenses of the existing mobile network operators in order to enable them to offer their services in the additional spectrum bands that were about to be offered and allocated in the tender. In addition, the tender included the possibility of granting a general license to a new mobile network operator. Under the tender, the Ministry of Communications offered GSM 1800 MHz bands and third generation UMTS bands. Cellcom, one of our competitors, was the sole operator to buy additional bands in the GSM 1800 MHz spectrum. Furthermore, following a possible rearrangement of spectrum in the 900 MHz band, an additional 900 MHz spectrum may be offered to operators in the future.

        In March, 2004 and December, 2004, our license was amended to allow for adult voice services through all cellular media including voice, picture, chat and dating services. The access to adult voice services is through a domestic dialing code by a plan set by the Ministry of Communications and a service number that we allocate to the provider of the adult voice services. Access to the adult voice services is automatically barred as a default for all our subscribers unless they specifically request the service and verify that they are over 18 years of age. This amendment has been applied to all cellular operators, to Bezeq and recently to the international operators. The Ministry of Communications will hold the operators and not the content providers liable and accountable for any infractions of this amendment. An additional amendment in March 2006 extended the restricted access for adult voice services described above to 3G technologies as well, including non-voice and internet services. This additional amendment, which came into effect March 29, 2006, imposes, inter alia, restrictions not only on access to adult-content internet sites using our cellular technologies, but also access via our internet portal to internet search engines, such as “Google”, that could potentially facilitate a search for such adult-content internet sites. We have filed a petition with the Israeli Supreme Court of Israel challenging the legality of the restrictions on access to internet search engines on the grounds that such restrictions infringe on basic freedoms of speech and our freedom to conduct our business, and that such restrictions unfairly discriminate against our provision of internet services as compared to non-cellular internet service providers who do not face similar restrictions. The petition is currently pending in the Israel Supreme Court.

        On March 9, 2005, our general license was further amended. The principal elements of this amendment are as follows:

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— Our founding shareholders and their approved substitutes must hold, in the aggregate, at least 26% of each of our means of control. Furthermore, the maintenance of at least 26% of our means of control by our founding shareholders and their approved substitutes allows Partner to be protected from a license breach that results from a transfer of shares for which the authorization of the Ministry of Communications was required, but not obtained.

— Israeli entities from among our founding shareholders and their approved substitutes must hold at least 5% of our issued share capital and of each of our means of control. “Israeli entities” are defined as individuals who are citizens and residents of Israel and entities formed in Israel and controlled, directly or indirectly, by citizens and residents of Israel, provided that indirect control is only through entities formed in Israel, unless otherwise approved by the Israeli Prime Minister or Minister of Communications.

— At least 10% of our board of directors must be appointed by Israeli entities, as defined above, among our founding shareholders or their approved substitutes, provided that if the board is comprised of up to 14 members, only one such director must be so appointed, and if the board of directors is comprised of between 15 and 24 members, only two such directors must be so appointed.

— A new board committee shall be formed to deal with security matters. Only directors with the required clearance and those deemed appropriate by Israel’s General Security Service may be members of this committee.

— The Minister of Communications shall be entitled to appoint an observer to the board of directors and its committees, subject to certain qualifications and confidentiality undertakings.

        This amendment became effective on April 14, 2005 upon our notice to the Ministry of Communications that we have met the requirements set out in the license amendment.

        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), but has been extended until 2022.

        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:

— 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

— using the spectrum allocated to us efficiently, 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 the Ministry of Communications’ approval. We have submitted our standard agreement to the Ministry of Communications for approval pursuant to our license. To date, we have not received any comments from the Ministry of Communications regarding this agreement.

        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 and any other service 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.

        In October 2005, the Ministry of Communications announced its plans to investigate the possibility of requiring cellular operators to permit customers to terminate a call without charge if the call went directly to voicemail rather than reach the intended party, or to limit charges for the initial seconds of such calls. On May 2007, the Ministry of Communications proposed an amendment to our general license under which calls that are to go directly to voicemail would first trigger a message that would notify the caller that his call is about to go directly to voicemail and allow the caller to opt out to going to voicemail and avoid being charged for such call. The mobile telephone operators, including Partner, have been requested by the Ministry of Communications to submit their respective positions on such proposal. Such regulation may adversely affect our financial results.

        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 some 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.”

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        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.

        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:

— 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 is considered a 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.

        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 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.

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        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 founding shareholders or their approved substitutes of Partner continue to hold in the aggregate at least 26% 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 founding 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.

        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 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.

— Founding shareholders or their approved substitutes must hold at least 26% of the means of control of Partner.

— Israeli entities from among our founding shareholders and their approved substitutes must hold at least 5% of our issued share capital and of each of our means of control.

— A Foreign Mobile Radio and Telephone operator (as defined below) (or a controlling corporation thereof) must hold directly or indirectly at least 25% of the means of control of Partner.

— 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.

— 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.

— 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;

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— 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.

        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 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.

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— “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 the license and relating to attributed holdings of shareholders deemed to be in control of a corporation.

        Discount Investment Company Ltd., an indirect shareholder of Elbit, one of our founding Israeli shareholders, was 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 three 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. On April 20, 2005, we purchased a material portion of the Partner shares owned by Elbit and as a result, Elbilt’s holdings in Partner were reduced to less than 5%. See “Item 7B. Related Party Transactions–Repurchase of Shares from Founding Israeli Shareholders.”

ISP License

        In March 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 land-line network customers. The license is valid until March 2008.

Other Licenses

        The Ministry of Communications has granted us a trade license pursuant to the Wireless Telegraphy Ordinance. This license regulates issues of servicing and trading in equipment, infrastructure and auxiliary equipment for our network.

        We have also been granted a number of encryption licenses that permit us to deal with means of encryption, as provided in the aforementioned licenses, within the framework of providing mobile radio telephone services to the public.

        On March 1, 2006, we submitted a request to the Ministry of Communications to obtain a national transmission license after we signed an agreement with MED I.C. – 1 (1999) Ltd. to purchase the company’s fiber-optic transmission business. On April 30, 2006 we requested, in conjunction with the aforementioned request, that the national transmission license previously granted to MED I.C. -1 be transferred to Partner.

        In early May 2006 we applied for a special license for the provision of land-line telephony.

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 antennas. 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 maximum level of operation, 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.

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        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 antennas. This standard is an international standard based upon a number of years of scientific study.

        On January 1, 2006, the Non-Ionizing Radiation Law (5766-2006) was enacted, which defines the various powers of the Ministry of the Environment as they relate, inter alia, to the grant of permits for antenna sites and sets standards for permitted levels of non-ionizing radiation emissions and reporting procedures. Pursuant to such law, which will enter into effect on January 1, 2007, a request for an operating permit from the Ministry of Environment with respect to either new sites or existing sites would require a building permit for such site(s). If we will continue to face difficulties in obtaining building permits from the local planning and building committee, we may fail to obtain also operation permits from the Ministry of Environment. Operation of an antenna site without a permit from the Ministry of Environment may result in criminal and civil liability to us or to our officers and directors.

        Local Building Permits

        The Planning and Building Law requires that we receive a building permit for the construction of most of our antennas. The local committee or local licensing authority in each local authority is authorized to grant building permits, provided such permits are in accordance with 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.

        On January 3, 2006, the National Council for Planning and Building added a new requirement for obtaining a building permit for antenna sites: the submission of an undertaking to indemnify the local committee for claims relating to the depreciation of the surrounding property value as a result of the construction or existence of the antenna.

        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 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.

        Since National Building Plan 36 was approved, some planning committees have started to require that, as a precondition for issuing new permits for antenna sites, we submit an undertaking to indemnify the committee against claims for depreciation in the value of nearby properties as a result of issuing a permit to build, and the building of, antenna sites. To date, we have provided to local authorities 24 letters of undertaking to provide such indemnification for the benefit of such local authorities within 30 days from the enactment of a law or a final court decision requiring such indemnifications.

        Under the Non-Ionizing Radiation Law, which imposes criminal sanctions for non-compliance with its dictates, the National Council for Planning and Building was granted the power to determine the level of indemnification for reduction of property value to be undertaken as a precondition for a cellular company to obtain a building permit for a new or existing antenna site. As a result, the National Council for Planning and Building has decided that until National Building Plan 36 is amended to reflect a different indemnification amount, cellular companies will be required to undertake to indemnify the building and planning committee for 100% of all losses resulting from claims against the committee. Thus, at present, in order to obtain a building permit for a new or existing antenna site, we must provide full indemnification for the reduction of property value.

        We cannot predict whether the legal requirement to provide full indemnification will be adopted in the amended National Building Plan 36, nor can we predict when the National Building Plan 36 will be amended. These recent developments may have a material adverse effect on our financial condition and results of operations, as well as plans to expand and enhance network coverage. For more information, see “Item 3D. Risk Factors – In Connection with certain building permits, we may also be required to indemnify certain planning committees in respect of claims against them relating to the depreciation of property values or to alleged health damage that result from antenna sites, which may have a material adverse effect on our financial condition and results of operations”.

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        Other Approvals

        The construction of our antennas may be subject to the approval of the Civil Aviation Administration which is authorized to ensure that the construction of our antennas does not interfere with air traffic, depending on the height and location of such antennas. 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, 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. 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 an approval to connect the repeaters to our 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.”

        We have received approval from the Ministry of Communications for selling and distributing 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, and under the new Non-Ionizing Radiation Law, certain types of devices, which are radiation sources, including cellular handsets, have been exempted from requiring an approval from the Ministry of Environment so long as the radiation level emitted during the use of such handsets does not exceed the radiation level permitted under the Non-Ionizing Radiation Law. Since 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 under the Consumer Protection Law. While, to the best of our knowledge, the handsets that we market comply with the applicable laws that relate to acceptable SAR levels, we rely on the SAR published by the manufacturer of these handsets and do not perform independent inspections of the SAR levels of these handsets.

        In November 2005, a new procedure was adopted by the Ministry of Communications with regard to the importation, marketing, and approval for 2G and 2.5G handsets. Prior to the implementation of the new procedure, suppliers of 2G and 2.5G handsets in Israel were required to obtain an interim, non-binding approval of the handset type from the relevant mobile telephone operators before receiving final approval from the Ministry of Communications to supply such handsets in Israel to such operators. Under the new procedure, handsets that have already received the internationally recognized Global Certification Forum approval prior to their importation into Israel are now exempt from the requirement of receiving an interim, non-binding approval from the relevant mobile telephone operators in Israel. This could expose us to the risk that handsets not reviewed and approved by us may interfere with the operation of our network. The new procedures described above do not apply to 3G handsets, which still require mobile telephone operators to grant an interim, non-binding approval to the Ministry of Communications before the Ministry grants its final approval in all circumstances.

        In addition, this procedure also called for repaired handsets to comply with all applicable standards required for obtaining handset type approval, including standards relating to the safety, electromagnetic levels, and SAR levels. Under a December 2005 amendment to this procedure, in the event that the SAR level is not measured after the repair of a handset, the repairing entity is required to notify the customer by means of a label affixed to the handset that the SAR may have been altered following the repair, in accordance with the provisions relating to the form of such label set forth in the procedure. At present, a consultant has been retained by the Ministry of Communications to formulate a recommendation regarding the appropriate manner to implement the procedure for repairing handsets. In the course of the consultant’s work, he has met with mobile telephone operators, including Partner. We intend to comply with the decision of the Ministry of Communications on this matter once a decision is published.

        Liberalization of Handset Market

        The Ministry of Communication announced in October 2005 its plans to increase competition in the cellular handset market by opening the market to competitors. We are unable at this point to assess how the market liberalization in the handset market would affect us, although we believe that such competition will not have a material affect on our business.

4C. Organizational Structure

        We currently have two active subsidiaries, Partner Future Communications 2000 Ltd., an Israeli corporation, and Partner Land-Line Communications Solutions LLP, an Israeli limited partnership (of which Partner Future Communications 2000 Ltd. serves as the general partner and the Company serves as the limited partner), which are wholly-owned by us. We are an indirect subsidiary of Hutchison Telecom, which holds approximately 51.6% of our outstanding shares, as of March 31, 2006. Hutchison Telecom is a leading international provider of mobile and land-line telecommunications services with operations in nine markets.

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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 3.5 to 8.5 years.

(2) 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 increased our lease to 18,151 square meters and 14,877 square meters for parking and service areas. In 2004, we increased our lease to 19,000 square meters plus 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 3.5 to 8.5 years.

(3) Main office at 10 Amal St. – 2,468 square meters plus 500 square meters of parking and service areas. The lease agreement is for an initial period of 24 months commencing in December 2002. We have an option to continue the lease period for seven additional periods of 24 months each. The lease for the main office at 10 Amal St. renews automatically at the end of each term.

        We lease a 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, 2005, we had 2,252 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 up to ten years (including the original lease period).

        The operation of most of these antenna sites requires building permits from local or regional zoning authorities, as well as a number of additional permits from governmental and regulatory authorities, and we have had difficulties in obtaining some of these permits. Difficulties obtaining required permits could continue and therefore affect our ability to maintain antenna sites. See “Item 3. Key Information – 3D. 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 and may result in criminal or civil liability to us or to our officers and directors.”

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 agreements for different periods of up 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.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

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 report. You should also read the risk factors appearing in this annual report for a discussion of a number of factors that affect and could affect our financial condition and results of operations.

Overview

        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.

        In December 2001 we were awarded additional spectrum: second generation (“2G”) band (1800 MHz) and third generation (“3G”) UMTS band (1900 MHz and 2100 MHz). We commercially launched our 3G network in December 2004. 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.

        The attached table is a summary of selected financial and operating data for each of the years ended December 31, 2005, 2004, 2003, 2002 and 2001:

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	2005			2004			2003			2002			2001
Revenues (NIS million)		5,123			5,141			4,468			4,055			3,249
Operating profit (NIS million)		903			1,019			855			533			103
Income (loss) before taxes (NIS million)		557			759			530			84			(307	)
Net income (loss) (NIS million)		355			472			1,163			84			(303	)
Capital expenditures, net (NIS million)		486			601			232			556			599
Cash flow provided by (used in) operating activities net
of investment activities (NIS million)		460			599			655			(134	)		(207	)
Subscribers (thousands)		2,529			2,340			2,103			1,837			1,458
Annual churn rate (%)		13.6	%		12.0	%		13.6	%		10.9	%		5.8	%
Average monthly usage per subscriber (in minutes)		294			286			277			280			318
Average monthly revenue per subscriber (NIS)		156			170			171			183			214
Average subscriber acquisition costs (NIS)		282			295			362			470			458

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 2005, as in each of 2004 and 2003, over 50% 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 are derived from subscribers originating calls on our network and payments received from other telecommunications network operators, both local and international, for delivering calls originating on their networks and terminating on our network. We recognize revenues from airtime usage and other services at the time we provide the service to the subscriber. We recognize revenues from handset sales, car kits and other equipment only upon delivery and the transfer of ownership to the subscriber.

Cost of Revenues

        Our principal components of cost of revenues are:

— interconnect fees paid to the land-line and other telecommunication network operators in Israel and charges paid to foreign GSM network operators;

— handset and car-kit costs;

— depreciation of our network and amortization of our license;

— salaries and related expenses, including compensation related to employee stock option plans.

— leases;

— network maintenance;

— royalties paid to the Israeli Government under our license; and

— costs of replacing or repairing damaged handsets.

Selling and Marketing Expenses

        Our principal components of selling and marketing expenses are:

— advertising and promotion;

— commissions to dealers; and

— salaries and related expenses, including compensation related to employee stock option plans.

General and Administrative Expenses

        Our principal components of general and administrative expenses are:

— salaries and related expenses, including compensation related to employee stock option plans;

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— professional fees and consultancy fees;

— insurance;

— depreciation and amortization; and

— provision for bad debts.

Financial Expenses

        Our principal components of financial expenses are:

— interest on bank loans and notes;

— net hedging costs on foreign currency exposure;

— exchange rate and linkage differences; and

Key Business Indicators (Operating Data)

        Our primary key business indicators are described below. These indicators are widely used in the cellular telephone service industry to evaluate performance:

— number of subscribers;

— average monthly revenue per subscriber (ARPU);

— average monthly minutes of usage per subscriber (MOU);

— churn rate; and

— subscriber acquisition costs (SAC).

2005 Developments

        We operate in a highly regulated telecommunications market. During 2005, reductions in interconnect tariffs resulted in lower revenues, adversely affecting our financial results. Additional reductions have already become effective March 1, 2006. To mitigate the effects of these reductions, we have implemented cost-cutting measures, including reducing distribution and advertising costs, implemented price increases and repackaged our tariff plans. We are not able to predict with certainty the effect of future regulatory changes, including the effect of the implementation of number portability, and how we will address these changes.

        As part of our overall efforts to reduce costs, we raised approximately NIS 2 billion in a public offering in Israel and entered into a new $550 million bank credit facility in April 2005, which was reduced to $268 million as of December 31, 2005, and redeemed our 13% USD Notes due 2010.

        On January 22, 2006, we signed an agreement with MED I.C. – 1 (1999) Ltd., a transmission and hosting company, to purchase its fiber-optic cable infrastructure comprising of a network of approximately 900 kilometers of submerged and terrestrial transmission fiber for approximately $14.8 million, subject to certain adjustments, in order to enable us to reduce our transmission costs as well as to provide our business customers with bundled services of transmission of data and voice. Completion of the transaction is subject to the satisfaction of various closing conditions, including, approval by the Ministry of Communications. We believe that demand for 3G services will provide an important source of future mobile subscriber growth and usage in Israel. During 2005, we expanded our 3G population coverage from approximately 60% of Israeli population to approximately 92% of the Israeli population at a cost of approximately $50 million. In addition, the primary objective of our marketing strategy in 2005 was to increase our 3G subscriber base and 3G usage by our customers while marketing and developing our 3G services available to our customers. We intend to continue our efforts to increase our 3G subscriber base and 3G usage.

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 reporting period. We also evaluate our estimates, on an ongoing basis. We base our estimates on historical experience and on various other assumptions and information that we believe are 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.

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        Please refer to Note 1 to our consolidated financial statements included in this annual report for a summary of all of our 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:

Revenue Recognition

        As described in Note 1j to our consolidated financial statements, we recognize service revenues as services are rendered, and revenues from sale of handsets and other equipment upon delivery. We recognize service revenues based upon minutes used, net of credits and adjustments for service discounts. Because our billing cycles use cut-off dates, which for the most part do not coincide with our reporting periods, we are required to make estimates for service revenues earned but not yet billed at the end of each reporting period. These estimates are based primarily upon historical data and trends. In certain cases, cellular handsets are sold to subscribers within the context of airtime packages, in order to divide the revenues into separate units of accounting, we are required to estimate the fair value of each deliverable. These estimates are based upon the price of each deliverable when it is sold on a standalone basis. The amount allocable to the delivered item (the handset) is limited to the amount that is not contingent upon the delivery of any additional services under the contract (airtime services).

        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.

Long-Lived Assets

        We have substantial investments in tangible and intangible long-lived assets, primarily our communications network, our license and spectrum. Changes in technology or changes in our intended use of these assets can cause the estimated period of use or the value of these assets to change. We amortize our communications network by the straight-line method, mainly over 6.7 years (15% per year). For instance, had the percentage of depreciation been decreased by 5%, our operating profit would increase by approximately NIS 141 million and had the percentage of depreciation increased by 5%, our operating profit would decrease by approximately NIS 124 million. We amortize our license by the straight-line method mainly over the utilization period of the license, which is based upon the license period. During 2002, our license was extended by 14 years to 2022. Consequently, the amortized balance of our license is amortized as of 2002 over the period ending in 2022. We review our communications network, license and spectrum for impairment or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable through undiscounted future cash flows. If necessary, we write down the assets to their estimated fair values. No write-downs of our long-lived assets have been recorded since incorporation.

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 collection trends. The allowance is periodically reviewed. 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 to 1.5 years overdue is reserved for at the rate of 78%. If we decreased our percentage of the allowance for all aging debts by 15%, our operating profit would increase by NIS 16 million. If we increased such percentage by 15%, our operating profit would decrease by NIS 11 million. The debt becomes fully reserved once it is at least 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 0.5%, 0.4% and 0.6% for the years ended December 31, 2003, 2004 and 2005, respectively.

Results of Operations for the Year Ended December 31, 2005 Compared to the Year Ended December 31, 2004

        Revenues in 2005 were NIS 5,122.9 million (US$ 1,113.0 million), down 0.3% from NIS 5,140.7 million in 2004.

        Revenues in 2005 from services were NIS 4,619.9 million (US$ 1,003.7 million), approximately equal to the revenues from services in 2004 of NIS 4,615.8 million. Compared with 2004, total network minutes in 2005 increased by 12.8%, offset by a 12.9% dilution in the average tariff per minute including incoming calls. The increase in total network minutes was driven primarily by an expanding subscriber base which grew by 8.1% from the end of 2004 to the end of 2005. The dilution in the average tariff per minute compared with 2004 was driven primarily by the reduction in interconnection tariffs which went into effect in March 2005, as well as increased competition and the increased weight of business subscribers in our customer base. The average business subscriber generates substantially more minutes of use than post-paid private and prepaid subscribers, whilst their average tariff per minute is materially lower.

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        Revenues in 2005 from equipment were NIS 503.0 million (US$ 109.3 million), a decrease of 4.2% from NIS 525.0 million in 2004. The decrease in 2005, compared with 2004, was driven by a decrease in the average revenue per sale.

        Data and content revenues, including SMS messages, in 2005 were NIS 404.2 million (US$ 87.8 million), accounting for 7.9% of total revenues or 8.7% of service revenues, up from NIS 351.1 million, or 6.8% of total revenues, 7.6% of service revenues, in 2004, despite the reduction in SMS interconnection tariffs. The increase in 2005, compared with 2004, was driven by data and content non-SMS service revenues which increased by 34.5%. Revenues from SMS services in 2005 decreased by 4.0% compared with 2004, reflecting the reduction in SMS interconnect tariffs from March 2005, as mandated by the Ministry of Communications. In 2005, SMS messages accounted for approximately 42% of data and content revenues, compared with approximately 50% in 2004.

        Cost of revenues in 2005 increased by 4.2% to NIS 3,766.4 million (US$ 818.2 million) from NIS 3,615.0 million in 2004.

        Cost of revenues – services in 2005 increased by 4.8% to NIS 3,022.5 million (US$ 656.6 million), from NIS 2,885.1 million in 2004. The increase was primarily driven by the increased depreciation and amortization of over NIS 100 million which was recorded following the launch of the 3G network towards the end of 2004 together with the additional network expenses associated with the 3G network.

        Cost of revenues – equipment in 2005 increased by 1.9% to NIS 743.9 million (US$ 161.6 million) from NIS 729.9 million in 2004. The increase was driven primarily by the marketing of more advanced and higher cost handsets and approximately 5% growth in sales transactions to new and upgrading subscribers.

        Gross profit for 2005 was NIS 1,356.6 million (US$ 294.7 million), the equivalent of 26.5% of revenues, down 11.1% from NIS 1,525.7 million, or 29.7% of revenues, in 2004. The decrease can be primarily attributed to the increased depreciation, amortization and network expenses related to the Company’s 3G network.

        Selling and marketing expenses in 2005 were NIS 272.9 million (US$ 59.3 million), a decrease of 16.1% from NIS 325.2 million in 2004. The decrease was principally due to reductions in distribution and advertising costs.

        General and administrative expenses in 2005 were NIS 180.8 million (US$ 39.3 million), a decrease of 0.2% from NIS 181.1 million in 2004.The decreases in general and administrative expenses, as with the decreases in selling and marketing expenses, reflect cost-cutting measures the Company put in place as part of its plan to mitigate the effects of the inter-carrier termination rate reductions that were mandated by the Ministry of Communications.

        Operating profit for 2005 was NIS 902.9 million (US$ 196.2 million), a decrease of 11.4% from NIS 1,019.3 million in 2004. As a percentage of revenues, operating profit decreased from 19.8% in 2004 to 17.6% in 2005. The decrease can be primarily attributed to the impact of the inter-carrier termination rate reductions that were mandated by the Ministry of Communications, as well as the increased depreciation, amortization and network expenses related to the Company’s 3G network.

        Financial expenses in 2005 were NIS 345.4 million (US$ 75.0 million), an increase of 32.6% from NIS 260.5 million in 2004. The increase was primarily driven by a one-off charge in the amount of NIS 63 million related to the redemption of the US$ 175 million 13% Senior Subordinated Notes on August 15, 2005, interest charges related to both the redeemed Notes and the new CPI-linked shekel-denominated Notes and a one-off amortization of capitalized expenses related to the Company’s previous bank facility.

        Income before taxes for 2005 was NIS 557.5 million (US$121.1 million) down 26.5% compared to NIS 758.8 million in 2004.

        Net income in 2005 was NIS 354.6 million (US$ 77.0 million) or earnings of NIS 2.19 (US$ 0.48) per basic ADS or share (NIS 2.17 per diluted ADS or share), representing a 24.8% decrease from NIS 471.6 million, or earnings of NIS 2.57 per basic ADS or share (NIS 2.56 per diluted ADS or share), in 2004. The decrease in 2005 net income compared with 2004 resulted primarily from the financial expenses related to the restructuring of the Company’s debt, the impact of the inter-carrier termination rate reductions that were mandated by the Ministry of Communications, and the increased depreciation, amortization and network expenses related to the Company’s 3G network.

        During 2005, our net active subscribers increased by 189,000, or 8.1%.

        As of December 31, 2005 our net active subscriber base was 2,529,000, accounting for an approximate market share of 32%. The Company’s subscriber base at the end of December 2005 included approximately 507,000 business subscribers (20% of the base), approximately 1,268,000 postpaid private subscribers, (50% of the base), and approximately 754,000 prepaid subscribers, (30% of the base). Of the Company’s subscriber base, approximately 103,000 were 3G subscribers. Net new active subscribers in the business sector accounted for approximately 39% of net new active subscribers in the year.

        The annual churn rate in 2005 increased to 13.6% from 12.0% in 2004. The increase was primarily due the prepaid sector.

        Average monthly usage per subscriber (MOU) for 2005 was 294 minutes, an increase of 2.8% compared with 286 minutes in 2004. In 2005, average monthly revenue per subscriber (ARPU) was NIS 156 (US$ 33.9), a decrease of 8.2% compared with approximately NIS 170 in 2004. The decrease in ARPU is attributed primarily to the reduction in interconnection charges mandated by the Ministry of Communications, despite the increase in MOU.

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        In 2005, handset subsidies per new subscriber increased compared with 2004. However, the average cost of acquiring a new subscriber (SAC) in 2005 decreased to NIS 282 (US$ 61.3) from NIS 295 in 2004. The reduction reflects a reduction in non-handset subsidy components of SAC including commissions.

Trends

        In 2006, due to the highly penetrated market, we expect the rate at which we continue to add net subscribers to be lower than in 2005. With respect to 3G subscriber growth in 2006, we anticipate that lower 3G handset prices should reduce the price differential from 2G handset prices and drive 3G subscriber growth higher.

        We also expect revenues to grow in 2006, despite the decline in ARPU that will result primarily from the 9% decline in inter-carrier termination rates from March 2006, as mandated by the Ministry of Communications. Along with a rise in revenues, we foresee increases in operating income, net income and earnings per share and all related margins in 2006. We expect to continue to grow shareholder value in 2006, with the EPS to increase substantially due to higher operating income, substantially lower financial expenses, resulting from the refinancing of our long-term debt in 2005, and the lower average shares outstanding after we repurchased approximately 17% of our outstanding shares from our founding Israeli shareholders. We anticipate that capital expenditures which were lower in 2005 compared with 2004 will rise in 2006, owing to the infrastructure transaction with Med-1. The additional infrastructure purchased from Med-1 will enable us to reduce operating costs over the long-term. In addition, we expect subscriber acquisition and retention costs per subscriber to be higher due to higher subsidies on 3G handsets as compared to 2G handsets. Furthermore, we expect churn to continue to increase, primarily in the prepaid sector.

Results of Operations for the Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003

        Revenues in 2004 were NIS 5,140.7 million, up 15.1% from NIS 4,467.7 million in 2003. This increase was due to increased revenue from services (including data and content) and equipment, as discussed below.

        Revenues in 2004 from services increased by 12.1% to NIS 4,615.8 million, as compared to NIS 4,117.9 million in 2003. The increase was driven primarily by a 16.2 percent increase in total network minutes, offset by a 7.1% dilution in the average tariff per minute including incoming calls. The increase in total network minutes was driven primarily by an expanding subscriber base which grew by 11.3% from the end of 2003 to the end of 2004. The dilution in average tariff per minute in 2004 as compared to 2003 was caused by increased competition and the increased weight of business subscribers in our customer base. The average business subscriber generates substantially more minutes of use than post-paid private and prepaid subscribers, whilst their average tariff per minute is materially lower.

        Revenues in 2004 from equipment increased by 50.1% to NIS 525.0 million, as compared to NIS 349.8 million in 2003. The increase was driven primarily by increased revenue per sale and an approximately 13% growth in the number of sales to new and upgrading subscribers in 2004 as compared to 2003.

        Data and content revenues, including SMS messages, in 2004 were NIS 351.1 million or 6.8% of total revenues, up 15.6% from NIS 303.8 million, or 6.8% of total revenues in 2003. The increase in revenues in 2004 as compared to 2003, was driven primarily by a 32% increase in revenues from non-SMS services. Revenues from SMS services grew by approximately 5% in 2004 as compared to 2003. SMS messages in 2004 accounted for approximately 50% of data and content revenues as compared to approximately 55% in 2003.

        Cost of revenues in 2004 increased by 15.3% to NIS 3,615.0 million from NIS 3,136.5 million in 2003.

        Cost of revenues – Services in 2004 increased by 11.5% to NIS 2,885.1 million from NIS 2,586.7 million in 2003. The increase in 2004 as compared to 2003 resulted primarily from the 12.1% increase in service revenues, as the higher level of service revenues, driven by increased minutes of use, resulted in higher variable costs including inter-carrier termination fees and transmission.

        Cost of revenues – Equipment in 2004 increased by 32.8% to NIS 729.9 million from NIS 549.7 million in 2003. The increase was driven primarily by higher priced handsets and approximately 13% growth in the number of sales transactions to new and upgrading subscribers.

        Gross profit for 2004 was NIS 1,525.7 million, 29.7% of revenues, up 14.6% from NIS 1,331.3 million, 29.8% of revenues, in 2003.

        Selling and marketing expenses in 2004 were NIS 325.2 million, an increase of 3.6% from NIS 314.0 million in 2003. The increase was driven primarily by higher distribution and advertising costs in response to increasing competition and the introduction of our 3G network.

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        General and administrative expenses in 2004 were NIS 181.1 million, up 11.5% from NIS 162.4 million in 2003. The increase was driven primarily by a larger provision for doubtful accounts resulting from the increased volume of handset sales, compensation costs under the new stock option plan, and one-time costs incurred in the Company’s attempt to purchase a controlling interest in Matav and a write-off of legal and accounting fees incurred in 2001 in preparing the Company’s shelf registration with the United States Securities and Exchange Commission.

        Operating profit for 2004 was NIS 1,019.3 million, an increase of 19.2% from NIS 854.9 million in 2003. Operating profit as a percentage of revenues increased to 19.8% from 19.1% in 2003.

        Financial expenses in 2004 were NIS 260.5 million, a decrease of 19.0% compared to NIS 321.7 million in 2003. The decrease in financial expenses in 2004 compared to 2003 was driven primarily by lower bank debt levels and lower shekel interest rates offset by the negative revaluation of U.S. dollar foreign currency hedging positions covering foreign exchange exposure on the US$ 175 million 13% subordinated notes. The fair value of these derivative contracts as of December 31, 2004, is a liability of NIS 55.3 million as compared to a liability of NIS 11.5 million on December 31, 2003. The increase in the liability is derived primarily from the strengthening of the shekel by 3.9% in Q4 2004.

        Income before taxes for 2004 was NIS 758.8 million, up 43.3% compared to NIS 529.6 million in 2003.

        In 2004, the Company had net income of NIS 471.6 million, or NIS 2.56 per ADS or per share, compared to NIS 1,162.7 million, or NIS 6.34 per ADS or per share in 2003. The decrease in net income for 2004 compared to net income for 2003 resulted primarily from the utilization of the Company’s accumulated tax loss carry forwards and the creation of deferred tax assets in Q4 2003, in the amount of NIS 633.0 million.

        During 2004, our net active subscribers increased by 237,000, or 11.3%.

        As of December 31, 2004 our net active subscriber base was 2,340,000, accounting for an approximate market share of 32%, up from 31% at the end of 2003. The subscriber base for 2004 is comprised of 1,207,000 post-paid private subscribers (51.6% of the base) 700,000 prepaid subscribers (29.9% of the base) and 433,000 post-paid business subscribers (18.5% of the base). Net new active subscribers in the business sector accounted for approximately 36% of net new active subscribers in 2004.

        The annual churn rate for 2004 decreased to 12.0%, compared to 13.6% in 2003. We believe that the decrease in chum resulted primarily from an increased level of retention activities in 2004 as compared to 2003.

        Average monthly usage per subscriber (“MOU”) for 2004 was 286 minutes, an increase of 3.2% from the MOU for 2003, which was 277 minutes. Average monthly revenue per subscriber (“ARPU”) for 2004 was 170 NIS compared to NIS 171 in 2003, a decline of 0.6%. The decrease in ARPU, despite the increase in MOU, is derived primarily from downward pressure on tariffs, driven by increasing competition.

        In 2004, lower handset subsidies caused the average cost of acquiring a new subscriber (SAC) to decline from 2003. The lower handset subsidies were achieved as a result of higher charges related to handsets in the business and private sectors. 2004 SAC was NIS 295, compared to NIS 362 for 2003, a decline of 18.5%.

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, 2005, 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, most of our capital expenditures are incurred in, or linked to, non-shekel currencies, and our notes redeemed in August 2005, were 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 impact on our results, which may be material. We hedge most of our foreign currency commitments.

        Although we have the ability to borrow under our bank credit facility in US dollars and Euro, our borrowings are in shekels, and most of our shekel bank borrowings and our new notes 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. We partly hedge the principal amount of our new notes (due 2012), against adverse movement in the Israeli Customer Price Index (CPI).

5B. Liquidity and Capital Resources

        The mobile telephone business is highly capital intensive, requiring significant capital to acquire a license, construct mobile telecommunications networks. 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.

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        Currently, our main sources of liquidity are:

— our operating cashflows;

— our credit facility; and

— our Notes due 2012.

        On April 14, 2005, we entered into a new $550 million bank credit facility, replacing our previous bank facility. The new facility includes a $450 million term loan facility and a $100 million revolving loan facility, both maturing in six years. With effect May 1, 2005, we exercised an option to reduce the term facility (other than an advance of approximately $25 million carried over from the previous facility) to $150 million and change the maturity date for both facilities to September 1, 2009. The new credit facility is secured by a first ranking, floating charge on our assets, and those of our wholly-owned subsidiary. Bank Hapoalim B.M., Bank Leumi Le-Israel B.M., Israel Discount Bank Ltd. and United Mizrahi Bank Ltd. are participating in the facility, with Bank Hapoalim B.M. serving as facility agent and Bank Leumi Le-Israel B.M. serving as coordinating agent. At December 31, 2005, the balances available for drawing were approximately $88 million under Facility B, and $28 million under Facility A.

        On March 31, 2005, we completed the offering of our Notes due 2012, raising NIS 2.0 billion in a public offering in Israel. Of these, notes having an aggregate principal amount of approximately NIS 36.5 million were purchased by our wholly owned subsidiary Partner Future Communications 2000 Ltd., or PFC. PFC also received an additional allocation of notes having an aggregate principal amount of NIS 500 million. The notes that PFC received pursuant to this additional allocation do not confer the right to receive any payment whatsoever on account of principal or interest until they are sold by PFC to a third party.

        The term of the Notes due 2012 is seven years and the principal and interest payments are linked to the Israeli consumer price index. The annual interest on the notes is 4.25% and will be paid quarterly. Quarterly principal repayments will begin in June 2009. The notes were rated AA- by Maalot, and Aa2 by Midroog, two of Israel’s rating agencies. We used the net proceeds from the offering to pay down some of our existing credit facility, to repurchase up to 33.3 million shares from our founding Israeli shareholders and to redeem our 13% Senior Subordinated Notes due 2010. These 13% Senior Subordinated Notes due 2010 were originally issued in August 2000, and net proceeds from the offering for those notes were used at that time mainly to repay a portion of the outstanding indebtedness under our credit facility.

        On April 20, 2005, the Company repurchased approximately 33.3 million of its shares pursuant to an offer received from its founding Israeli Shareholders in February 2005. These shareholders held together approximately 22.5% of the Company’s outstanding shares at the time of the offer. As a result of the repurchase, the collective shareholdings of the founding Israeli shareholders were reduced to approximately 5.4% of the Company’s issued and outstanding share capital. The price per share at which these shares were acquired was NIS 32.2216 per share. The total consideration paid for the shares was approximately NIS 1,074 million. The Company cancelled the repurchased shares.

        On August 15, 2005, the Company redeemed its outstanding US$ 175 million 13% Senior Subordinated Notes due 2010. According to the terms of the Notes, the redemption price was 106.5% of the principal amount, or $186.375 million. The redemption, which was financed from the Company’s new bank facility and funds generated from current operations, concluded the refinancing of the Company’s long term debt into lower cost CPI linked shekel-denominated debt.

        In the third quarter of 2005, our Board of Directors and shareholders approved the distribution of our first cash dividend, in the amount of NIS 0.57 per share, totaling approximately NIS 86.4 million to our shareholders of record as of September 26, 2005.

        In the first quarter of 2006 our Board of Directors and shareholders approved the distribution of an additional cash dividend, in the amount of NIS 0.65 per share (totaling approximately NIS 100 million) to our shareholders of record as of April 10, 2006.

        In the second quarter of 2006, we adopted a dividend policy targeting a payout ratio of 60% of net income over 2006. As part of this policy, our Board of Directors approved the distribution of a cash dividend of NIS 0.45 per share (totaling approximately NIS 70 million) for the first quarter of 2006 to shareholders of record as of June 6, 2006.

        The Company signed on January 22, 2006, an agreement with MED I.C.- 1 (1999) Ltd (“Med 1”) to purchase its fiber-optic cable infrastructure comprising of a network of approximately 900 kilometers of submerged and terrestrial transmission fiber for approximately US$ 14.8 million, subject to certain adjustments. Completion of the transaction is subject to fulfillment of closing conditions.

        Cash flows generated from operating activities in 2005(NIS 1006.3 or US$ 218.6 million) net of cash flows from investing activities (NIS  546.7 million or $US 118.7 million), totaled NIS 459.6 million (US$ 99.9 million). Cash flows generated from operating activities in 2004 (NIS 1272.8 million), net of cash flows from investing activities (NIS 673.6 million) totaled NIS 599.2 million in 2004, a decrease of 23.3%. The decrease was primarily due to a decrease in cash flows from operating activities, offset by a decrease in the level of investment in fixed assets. The main reasons for the decrease in cash flows from operating activities were the payment of one-off charges related to the redemption of the US$ 175 million 13% Senior Subordinated Notes, interest charges related to both the redeemed Notes and the new CPI-linked shekel-denominated Notes and inventory charges

        We expect cash flows from operations net of cash flows from investing activities to increase from 2005 amounts.

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        From January 1, 2003 to December 31, 2005, we made cumulative net capital expenditures of approximately NIS 1,319 million, of which NIS 486 million ($106 million) was incurred in 2005. 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 capital expenditures, which were lower in 2005, compared with 2004 to increase in 2006, owing to the infrastructure transaction with Med-1.

        We believe that funds from our operations, together with funds available under our new credit facility and our Notes due 2012, will provide us with enough liquidity and resources to fund our expected capital expenditure needs, as well as our obligations under our financing agreements, our license payments and our other material commitments, at least for the next 12 months. However, the actual amount and timing of our future requirements may differ materially from our estimates.

5C. Research and Development, Patents and Licenses

        We are primarily a user rather than a developer of technology. Accordingly, we did not engage in any significant research and development activities during the past three years.

5D. Trend Information

        See “-Trends” in Item 5A. Results of Operations for the Year Ended December 31, 2005, Compared to the Year Ended December 31, 2004” above.

5E. Off-Balance Sheet Arrangements

        There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

5F. Aggregate Contractual Obligations

Set forth below are our contractual obligations and other commercial commitments as of December 31, 2005:

	Payments Due by Period (NIS in thousands)
Contractual Obligations	Total		2006		2007-2008		2009-2010		2011 and after
Long-Term Debt		3,245,075		153,716		684,258		1,537,628		869,473
Capital Lease Obligations		17,018		4,862		9,725		2,431		–
Operating Leases		925,516		160,579		261,644		173,816		329,477
Contribution to funds in respect of
Employee rights upon retirements		21,000		21,000		–		–		–
Unconditional Purchase Obligations:
UMTS third generation spectrum		29,000		29,000		–		–		–
Handsets		160,000		160,000		–		–		–
Fixed Assets		114,000		114,000		–		–		–
Other Long-Term Obligations		—		–		–		–		–
Total Contractual Cash Obligations		4,511,609		643,157		955,627		1,713,875		1,198,950

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6A. Directors and Senior Management

Directors

Name of Director	Age	Position
Fok Kin-ning, Canning	54	Chairman of the Board of Directors
Dr. Michael J. Anghel (2)(4)	67	Director
Chan Ting Yu (1)(3)	55	Director
Chow Woo Mo Fong, Susan	52	Director
Uzia Galil	80	Director
Erez Gissin (1)(2)	47	Director
Dennis Pok Man, Lui (1)(3)	55	Director
Pesach Shachar (1)	72	Director
Amikam Shorer	38	Director
Frank John Sixt	54	Director
Moshe Vidman (1)(2)(3)(4)	62	Director

(1) Member of the Executive Committee of the Board of Directors.

(2) Member of the Audit Committee and independent director under the listing requirements of the Nasdaq National Market.

(3) Member of the Compensation Committee.

(4) External Director under the Companies Law.

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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 the Chairman of Hutchison Harbour Ring Limited, Hutchison Telecommunications International Limited, Hutchison Telecommunications (Australia) Limited, Hongkong Electric Holdings Limited and Hutchison Telecommunications Limited (the holding company of the telecommunications interests of Hutchison Whampoa Limited), and in addition, Mr. Fok is the Co-Chairman of Husky Energy Inc. and the Deputy Chairman of Cheung Kong Infrastructure 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 Investments Pte Ltd., or Advent.

        Dr. Michael J. Anghel became a director of Partner in March 2006.  From 1977 to 1999, he led the Discount Investment Corporation Ltd. (of the IDB Group) activities in the fields of technology and communications.  Dr. Anghel was instrumental in founding Tevel, one of the first Israeli cable television operators and later in founding Cellcom – the second Israeli cellular operator.   In 1999 he founded CAP Ventures, an advanced technology investment company.  From 2004-2005, Dr. Anghel served as President and CEO of DCM, the investment banking arm of the Israel Discount Bank.   He has been involved in various technology enterprises and has served on the boards of various major Israeli corporations and financial institutions including Elron, Elbit, Nice, Gilat, American Israeli Paper Mills, Maalot (the Israeli affiliate of Standard and Poor’s) and Hapoalim Capital Markets.  He currently serves on the boards of Syneron Medical Ltd., Orbotech Ltd., Powerdsine Ltd., and Scopus Ltd.  Prior to launching his business career, Dr. Anghel served as a full-time member of the Recanati Graduate School of Business Administration of the Tel Aviv University, where he taught finance and corporate strategy.  He currently serves as Chairman of the Tel Aviv University’s Executive Program, which he originally helped to found.  Dr. Anghel holds a B.A. (Economics) from the Hebrew University in Jerusalem and an M.B.A. and Ph.D. (Finance) from Columbia University in New York. 

        Chan Ting Yu 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 an Alternate 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 Investments Pte Ltd.

        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. Mrs. Chow is also an Executive Director of Cheung Kong Infrastructure Holdings Limited, Hutchison Harbour Ring Limited and a Director of Hutchison Telecommunications (Australia) Limited, Hongkong Electric Holdings Limited, TOM Group Limited and Hutchison Telecommunications Limited. She is also an Alternate Director of Hutchison Telecommunications International Limited and TOM Online Inc. She is a solicitor and holds a Bachelor’s degree in Business Administration. Mrs. Chow was nominated as a director by Advent Investments Pte Ltd.

        Uzia Galil has been a director of Partner since August 1999. Mr. Galil currently serves as Chairman 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 Weitzman 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 and the Solomon Bublick prize laureate from the Hebrew University of Jerusalem. In 1997 he was awarded the prestigious Israel Prize for his contribution to the development of the Israeli hi-tech industry. Until April 20, 2005, Mr. Galil had been a director nominated by Elbit.COM. Since then, Mr. Galil serves as a director on behalf of Advent Investments Pte Ltd.

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        Erez Gissin has been a director of Partner since August 1998 and is currently a member of the Executive Committee and the Audit Committee. Since April 2005, Mr. Gissin is a private investor through his management and investment company. For the prior five 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. Until April 20, 2005 Mr. Gissin had been a director nominated by Eurocom. Since then and until September 12, 2005, Mr. Gissin served as a director and member of the Executive Committee, on behalf of Advent Investments Pte Ltd. Since then, Mr. Gissin is an independent director and serves on the Executive committee and the Audit Committee of the Company.

        Dennis Pok Man Lui has been a director of Partner since April 2004 and is the Chairman of the Executive Committee and the Chairman of the Compensation Committee. Mr. Lui is an Executive Director and the Chief Executive Officer of Hutchison Telecommunications International Limited. He first joined the Hutchison Whampoa Limited group in 1986 and was the managing director in charge of the mobile telecommunications, land-line, multi-media, internet and paging businesses in Hong Kong, China, Taiwan and Macau from January 1989 until 2000. Mr. Lui rejoined the Hutchison Whampoa Limited group in May 2001 as group managing director of HTI (1993) Holdings Limited (“HTI”) overseeing all the operations and new business development of the HTI group. He holds a Bachelor of Science Degree from the University of Oregon. Mr. Lui was nominated as a director, and as a member of the Executive Committee, by Advent Investments Pte Ltd.

        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 Hutchison 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 Investments Pte Ltd.

        Amikam Shorer has been a director of Partner since June 2005. He was nominated as director by our Israeli founding shareholders. Mr. Shorer has served as Vice President of Business Affairs and the General Counsel of Eurocom Group, an Israeli leader in telecom and internet products and services, since 2000. Mr. Shorer also serves as a director in several companies within the Eurocom Group. Mr. Shorer holder an LLB degree from Bar-Ilan University.

        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 Group Limited and TOM Online Inc. 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 International 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 a director by Advent Investments Pte Ltd.

        Moshe Vidman has been a director of Partner since October 2003. Mr. Vidman is the Revlon representative in Israel and serves as a director of the following companies: Israel Corporation Ltd., ICL – Israel Chemical Ltd., Rotem Amfert Negev Ltd., Dead Sea Works Ltd., Jafora-Tabori Ltd., Rosebud Medical Ltd., Ex-Libris Ltd., Bank Leumi Le’Israel Ltd., Melisron and Ofer Brothers Properties (1957) Ltd. Since 2000 Mr. Vidman is the Revlon Representative in Israel and serves as a Mr. Vidman is also a member of the Board of Directors and a member of Executive Committee of the Jerusalem Foundation. He also serves as a member of the Board of Governors and the Chairman of the Endowment Fund Committee and Chairman of the assets Company of the Hebrew University. Previously he held various positions at the Ministry of Education and Culture. From 1978 until 1983 Mr. Vidman served as the Deputy Accountant General in the Ministry of Finance. From 1983 until 1990 he served as the President and Chief Financial Officer of Aryt Optronics Ltd., a hi-tech company which developed optics and laser applications for military and medical use. From 1990 until 1999 Mr. Vidman was the Managing Director of Revlon Israel and until March 1999 he served as a director of Koor Industries and Chairman of its Investment Committee. He also served as Chairman of the Executive Committee of Africa-Israel Ltd. and as the Chairman of the Board of Directors of Africa-Israel Hotels.

Termination of Office

        Professor Ben-Zion Zilberfarb served as a external director under the Companies Law until February 2006.

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Senior Management

Name of Officer	Age	Position
Amikam Cohen	57	Chief Executive Officer
David Avner	54	Deputy Chief Executive Officer and Chief Operating Officer
Alan Gelman	50	Chief Financial Officer
Iris Beck	40	Vice President, Marketing
Chaim Beker	61	Vice President, Operations
Alon Berman	45	Vice President, Technologies
Adi Biran	62	Vice President, Regulation and New Business Development
Michal Dana	50	Vice President, Human Resources and Operations (from May 2006)
Dan Eldar	52	Vice President, Carrier, International and Investor Relations
Amnon Gideon	53	Vice President, Human Resources and Operations (until April 30, 2006)
Zion Ginat	46	Vice President, Customers
Roly Klinger	46	Vice President, Chief Legal Counsel and Joint Company Secretary
Edith Shih	53	Joint Company Secretary

        Amikam Cohen has been Partner’s Chief Executive Officer since the commencement of its operations and a director in the Board of Directors of Partner since April 20, 2005. 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.

        David Avner was appointed Deputy CEO in April 2005 and COO in January 2006. Prior to joining the Company, Mr. Avner served as Senior Vice President of Operations and Member of the executive management at Amdocs Limited. Previously, he served at Amdocs as Group President Europe and LATAM & Member of Management. Prior to that, Mr. Avner served at Strauss Dairy Ltd. for 17 years, the last four as General Manager of the Dairy Division. He was also the General Manager of Strauss Ice Creams Ltd., and Manager of Information Systems at Strauss Dairy Ltd. Mr. Avner also served as Active Director of Yotvata Dairies Subsidiary since 1998. He holds a Bachelor of Arts degree in Mathematics/Computer Sciences and Philosophy from Haifa University in Israel and an MBA degree from the Technion, Israel Institute of Technology.

        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.”

        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 from 1996 and held senior positions such as Marketing Director 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.

        Chaim Beker was appointed as Vice President Operations in January 2004. Since 1998, Mr. Beker has served in a number of positions at Partner, such as: Administration and Purchasing Manager and Deputy Vice President Operations. From 1974 to 1984 Mr. Beker served as Vice President Administration of ARKIA. From 1984 he served as the CEO of several companies such as: Europcar, HaMashbir Agencies and Clal Israel. Mr. Beker holds a Bachelor’s degree in Economics from the Hebrew University.

        Alon Berman was appointed Vice President, Technologies in October 2004. Mr. Berman joined Partner as Deputy VP of Engineering in the Technologies division at the end of 2002, after serving 20 years in the Israeli Defense Forces, rising to the rank of Colonel and Head of Technical Department in the Communications Corps. Mr. Berman holds a bachelor degree in Electronic Engineering from the Technion – Israel Institute of Technology (1982), a Master Degree in Electronic Engineering (1991) and MBA (1994) from Tel Aviv 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 continued till October 2003 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 holds a Bachelor’s degree in Aeronautical Engineering with distinction from the Israel Institute of Technology (Technion), Haifa, Israel.

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        Michal Dana will join Partner as Vice President, Human Resources and Operations in May 2006. She worked at Amdocs since 2002, where she served first as the Director of Human Resources for Amdocs’ European and Latin American division, and from 2005 as the Vice President of Human Resources, overseeing the worldwide customer business group for all human resource activities in Europe, Asia Pacific, and Latin America. From 2000 to 2002, Ms. Dana served as the Vice President of Human Resources for Bungee Communications, a start-up wireless broadband telecommunications company. Before that, she served from 1999-2000 as the Director of Human Resources for the Carmel Containers Systems Group, from 1996-1999 as the Director of Human Resources for the Caesarea Development Corporation, and from 1980-1996 as the Senior Human Resource Consultant for Pilat international consulting group. She holds a B.A. in Social Science from the Open University in Israel.

        Dan Eldar serves as Vice President, Carrier, International and Investor Relations for Partner. He is also responsible for strategic planning. Dr. Eldar joined Partner in April 1998. 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 PhD and M.A. degrees from Harvard University and M.A. and B.A. degrees from the Hebrew University, Jerusalem.

        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.

        Zion Ginat was appointed Vice President, Customers (Sales and Customer Service) in January 2005. Mr. Ginat joined Partner in 2002 as Deputy VP, Sales Division and in 2004 was appointed as Deputy VP, Customer Service Division. Prior to joining Partner, Mr. Ginat served as General Manager of Tecnomatix-Asia Pacific, VP Sales and Marketing of Tadiran Appliances Ltd. Israel and as Managing Director of a subsidiary of Koor Trade. Mr. Ginat holds a Bachelor’s degree and a Master’s degree in Mechanical Engineering from Tel Aviv University.

         Roly Klinger Vice President, Chief Legal Counsel and Joint Company Secretary, joined Partner in August 1998. 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.

        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 and the Company Secretary of Hutchison Harbour Ring Limited, an executive director of Hutchison International Limited and director of various Hutchison group companies. She is also the Company Secretary of Hutchison Telecommunications International 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, and is a fellow of both the Institute of Chartered Secretaries and Administrators and the Hong Kong Institute of Chartered Secretaries.

        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, 2005 was approximately NIS 23 million ($5 million). In 2005 options were granted to our senior management under the 2004 Employee Stock Option Plan to purchase up to 375,000 of our ordinary shares at an exercise price of NIS 30.73 and NIS 33.72 per share. These options will expire in December 2014, 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–2004 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 senior managers during the year ended December 31, 2005 was approximately NIS 0.8 million ($0.2 million).

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6C. Board Practices

        References in this annual report to “external directors” are to those directors who meet the definition of external directors under the Companies Law, and references in this annual report to “independent directors” are to those directors who meet the definition of independence under applicable listing requirements of Nasdaq.

Terms of Directors

        Directors are elected at the annual shareholders meeting to serve for three years, in the case of external directors under the Companies Law, 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 subsidiaries providing for benefits upon termination of employment. Officers of Partner serve at the discretion of the Board or until their successors are appointed. See “Item 4. Information on the Company – 4B. Business Overview – Regulation – Our License.” for description of additional requirements of the composition of our Board of Directors and the appointment of its members.

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.

External Directors under the Companies Law

        The Companies Law requires that Partner have at least two external directors on its Board of Directors. 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.

        The Companies Law further requires that at least one external director have financial and accounting expertise, and that the other external director(s) have professional competence, as determined by the company’s board of directors. Under recently enacted regulations, a director having financial and accounting expertise is a person who, due to his or her education, experience and talents is highly skilled in respect of, and understands, business-accounting matters and financial reports in a manner that enables him or her to understand in depth the company’s financial statements and to stimulate discussion regarding the manner in which the financial data is presented. Under the regulations, a director having professional competence is a person who has an academic degree in either economics, business administration, accounting, law or public administration or an academic degree in an area relevant to the company’s business, or has at least five years experience in a senior position in the business management of a corporation with a substantial scope of business, in a senior position in the public service or a senior position in the field of the company’s business.

        Dr. Michael Anghel and Moshe Vidman are our external directors under the Companies Law.

Financial Experts under the Companies Law

        In accordance with the Companies Law, Partner has determined that the minimum number of directors with “accounting and financial expertise” that Partner believes is appropriate, in light of the particulars of Partner and its activities, is three. Under the Companies Law, only one of such “experts” is required to be an external director.

Executive Committee

        Our Executive Committee was nominated by the Board of Directors on July 15, 1998. Our Executive Committee comprises members who are directors appointed by the Board of Directors from time to time. 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. Ting Chan, Erez Gissin, Dennis Lui, Pesach Shachar, and Moshe Vidman are members of our Executive Committee.

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Audit Committee

        The Companies Law requires public companies, including Partner, to appoint an audit committee comprised of at least three board members, including all the company’s external directors. The chairman of the board, any director employed by the company or granting 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. The responsibilities of our audit committee under the Companies Law include identifying irregularities in the management of the company’s business and approving related party transactions as required by law.

        Pursuant to the rules of the Securities and Exchange Commission, or SEC, and the listing requirements of the Nasdaq National Market, we are required to establish an audit committee consisting only of members who are independent of management, as defined by SEC rules and Nasdaq listing requirements. In accordance with the SEC and Nasdaq requirements, our audit committee is directly responsible for the appointment, compensation and oversight of our independent auditors.

        The Board has determined that Moshe Vidman is an “audit committee financial expert” as defined by applicable SEC regulations. See “Item 16A. Audit Committee Financial Expert” below.

        Our audit committee consists of three board members, Moshe Vidman, Erez Gissin, and Dr. Michael Anghel, all of which meet Nasdaq’s definition of independent directors, and two of whom (Moshe Vidman and Dr. Michael Anghel) meet 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

        Our compensation committee consists of three board members, of which one is an external, independent director. Subject to the requirements of the Companies Law, 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. Dennis Lui and Moshe Vidman, and Ting Chan are members of the compensation committee.

Security Committee

        Pursuant to an amendment to our license from April 2005, a new board committee has been formed to deal with security matters. Only directors with the required clearance and those deemed appropriate by Israel’s General Security Service may be members of this committee. The committee must consist of at least four members, who are subject to the clearance required from the Israeli General Security Service and at least one external director. Where any matter requires a board’s resolution and it is a security matter, then the committee should be authorized to discuss and to resolve such security matter and the resolution should bind the Company. However, in cases where the security matter concerned is a transaction with a related party, the transaction should be submitted for approval in accordance with the requirements of the applicable U.S law, the Israeli Companies Law and any other applicable laws, provided that, in any case, only directors with security clearance can participate in any forum which will deal with security matters. On April 12, 2005, our Board of Directors approved the formation of the Security Committee to consist of four Israeli directors, which are subject to Israeli security clearance and security compatibility to be determined by the General Security Service. Uzia Galil, Pesach Shachar, and Moshe Vidman are members of the Security Committee, subject to clearance by the Israeli General Security Service and one position on the security committee is currently vacant.

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. Our internal auditor is Mr. Yehuda Motro, 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.

        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.

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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 a transaction 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 not extraordinary transactions, although, as permitted by law and subject to any relevant stock exchange rule, our Articles of Association allows the audit committee to approve, without the need for approval from the Board of Directors. If such transactions are extraordinary transactions (that is, a transaction other than in the ordinary course of business, otherwise than on market terms, or is likely to have a material impact on the company’s profitability, assets or liabilities), in addition to audit committee approval, the transaction also must be approved by our Board, 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 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 favor 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 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 may indemnify an officer or director of Partner to the fullest extent permitted by the law. Without derogating from the foregoing, our Articles of Association specifically provide that Partner may indemnify an officer or director of Partner for liability or expense he incurs or that is imposed upon him as a result of an action or inaction by him (or together with other officers of Partner) in his capacity as an officer or director of Partner as follows:

(1) any financial liability incurred by, or imposed upon 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

(2) reasonable litigation expenses, including legal fees, incurred by the officer or director or which he was ordered to pay by the court:

(a) in the context of proceedings filed against him by Partner or on Partner’s behalf or by a third party, or

(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.

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(3) reasonable litigation expenses, including legal fees, incurred by the officer or director due to such investigation or proceeding conducted against him by an authority authorized to conduct an investigation or proceeding, relating to an offense which does not require criminal intent, within the meaning of the relevant terms in any law, and which:

(a) ended without filing of an indictment against him and without the imposition of a financial liability as a substitute for a criminal proceeding, or

(b) ended without filing of an indictment against him but for which he was subject to a financial liability as a substitute for a criminal proceeding ; or

(4) any other liability or expense in respect of which it is permitted or will be permitted under applicable law to indemnify an officer of Partner.

        Our Articles of Association also permit us to undertake in advance to indemnify an officer or director with respect for items (2) and (3) above, or any other matter permitted by law. Our Articles of Association also permit us to undertake in advance to indemnify an officer with respect to item (1) above, provided however, that the undertaking to indemnify is restricted to events which in the opinion of the Board of Directors are anticipated in light of Partner’s activities at the time of granting the obligation to indemnify, and is limited to a sum or measurement determined by the Board of Directors to be reasonable in the circumstances. The undertaking to indemnify must specify the events that, in the opinion of the Board of Directors, are expected in light of the Company’s actual activity at the time of grant of the indemnification and the sum or measurement that the Board of Directors determines to be reasonable in light of the circumstances. Our Articles of Association also permit us to indemnify an officer or director after the fact for all kinds of events, subject to applicable law.

        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) criminal 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 incurred by or imposed on such person in accordance with a judgment, including a judgment given in a settlement or judgment of an arbitration approved by the court, provided that such liability pertains to one or more events specified in the letter of indemnification, which in the opinion of the board of directors are anticipated in light of Partner’s activities at the time of granting the indemnification undertaking; (b) reasonable litigation expenses, including legal fees, that were incurred by such person or which the court obligates such person to pay in the context of 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, for an offense that does not require a finding of criminal intent; and (c) reasonable litigation expenses, including legal fees that were incurred by such person due to an investigation or proceeding conducted against such person by an authority authorized to conduct such investigation or proceeding and which has ended without the filing of an indictment and without the imposition of a financial liability as a substitute for a criminal proceeding, or which ended without the filing of an indictment but with the imposition of financial liability as a substitute for a criminal proceeding relating to an offense that does not require criminal intent. The aggregate indemnification amount payable by us to all of the officers and directors pursuant to all letters of indemnification issued or that may be issued in the future shall not exceed the higher of (i) 25% of shareholders equity and (ii) 25% of market capitalization, each measured at the time of indemnification.

        We are participating in a new directors’ and officers’ liability insurance policy procured by our controlling shareholder, Hutchison Telecom, insuring our directors’ and officers’ liability and our undertaking to indemnify them, in respect of certain matters permitted by the Companies Law. The new policy includes coverage in respect of our directors’ and officers’ liability. The new policy, which replaced as of November 1, 2005 our previous directors’ and officers’ liability insurance, provides for coverage in an aggregate amount for Hutchison Telecom and its participating subsidiaries, including Partner, of up to US$100 million. Our participation in the annual premium for the new policy is expected to be substantially lower than the annual premium we paid for our previous policy which was approximately US$2 million, should Hutchison Telecom or its affiliates decide to debit their subsidiaries of their respective share of the premium paid for the new policy.

6D. Employees

        At December 31, 2005, we had 3,403 employees on full time equivalent basis, compared with 3,164 at December 31, 2004 and 2,769 at December 31, 2003. The number of employees for 2005, 2004, and 2003, divided by their activity, was as follows:

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	December 31
	2005		2004		2003
Customer service		1,971		1,634		1,565
Engineering		442		416		410
Sales and sales support		438		512		206
Information technology		114		113		118
Marketing and Content		103		99		135
Finance		71		71		72
Human resources and Security and Fraud Prevention		89		90		68
Remaining operations		175		229		195
TOTAL		3,403		3,164		2,769

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. The employer’s deposits are the property of the company until 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 5% 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% or 7.5% of such employee’s salary.

        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, 2005, our directors and senior managers beneficially owned an aggregate of 1,392,938 or approximately 0.91%, 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, 2005, our senior managers, in the aggregate, held options to purchase up to 2,652,522 of our ordinary shares. No individual senior manager holds options to purchase 1% or more of our outstanding ordinary shares. Of these options, 46,668 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. An additional 580,854 of these options have an exercise price of between NIS 20.45 and NIS 22.23. The remaining 2,025,000 of these options have an exercise price of between NIS 26.74 and NIS 33.72

        Until November 2003, we granted options to our senior managers and other employees pursuant to our 1998 and 2000 Employee Stock Option Plans described below. In November 2003 we amended our stock option plans to conform with recent changes in the Israeli Income Tax Ordinance (New Version), 1961. As a result, any grants of options after November 2003 are subject to the terms of our 2000 Employee Stock Option Plan as so amended, referred to as the 2003 Amended Plan. In addition, in 2004 and 2005 we granted options to our managers and other employees pursuant to the 2004 Employee Stock Option Plan.

1998 Employee Stock Option Plan

        Our board of directors adopted the 1998 Employee Stock Option Plan, or the 1998 Plan, to promote the interests of Partner and its shareholders by providing our senior management and other 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 1998 Plan currently authorizes the issuance of options to purchase up to 5,104,167 ordinary shares. As of December 31, 2005, 5,505,557 options had been granted pursuant to the 1998 Plan (including reissuance of options that had been forfeited), of which options to purchase 4,475,942 ordinary shares had been exercised under the 1998 Plan. As of December 31, 2005, options to purchase 432,474 ordinary shares were outstanding, and 195,751 were available for grant. The exercise prices of the outstanding options range from $0.343 per share to fair market value at the date of grant. The fair market value was determined on the basis of the average closing sale price of our ordinary shares during the 30 trading days prior to the date of grant.

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        The options granted under the 1998 Plan since April 2002 were granted subject to the same terms and conditions as those of the 2000 Plan described below, including exercise price, vesting schedule and expiration period.

        Under the 1998 Plan, 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 1998 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 1998 Plan or necessary or advisable in 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.

        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.

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. In November 2003, 419,930 options under this plan were transferred to the 2003 Amended Plan. As of December 31, 2005, 5,317,555 options had been granted pursuant to the 2000 Plan (including reissuance of options that had been forfeited or expired), of which options to purchase 2,223,891 ordinary shares had been exercised. As of December 31, 2005, options to purchase 1,583,581 ordinary shares were outstanding, and 244,820 were available for grant. The exercise prices of the outstanding options range from NIS 17.25 – NIS 27.35, which represent the fair market value as of the date of grant, measured on the basis of the average closing sale price of our ordinary shares during the 30 trading days prior to the date of grant.

        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 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.

2003 Amended Plan

        In November 2003 we amended our stock option plans to conform with recent changes in the Israeli Income Tax Ordinance (New Version), 1961. The principal consequence of the amendment was our election to adopt the capital gains track under the new section 102 of the Income Tax Ordinance for all new options granted under the 2003 Amended Plan. This provides capital gains treatment for taxable income of employees from exercise of options and sale of ordinary shares, subject to certain conditions. The terms of the 2003 Amended Plan remain substantially the same as in the 2000 Plan.

        In connection with the adoption of the 2003 Amended Plan, we received an exemption from the requirement set out in Nasdaq’s Marketplace Rule 4350(i)(1)(A) that listed companies receive shareholder approval when certain stock option or purchase plans are to be established or materially amended, or certain other equity compensation arrangement made or materially amended. This exemption was granted based on the fact that the Nasdaq requirement is inconsistent with applicable Israeli legal requirements, which require approval from a company’s board of directors upon the establishment or amendment of such a plan unless directors or controlling partners participate in the plan.

        In November 2003, we offered to employees who had previously been granted options under our stock option plans the right to exchange their unvested options for options with identical terms under the 2003 Amended Plan. Employees holding options to purchase 962,104 ordinary shares accepted this offer. On November 2003, 419,930 options under the 2000 Plan were transferred to options under the 2003 Amended Plan, out of which options to purchase 195,000 ordinary shares were granted at an exercise price of NIS 20.45 per share, which was less than the market value.

        As of December 31, 2005, 195,000 options were outstanding and 224,930 options were available for grant under the 2003 Amended Plan.

        In December 2002, we entered into an agreement with the Israeli tax authorities reducing the individual tax rate applicable to the taxable income of employees from the receipt and exercise of their options. In exchange, we agreed to defer the deduction of the expense corresponding to such taxable income for a period of four years from the date on which we commence paying income taxes. The agreement applies to employees who received options under the 1998 Plan who have joined the agreement and relates to (1) options that are exercised by December 31, 2002 and (2) options that vest by December 31, 2003 and are exercised by May 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.

        In December 2003, we entered into an agreement with the Israeli tax authorities under which the terms of the above-mentioned agreement in December 2002 apply also to employees who received options under the 2000 Plan.

2004 Employee Stock Option Plan

        Under the 2004 Share Option Plan, as amended to date, 5,775,000 ordinary shares are reserved for issuance upon the exercise of 5,775,000 options to be granted without consideration. The options will be granted to employees under the provisions of the capital gain’s tax route provided for in Section 102 of the Israeli Income Tax Ordinance. The options vest in four equal annual batches, provided the employee is still in the Company’s employ. 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.

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        In connection with the adoption of the 2004 Share Option Plan, we received an exemption from the requirement set out in Nasdaq’s Marketplace Rule 4350(i)(1)(A) that listed companies receive shareholder approval when certain stock option or purchase plans are to be established or materially amended, or certain other equity compensation arrangement made or materially amended. This exemption was granted based on the fact that the Nasdaq requirement is inconsistent with applicable Israeli legal requirements, which require approval from a company’s board of directors upon the establishment or amendment of such a plan unless directors or controlling partners participate in the plan.

        The 2004 Plan is administered by the Compensation Committee of the Board of Directors. Subject to the restrictions of the Companies Law, the Compensation Committee is authorized, among other things, to exercise all the powers and authorities, either specifically granted to it under the 2004 Plan or necessary or advisable for the administration of the 2004 Plan.

        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 (other than by reason of retirement, death or disability), 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 amend the 2004 Plan, subject to other sections of the Plan and the rules and/or regulations of any stock exchange applicable from time to time to the Company, by reason of their applicability to its shareholders or otherwise;  provided, that the shareholders of the Company must approve (i) provisions of the plan relating to the matters set out in Rule 17.03 of Chapter 17 of The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Ltd , as amended from time to time, that are altered to the advantage of Participants, (ii) any alterations to the terms and conditions of the Plan which are of a material nature or to the Options granted (except where the alterations take effect automatically under the existing terms of the Plan); and (iii) any change to the authority of the Board of Directors of the Company or the Compensation Committee in relation to any alteration to the terms of the Plan.

        The Board of Directors may, at any time and from time to time, terminate the 2004 Plan in any respect, subject to any applicable approvals or consents that may be otherwise required by law, regulation or agreement, including by reason of their applicability to the shareholders or otherwise, and provided that no termination of the 2004 Plan shall adversely affect the terms of any option which has already been granted.

        As of December 31, 2005, 5,614,000 options had been granted to Company’s employees pursuant to the 2004 Plan (including options that had been forfeited or expired), of which 257,500 options had been exercised. As of December 31, 2005, options to purchase 4,855,750 shares were outstanding and 661,750 options were available for grant under the 2004 Plan.

        The NIS denominated exercise price per share of the options is equal to the average market price of the Company’s shares for the 30 trading days preceding the day on which the options are granted, less 15%.

        Due to requirements of The Stock Exchange of Hong Kong Ltd., where the securities of our controlling shareholder, Hutchison Telecom, are listed, we cannot grant additional options under the 2004 Plan until the shareholders of Hutchison Telecom approve the 2004 Plan.

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 March 31, 2006 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.

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Name and Address	Number of Ordinary Shares Beneficially Owned		Percent of Outstanding Ordinary Shares Beneficially Owned
Hutchison Telecommunications
International Limited (1)
20/F Hutchison Telecom Tower
99 Cheung Fai Rd
Tsing Yi
Hong Kong		78,940,104		51.60	%
Hutchison Whampoa Limited(2)
22/F Hutchison House
10 Harcourt Road
Central Hong Kong		78,940,104		51.60	%
Cheung Kong (Holdings) Limited (3)
7/F Cheung Kong Center
2 Queen's Road Central
Hong Kong		78,940,104		51.60	%

(1) Based on publicly available SEC filings by Hutchison Telecommunications International Limited, or Hutchison Telecom, Advent Investments Pte Ltd., or Advent, Hutchison Telecommunications International (Netherlands) B.V., or Hutchison (Netherlands), and Cheung Kong (Holdings) Limited, or Cheung Kong. Hutchison Telecom, a company whose ordinary shares are listed on the Hong Kong Stock Exchange and ADSs are listed on the New York Stock Exchange, Inc. owns Partner shares through two indirect subsidiaries, Advent and Hutchison (Netherlands), which own approximately 62,621,184 and 16,318,920 ordinary shares of Partner, respectively. Advent, incorporated in Singapore, is an indirect wholly-owned subsidiary of Hutchison Telecom, owned through a chain of wholly-owned subsidiaries as follows: Advent is owned by Amber International Holdings Inc., which is owned by Hutchison Telecommunications International (Cayman) Holdings Limited, which is owned by Hutchison Telecom. Hutchison (Netherlands) is also an indirect wholly-owned subsidiary of Hutchison Telecom, owned through a chain of wholly-owned subsidiaries as follows: Hutchison (Netherlands) is owned by Hutchison Telecommunications (Cyprus) Limited, which is owned by Amber International Holdings Inc., which is owned by Hutchison Telecommunications International (Cayman) Holdings Limited, which is owned by Hutchison Telecom.

(2) Based on publicly available SEC filings by Hutchison Telecom, Advent, Hutchison (Netherlands), and Cheung Kong, Hutchison Whampoa Limited, or HWL, a company listed and traded on the Hong Kong Stock Exchange, owns Partner shares through its direct wholly owned subsidiary Hutchison International Limited, which in turn directly holds 100% of Hutchison Telecommunications Limited, which in turn directly holds 100% of Hutchison Telecommunications Investment Holdings Limited, or HTIHL, which in turn directly holds approximately 45.8% and through its wholly owned subsidiary, New Brilliant Holdings Ltd., indirectly holds approximately 4.0% of the total outstanding ordinary shares of Hutchison Telecom, which indirectly owns 78,940,104 of the ordinary shares of Partner. Based on publicly available SEC filings by Orascom Telecom Holding S.A.E., an Egyptian company (“Orascom Telecom”) and through its direct wholly owned subsidiary, Orascom Telecom Eurasia Limited (“Orascom Eurasia”), a BVI company holds approximately 19.3% of Hutchison Telecom’s total outstanding share capital and, subject to the receipt of consent from the Ministry of Communications, Orascom Eurasia may acquire a number of additional shares that represents approximately 3.69% of Hutchison Telecom’s total outstanding shares. See “Item 3. Key Information — 3D. Risk Factors – Our telecommunications license imposes certain restrictions on who can own our shares. If these restrictions are breached, we could lose our license.” HTIHL, HWL, Orascom Telecom, and Orascom Eurasia are parties to a shareholders agreement relating to, among other things, the nomination of certain members of the Board of Directors of Hutchison Telecom.

(3) Based on publicly available SEC filings by Hutchison Telecom, Advent, Hutchison (Netherlands), and Cheung Kong, Cheung Kong, through its indirect ownership of approximately 49.97% of the issued shares of HWL and its indirect ownership of 52,092,587 ordinary shares of Hutchison Telecom, may be deemed to have sole voting and dispositive power over the ordinary shares of Partner beneficially owned by HWL and Hutchison Telecom. However, as stated in its Schedule 13D, pursuant to Rule 13d-4 under the Exchange Act, Cheung Kong expressly disclaims beneficial ownership of such ordinary shares of Partner.

Controlling Shareholders

        Partner is controlled by Hutchison Telecom. For more information about the form of its holdings and the main shareholder in Hutchison Telecom, see the shareholder ownership table above and the corresponding footnotes. She also “-Relationship Agreement” below for a description of the Restatement of the Relationship Agreement among Hutchison and the founding Israeli shareholders.

Significant Changes in Holdings of Major Shareholders During the Past Three Years

        The following is a description of the significant changes during the last three years in the percentage ownership held by our major shareholders:

— On September 17, 2004, Hutchison (Amsterdam) transferred 16,318,920 shares of Partner to Advent, which transferred them to Hutchison (Netherlands).

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— On April 20, 2005, we repurchased approximately 33.3 million shares from our Israeli founding shareholders, as follows: 12,765,190 shares from Elbit, 9,359,915 shares from Eurocom, 7,783,444 shares from Matav Investments and 3,409,384 shares from Polar Communications Ltd. as described in “Item 7B. Related Party Transactions –Repurchase of Shares from Founding Israeli Shareholders”. As a result the shareholdings of Hutchison Telecom increased to 52.15% at completion of the transactions.

Other

        On March 2, 2006, 11,728,993 ADSs (equivalent to 11,5728,993 ordinary shares or approximately 7.67% of the total outstanding ordinary shares) were outstanding and held of record by 25 registered holders in the United States. Additionally, on March 2, 2006, there were approximately eight 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 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 described above, we are controlled by Hutchison Telecom. As far as we know, there are no arrangements that might result in a change in control of our Company. See footnote (2) to the table above for a description of the acquisition by Orascom Telecom of an interest in Hutchison Telecom.

7B. Related Party Transactions

Relationship Agreement

        Our founding shareholders and Elbit.COM entered into a Relationship Agreement in relation to their direct and indirect holdings of our shares and the rights associated with such holdings. When one of our founding shareholders, Tapuz, was dissolved in January 2002 and its holdings in Partner were distributed to its partners, Eurocom Communications Ltd., Polar Communications Ltd. and Tapuz Cellular Systems Ltd., these parties 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.

        The founding Israeli shareholders, Matav Investments Ltd., a wholly-owned subsidiary of Matav, and Advent and Hutchison (Netherlands) , the subsidiaries of Hutchison Telecom holding Partner’s shares, further amended and restated the Relationship Agreement on April 20, 2005 and, among other changes, eliminated any obligation of the parties to vote for each other’s directors nominations. The following description relates to the Relationship Agreement as in effect as of the date of filing of this Annual Report.

License/Required Israeli and Founding Shareholder Percentages

        The parties to the Relationship Agreement have agreed that they shall at all times comply with the terms of our license requiring that our founding shareholders or their approved substitutes hold in aggregate at least 26% of the means of control of Partner, and that our Israeli founding shareholders or their approved substitutes (from among the founding shareholders and their approved substitutes) hold at least 5% of the means of control of Partner. See “Item 4B. Information on the Company–Business Overview–Regulation–Our License–License Conditions.”

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.”

Compulsory Transfer in the Event of Default

        If a party to the Relationship Agreement commits certain events of default described in the agreement, it may be required 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, and in the case of such breach, the purchase price at which the shares are to be sold will be market value less a 17.5% discount.

Term and Termination

        The Agreement continues in full force and effect until we are wound up or cease to exist unless terminated earlier by the parties. The Agreement will terminate in relation to any individual party after it ceases to hold any share beneficially if it is required to comply with the minimum holding requirements for founding shareholders or Israeli founding shareholders, as applicable, and the transfer of the shares was not made in breach of the Relationship Agreement.

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Transactions with Affiliates

        Until January 1, 2006 we operated under an unwritten arrangement with Eurocom Communications Ltd., one of our principal shareholders, pursuant to which Eurocom sold our services or distributed handsets in connection with their sale of Nokia handsets in four outlets and with a group of approximately 100 sales representatives who sell our services to private customers and small business customers. Eurocom received a commission for the activation of each handset that it sold to customers as one of our distributors and for the logistical support related to the supply of handsets.

        We currently purchase a portion of our Nokia handsets from Eurocom. In the year ended December 31, 2005, purchases from Eurocom constituted approximately 42% of all of our handset purchases.

        We believe that our distribution arrangement and handset purchases from Eurocom is 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. Furthermore, in 2004 we entered an agreement with Eurocom Cellular Communications for the supply of an interface that will enable sending large quantities of SMS and MMS from Eurocom to a handset and vice-versa.

        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 SMS’s to our subscribers and vice-versa.

        We have a strong relationship with Hutchison Telecom, previously one of our principal shareholders and now our majority shareholder, and HWL, Hutchison Telecom’s major shareholder, and are working with them in connection with the development of products and services for UMTS third generation mobile communications. Hutchison Telecom and HWL are global leaders in UMTS third generation technology and, in particular the deployment and development of third generation cellular networks and products and services worldwide.

        We are participating in a new directors’ and officers’ liability insurance policy procured by Hutchison Telecom, insuring our directors’ and officers’ liability and our undertaking to indemnify them, in respect of certain matters permitted by the Companies Law. The policy provides for coverage in an aggregate amount for Hutchison Telecom and its participating subsidiaries, including Partner, of up to US$100 million. See “Item 6C. Board Practices — Indemnification.”

        In August 2002, we signed a Cost-Sharing Agreement, or the CSA, with certain members of the HWL group of companies 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 HWL and Hutchison Telecom groups, and to benefit from the combined purchasing power and resources of the groups which include companies in Austria, Australia, Denmark, Hong Kong, Ireland, Italy, Sweden and the United Kingdom.

        As of December 31, 2005, we had given notice of our participation in seven 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 statements.

        In March 2005, we entered into a transaction with Hutchison Telephone Company Ltd., a subsidiary of Hutchison Telecom, and Research in Motion Ltd. (“RIM”) by which we became the operators of RIM’s Blackberry service in Israel.

        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 2004, we entered into an agreement with HI3G Access AB, a subsidiary of HWL, for the purchase of Novotel/Lucent 3G UMTS datacards.

        On September 1, 2003, we entered into a supply agreement with Elron Telesoft Ltd., a wholly-owned subsidiary of Elron Electronics Industries Ltd. for the purchase of Agilents’ Signaling Monitoring System, as well as for the purchase of support and maintenance services. The purpose of the system is to monitor our network in order to improve network performance levels and maintenance response times. In addition, in 2004 we entered into another agreement with Elron Telesoft Ltd. for the purchase of a CDR Verification System.

        In 2004 we entered into an agreement with Goldmind, a subsidiary of Eurocom Communications, for the supply of content from its website through WAP. This agreement terminated in January 2006. In March 2005, we entered into an agreement with Cellular Center for Vehicles Ltd., a company wholly owned by Mr. Talmai Cohen, the brother of the company’s Chief Executive Officer, Amikam Cohen, for the sale, installation and maintenance of car kits in approximately 35 locations.

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        We have roaming agreements with certain members of the Hutchison Telecom and HWL group of companies. The agreements which are with GSM, GPRS and 3GSM operators worldwide, enable our subscribers to roam abroad and enable other operator’s subscribers to roam on our network. These agreements are in the ordinary course of business and are on market terms.

        In April 2005, we entered into a new $550 million bank credit facility, replacing our previous bank facility. Bank Hapoalim B.M., Bank Leumi Le-Israel B.M., Israel Discount Bank Ltd. and United Mizrahi Bank Ltd. are participating in the facility, with Bank Hapoalim B.M. serving as facility agent and Bank Leumi Le-Israel B.M. serving as coordinating agent. During 2004, two of our directors served also as directors in banks that are parties to the new credit facility – Mr. Mordechai Keret in Bank Hapoalim B.M. and Mr. Moshe Vidman in Bank Leumi Le-Israel B.M. In addition, the new credit facility facilitated our repurchase of shares from our founding Israeli shareholders, by causing a release of the share pledges on these shares and by providing more flexible covenants for permitted distributions. See “Item 5. Operating and Financial Review and Prospects–Liquidity and Capital Resources.”

        In November 2005, we entered into an agreement with H3G Procurement Services S.à.r.l., a subsidiary of HWL, for the purchase of LG Electronics Inc. U8330 3G UMTS handsets.

        In December 2005 we entered into a transaction with H3G Procurement Services S.à.r.l., a subsidiary of HWL, for the purchase of Motorola E1000 3G UMTS handsets.

Registration Rights

        We have entered into a registration rights agreement with our principal founding shareholders in which we granted our principal shareholders the right to require us to register ordinary shares held by them under the US Securities Act. We have agreed that, upon request from any of our principal shareholders, we will file a registration statement under the US 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.

Repurchase of Shares from Founding Israeli Shareholders

        On April 20, 2005, we repurchased approximately 33,317,933 million of our shares, pursuant to an offer that we received in February 2005 from our founding Israeli shareholders, Elbit, Eurocom, Polar. and Matav, who together held approximately 22.5% of our outstanding shares at that time. The purchased shares held by Elbit, Eurocom, Matav and Polar, represented approximately 18.1% of our then outstanding shares. As a result of the repurchase of these shares, the holdings of our largest shareholder, Hutchison Telecom, increased from approximately 42.84% to approximately 52.15% and the holdings of Elbit decreased to approximately 2.04%, the holdings of Eurocom decreased to approximately 1.5%, the holdings of Matav decreased to approximately 1.25% and the holdings of Polar decreased to approximately 0.55% of our then outstanding share capital.

        The price per share at which we acquired these shares was NIS 32.2216 per share. These share repurchases were approved by our audit committee, by our board of directors, and by our shareholders at an extraordinary meeting of our shareholders, including the required majority under the Companies Law for an extraordinary transaction with a controlling shareholder.

7C. Interests of Experts and Counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

8A. Consolidated Financial Statements and Other Financial Information

        Audited financial statements for the three fiscal years ended December 31, 2005 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. As of December 31, 2005, approximately 30% of our antenna sites were operating without local building permits or applicable exemptions. A substantial portion of these are microsites. We believe that a portion of the sites operating without permits from local authorities 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.

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        As of December 31, 2005, 292 criminal proceedings have been brought against us concerning the erection of antenna sites without building permits. 150 of those proceedings have also been brought against our officers and directors. 28 of those proceedings have been brought against us regarding failure to comply with demolition orders, of which six have been brought against our officers and directors and 27 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. 275 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 1,000 to NIS 80,000 per offense. The total amount of fines paid as of December 31, 2005, is approximately NIS2.3 million, with NIS 0.3 million of that paid during 2002, NIS 0.2 million of that paid during 2003, NIS 0.1 million of that paid during 2004, and NIS0.2 million of that paid during 2005. 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. 143 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 72 administrative demolition order proceedings have been brought against us. Of these, 72 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 and may result in criminal or civil liability to us or to our officers and directors.

        On April 8, 2002, a claim was filed against us, together with a motion requesting certification as a class action, alleging a variety of consumer complaints. The amount of the claim against us is estimated at approximately NIS 545 million plus additional significant amounts related to other alleged damages. Only preliminary hearings have taken place. The Company submitted its response to the amended motion to certify the claim as a class action on August 1, 2005. A hearing is scheduled for May 16, 2006.

        At this stage, and until the claim is recognized as a class action, we and our legal counsel are unable to evaluate the probability of success of such claim, and therefore no provision has been made. In addition, we and our legal counsel are of the opinion that even if the request to recognize 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 above-mentioned amount. See Note 8b(1) to our consolidated financial statements.

        On April 13, 2003, a claim was filed against us and other cellular telecommunication companies, together with a request for certification as a class action, for alleged violation of antitrust law, alleging that no fee should have been collected for incoming SMS messages or alternatively, that the fee collected is excessive and that it is a result of illegal co-operation between the defendants. The amount of the claim against all the defendants is estimated at approximately NIS 90 million (or, according to the claimant’s response – NIS 100 million per year until March 1, 2005. We filed our response on October 1, 2003, and the claimants have filed their response to our response on July 12, 2005. A preliminary hearing took place on April 26, 2006. A motion to strike out parts of the plaintiff’s response is pending. Unless and until the claim is recognized as a class action, we and our legal counsel are unable to evaluate the probability of success of such claim, and therefore no provision has been made. See Note 8b(2) to our consolidated financial statements.

        Section 197 of the Building and Planning Law states that a property owner has the right to be compensated by a local planning committee for reductions in property value as a result of a new building plan. On January 3, 2006, the National Council for Planning and Building published an interim decision conditioning the issuance of cell site permits by local planning and building councils upon indemnification, by the cellular operators, against reduction in property value. The Company provided to local authorities 24 letters of undertaking to provide such indemnifications for the benefit of the local authority within 30 days from the enactment of a law or a final court decision requiring such indemnifications. Management, based on the opinion of legal counsel, cannot at this date, determine the effect, if any, of the above letters of undertaking on the financial results and financial position of the Company. See Note 8b(4) to our consolidated financial statements.

        On April 4, 2006, a claim was filed against us, together with a motion requesting certification as a class action, alleging a variety of customer complaints relating primarily to our alleged breach of one of the Company’s tariff plans and the termination of such plan as well as the amendment of the terms of other tariff plans. The amount of the claim against us, should the claim is certified as a class action, is approximately NIS 18.9 million for all customers subscribed to six tariff plans which Partner allegedly changed during the last seven years. We are currently preparing our response to this motion.

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        At this stage, no hearings have taken place, and unless and until the claim is recognized as a class action, we and our legal counsel are unable to evaluate the probability of success of such claim, and therefore no provision has been made.

Dividend Distribution Policy

        In the third quarter of 2005, our Board of Directors and shareholders approved the distribution of our first cash dividend. See “Item 3D. Key Information–Risk Factors–We cannot assure that we will distribute dividends in the future, nor the amounts of any such dividends.”

        A recent amendment to our Articles of Association, in accordance with the Companies Law, allows for our Board of Directors to approve all future dividend distributions, without the need for shareholder approval. Until October 2005, we had never paid cash dividends to our shareholders. In addition, the terms of our credit facility restrict the amount of dividends we may pay to our shareholders. See “Item 5. Operation and Financial Review and Prospects–Liquidity and Capital Resources–Liquidity”. On April 20, 2005, we repurchased approximately 33.3 million shares from our founding Israeli shareholders, for a total purchase price of approximately NIS 1,074 million. See “Item 7B. Related Party Transactions–Repurchase of Shares from Founding Israeli Shareholders.”

        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.

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, originally 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. Since March 2006 the Bank of New York has served as our depository.

        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.

	Nasdaq				London Stock Exchange				Tel Aviv Stock Exchange
	($ per ADS)				($ per ADS)*				(NIS per ordinary share)**
	High		Low		High		Low		High		Low
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
2003
First Quarter		3.70		2.56		3.58		2.68		17.03		12.45
Second Quarter		4.91		3.45		4.90		3.55		21.91		16.21
Third Quarter		6.11		4.90		5.95		4.85		27.25		20.96
Fourth Quarter		7.84		5.92		7.70		5.40		34.46		26.54
2004
First Quarter		8.49		7.41		8.20		7.58		37.99		33.44
Second Quarter		8.55		6.91		8.33		7.08		38.40		32.37
Third Quarter		7.77		6.36		7.88		6.50		34.96		29.11
Fourth Quarter		8.59		6.52		8.66		6.50		37.35		28.93
2005		9.60		7.13						41.82		32.70
First Quarter		9.60		8.05						41.82		35.28
Second Quarter		9.26		7.16						39.73		33.04
Third Quarter		9.00		7.13						39.74		32.70
Fourth Quarter		8.84		7.67		___		___		40.33		36.30

*     The data for the fourth quarter of 2004 is based on last trade reported to the London Stock Exchange. From January 1, 2005 through April 30, 2006, there were no trades of our ADS executed on the London Stock Exchange.

**     Our ordinary shares began trading on the Tel Aviv Stock Exchange on July 3, 2001.

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Previous Six Months

	Nasdaq				London Stock Exchange				Tel Aviv Stock Exchange
	($ per ADS)				($ per ADS)*				(NIS per ordinary share)
	High		Low		High		Low		High		Low
November 2005		8.37		7.67						38.69		36.30
December 2005		8.41		7.77						39.00		36.53
January 2006		8.58		7.97						38.95		37.10
February 2006		7.72		7.20						36.39		33.85
March 2006		7.81		7.48		___		___		36.54		34.97
April 2006		8.50		7.67		___		___		38.80		35.63

*     As indicated above, from January 1, 2005 through April 30, 2006, there were no trades of our ADS executed on the London Stock Exchange.

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.

9F. Expenses of the Issue

Not applicable.

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.

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        Pursuant to our memorandum of association, we were formed for the purpose of participating in the auction for the granting of a 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 152,538,362 ordinary shares were issued and outstanding as of December 31, 2005, and 153,035,488 shares were issued and outstanding as of April 2, 2006. All outstanding ordinary shares are validly issued. On April 20, 2005, we repurchased 33,317,933 million ordinary shares from certain of our founding Israeli shareholders, as described above under “Item 7B. Related Party Transactions–Repurchase of Shares from Founding Israeli Shareholders”. These shares were cancelled. The rights attached to our 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 and approve distribution of a dividend with respect to any fiscal year only out of profits, in accordance with the provisions of the Companies Law. See “Item 10E. Additional Information–Taxation.”

        Shares which are treated as dormant under our Articles of Association 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 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 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, 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 our 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.

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        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 shares 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.

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. According to our articles of association, dormant shares bear no rights as long as they are dormant shares, except for the right to receive dividends and other distributions to shareholders. Consequently, we have received an exemption from the requirement set out in Nasdaq’s Marketplace Rule 4351 that voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the US Securities Exchange Act cannot be disparately reduced or restricted through any corporate action or issuance.

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 a general meeting must be sent to each registered shareholder within five days after the record date set by the Board of Directors for that meeting, unless a different notice time is required under applicable law or unless all shareholders who qualify to vote at the time approve in writing of a shorter notice period. 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 Our Securities

        For limitations on the rights to own our securities 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.”

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.”

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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

        On January 22, 2006, we signed an agreement with MED I.C. – 1 (1999) Ltd., a transmission and hosting company, to purchase its fiber-optic cable infrastructure comprising of a network of approximately 900 kilometers of submerged and terrestrial transmission fiber in Israel for approximately $14.8 million, subject to certain adjustments. We entered into this agreement in order to enable us to reduce our transmission costs as well as to provide our business customers with bundled services of transmission of data and voice. Completion of this transaction is subject to the satisfaction of various closing conditions, including approval by the Ministry of Communications.

        For information on our share repurchase, see “Item 7B. Related Party Transactions – Repurchase of Shares from Founding Israeli Shareholders.” For information on our redemption of the Notes due 2010, see “Item 5. Liquidity and Capital Resources.”

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 subsidiaries, Partner Future Communications 2000 Ltd. and Partner Land-Line Communications Solutions (of which Partner Future Communications 2000 Ltd. serves as the general partner and the Company serves as the limited partner), 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.

10E. Taxation

Israeli Tax Considerations

        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.

        Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and disposition of our ordinary shares, including, in particular, the effect of any foreign, state or local taxes.

Israeli Tax Reforms

        On July 24, 2002, the Israeli Knesset enacted income tax reform legislation, commonly referred to as the “2003 Tax Reform”. The 2003 Tax Reform has introduced fundamental and comprehensive changes into Israeli tax laws. Most of the legislative changes took effect on January 1, 2003. The 2003 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 2003 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 Israeli individuals from the sale of securities traded on the Tel-Aviv Stock Exchange). Under the 2003 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.

        A relatively short time after the 2003 Tax Reform, the Israeli Parliament approved on July 25, 2005 an additional income tax reform legislation (the “2006 Tax Reform”) pursuant to the recommendations of a committee appointed by the Israeli Minister of Finance, which incorporated additional fundamental changes to Israeli tax law. The 2006 Tax Reform, inter alia, includes a gradual reduction of income tax rates for both individuals and corporations through 2010, and outlines a path towards uniformity in the taxation of interest, dividend and capital gains derived from securities. Most of the amendments to the tax law are effective as of January 1, 2006, subject to certain exceptions. Transition rules apply in certain circumstances.

        Various issues related to the 2003 Tax Reform and the 2006 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.

General Corporate Tax Structure

        In accordance with the 2006 Tax Reform, the 34% corporate tax rate applicable in 2005 had been scheduled to be reduced to 31% in 2006, 29% in 2007, 27% in 2008, 26% in 2009 and 25% in 2010 and beyond.

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Special Provisions Relating to Taxation under Inflationary Conditions

        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 deductions and adjustments to depreciation deductions and tax loss carry forwards to mitigate the effects resulting from an inflationary economy.

        The Inflationary Adjustments Law is highly complex. Its principal features can be described as follows:

— Where a company’s equity, as calculated under the Inflationary Adjustments Law, exceeds the depreciated cost of its fixed assets (as defined in the Inflationary Adjustments Law), a deduction from taxable income is permitted equal to the excess multiplied by the applicable annual rate of inflation. The maximum deduction permitted in any single tax year is 70% of taxable income, with the unused portion permitted to be carried forward, and linked to the Israeli consumer price index. The unused portion that was carried forward may be deductible in full in the following year.

— Where a company’s depreciated cost of fixed assets exceeds its equity, then the excess multiplied by the applicable annual rate of inflation is added to taxable corporate business income but not to other income, such as capital gains.

— Subject to specified limitation, depreciation deductions on fixed assets and losses carried forward are adjusted for inflation based on the change in the consumer price index.

        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. In 2006, the Real Gain accrued at the sale of an asset that is purchased on or after January 1, 2003 is taxed at a 25% rate for corporations, and 20% rate for individuals. Additionally, if such shareholder is considered a “Significant Shareholder” at any time during the 12-month period preceding such sale (i.e. if such shareholder holds directly or indirectly, including along with others, at least 10% of any means of control in the company, the tax rate will be 25%. However, the foregoing tax rates will not apply to (i) dealers in securities; and (ii) shareholders ho have acquired their shares prior to an initial public offering (that may be subject to a different tax arrangement). Inflationary surplus that accrued after December 31, 1993, is exempt from tax.

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 regular corporate tax rate of 31% (for 2006) and a marginal tax rate of up to 49% 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 for corporations and 20% for individuals.

Generally, within 30 days of a transaction a detailed return, including a computation of the tax due should be submitted to the Israeli Tax Authorities and a tax advance amounting to the tax liability arising from the capital gain is payable. At the sale of traded securities, the aforementioned detailed return may not be submitted and the tax advance should not be paid, if all tax due was withheld at the source according to applicable provisions of the Israeli Tax Ordinance and regulations promulgated thereunder. Capital gains are also reportable on annual income tax returns.

— Taxation of Israeli Residents. 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 2003 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.

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        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. As demonstrated below, the timing of that the shareholder’s purchase of the shares will determine the tax outcomes in this regard.

Sale of shares purchased after January 1, 2003

Individuals

        A shareholder will generally be subject to tax at 20% 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% (until otherwise stipulated in bylaws that may be published in the future).

Corporations

Corporations that are subject to the Inflationary Adjustments Law

        The shareholder will be subject to tax at the corporate rate on the realized capital gain (currently 31% for 2006).

Corporations that are not subject to the Inflationary Adjustments Law

        Generally, the shareholder will be subject to tax at the corporate tax rate of 25% on realized real capital gains.

        Different taxation rules may apply to shareholders who purchased their shares prior to the listing on the Tel Aviv Stock Exchange. They should consult with their tax advisors for the precise treatment upon sale.

— 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 nonresidents 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, 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 corporations will not be entitled to such exemption if an Israeli resident (i) has a controlling interest of 25% or more in such non-Israeli corporation, or (ii) is the beneficiary of or is entitled to 25% or more of the revenues or profits of such foreign corporation, whether directly or indirectly.

Different taxation rules may apply to shareholders who purchased their shares prior to the listing on the Tel Aviv Stock Exchange. They should consult with their tax advisors for the precise treatment upon sale.

— 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 2006 Tax Reform, Israeli stockbrokers have a duty to withhold tax upon the sale of traded securities. The applicable withholding tax rate is generally 20% from the real gain.

Dividends

        The following Israeli tax consequences shall apply in the event of actual payment of any dividends on ordinary shares or ADSs.

        Income from dividends in 2006 and thereafter, other than bonus shares (stock dividends), to Israeli residents who purchased our Shares will generally be subject to income tax at a rate of 20% for individuals, or 25% if the dividends receipt is a Significant Shareholder (as defined above) )and will be exempt from income tax for Israeli 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 20% (or 25% for a shareholder that is considered a Significant Shareholder (as described above) by way of a tax withholding, unless a lower rate is stipulated by a treaty between Israel and the shareholder’s country of residence.

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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 ADSs). 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 (the “US Treaty”), the maximum rate of withholding tax on dividends paid to a holder of Shares (including ADSs) who is a resident of the United States (as defined in the US Treaty) will be 25%. Since the tax rate of 25% is higher than the maximum Israeli tax rate on dividends pursuant to the 2006 Tax Reform, the maximum tax rate should be 20%. The maximum rate of withholding tax on dividends paid by Israeli corporation to a US corporation generally will be 12.5% if, inter alia, during the part of the Israeli corporation’s taxable year which precedes the date of payment and during the whole of its prior taxable year, at least 10% of the outstanding shares of the voting stock of the Israeli corporation was owned by the US corporation.

        The US Treaty exempts from taxation in Israel any capital gain realized on the sale, exchange or other disposition of Shares (including ADSs) 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 ADSs), 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 income tax imposed on the sale, exchange or other disposition, subject to the limitations in US laws applicable to the utilization of 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 Tax Considerations

        The following discussion is a summary of certain 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, banks, regulated investment 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 currency other than the US dollar, persons owning (directly, indirectly or by attribution) 10% or more of our outstanding share capital or voting stock, and persons not holding the ordinary shares or ADSs as capital assets.

        As used herein, the term “US holder” means a beneficial owner of an ordinary share or an ADS who is eligible for benefits as a U.S. resident under the limitation on benefits article of the US Treaty (as defined above in “–Taxation of residents of the United States under the US Treaty”), and is:

— a citizen or individual resident of the United States for US federal income tax purposes,

— a corporation (or an entity taxable as a corporation for US federal income tax purposes) 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 US persons have the authority to control all of the trust’s substantial decisions.

        If a partnership, or other entity treated as a partnership for US federal income tax purposes, 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. A partner in a partnership that holds ordinary shares or ADSs is urged to consult its own tax advisor regarding the specific tax consequences of owning and disposing of ordinary shares or ADSs.

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        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. Furthermore, deposits or withdrawals by a US holder of ordinary shares for ADSs, or of ADSs for ordinary shares, will not be subject to US federal income tax or Israeli income tax. 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.

        US holders should review the summary above under “Israeli Taxation” and “Israeli Taxation–Taxation of residents of the United States under the US Treaty” for a discussion of the Israeli taxes which may be applicable to them.

        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 eligible for benefits under the US Treaty.

Dividends

        A US holder generally will be required to include in gross income as ordinary dividend income the amount of any distributions paid on the ordinary shares and ADSs, including the amount of any Israeli taxes withheld in respect of such dividend. 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. Special rules govern the manner in which accrual method taxpayers are required (or may elect) to determine the US dollar amount includible in income in the case of taxes withheld in a foreign currency. Certain of these rules have changed effective January 1, 2005. Accrual basis taxpayers therefore are urged to consult their own tax advisors regarding the requirements and the elections applicable in this regard.

        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 US holders, “financial services income” for US foreign tax credit purposes. For taxable years beginning January 1, 2007, dividend income generally will constitute “passive category income” or, in the case of certain US holders, “general category income”. 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. US holders who do not elect to claim the 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. 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.

        Certain US holders (including individuals) are eligible for reduced rates of US federal income tax (at a maximum rate of 15%) in respect of “qualified dividend income” received in taxable years beginning before January 1, 2009. For this purpose, qualified dividend income generally includes dividends paid by a non-US corporation if, among other things, the US holders meet certain minimum holding periods and the non-US corporation satisfies certain requirements, including that either (i) the shares (or ADSs) with respect to which the dividend has been paid are readily tradable on an established securities market in the United States, or (ii) the non-US corporation is eligible for the benefits of a comprehensive US income tax treaty (such as the US Treaty) which provides for the exchange of information. We currently believe that dividends paid with respect to our ordinary shares and ADSs, should constitute qualified dividend income for US federal income tax purposes. We anticipate that our dividends will be reported as qualified dividends on Forms 1099-DIV delivered to US holders. Each individual US holder of ordinary shares or ADSs is urged to consult his own tax advisor regarding the availability to him of the reduced dividend tax rate in light of his own particular situation and regarding the computations of his foreign tax credit limitation with respect to any qualified dividend income paid by us, as applicable.

        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 credits or reduced rates in respect of qualified dividends by US holders of ADSs. Accordingly, the discussion above regarding the creditability of Israeli withholding tax or the availability of qualified dividend treatment could be affected by future actions that may be taken by the US Treasury with respect to ADSs.

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Sale, Exchange or Other Disposition

        Upon the sale, exchange 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 sale, exchange or other disposition and the US holder’s adjusted tax basis, determined in US dollars, in the ordinary shares or ADSs. Any gain or loss recognized upon the sale, exchange or other disposition of the ordinary shares or ADSs will be treated as long-term capital gain or loss if, at the time of the sale, exchange or other 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. US holders should consult their own tax advisors in this regard.

        In general, gain or loss recognized by a US holder on the sale, exchange 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.

        US holders who hold ordinary shares or ADSs through an Israeli stockbroker or other Israeli intermediary may be subject to an Israeli withholding tax on any capital gains recognized if the US holder does not obtain approval of an exemption from the Israeli Tax Authorities. US holders are advised that any Israeli tax paid under circumstances in which an exemption from such tax was available will not give rise to a deduction or credit for foreign taxes paid for US federal income tax purposes. US holders are advised to consult their Israeli stockbroker or intermediary regarding the procedures for obtaining an exemption.

        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.

Passive Foreign Investment Company Rules

        A non-US corporation will be classified as a Passive Foreign Investment Company (a “PFIC”) for any taxable year if at least 75% of its gross income consists of passive income (such as dividends, interest, rents, royalties (other than rents or royalties derived in the active conduct of a trade or business and received from an unrelated person), or gains on the disposition or certain minority interests), or at least 50% of the average value of its assets consist of assets that produce, or are held for the production of, passive income. We currently believe that we were not a PFIC for the year ended December 31, 2005. However, this conclusion is a factual determination that must be made at the close of each year and is based on, among other things, a valuation of our ordinary shares, ADSs and assets, which will likely change from time to time. If we were characterized as a PFIC for any taxable year, a US holder would suffer adverse tax consequences. These consequences may include having gains realized on the disposition of ordinary shares or ADSs treated as ordinary income rather than capital gains and being subject to punitive interest charges on certain dividends and on the proceeds of the sale or other disposition of the ordinary shares or ADSs. Furthermore, dividends paid by a PFIC are not eligible to be treated as “qualified dividend income” (as discussed above).

        Application of the PFIC rules is complex. US holders should consult their own tax advisors regarding the potential application of the PFIC rules to the ownership of our ordinary shares or ADSs.

Information Reporting and Backup Withholding

        Dividend payments with respect to ordinary shares or ADSs and proceeds from the sale, exchange or other disposition of ordinary shares or ADSs may be subject to information reporting to the Internal Revenue Service, (the “IRS”), and possible US backup withholding at a current rate of 28%. 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 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.

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10H. Documents on Display

        Reports and other information of Partner filed electronically with the US 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.

10I. Subsidiary Information

Not applicable.

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 foreign currencies and inflation (CPI). 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 shekels linked to the Israeli CPI and unlinked shekels. The following table provides information derived from the financial statements about these borrowings, as of December 31, 2005.

Non-Derivative Instruments

	Book Value (NIS equivalent in millions, except percentages)
NIS linked to the Israeli CPI (1)		2,022
Long-term fixed Notes due 2012		4.25	%
NIS linked to the Israeli CPI (1)
Long-term - fixed bank debt		337
Weighted average interest rate payable on fixed rate debt		5.8	%
Unlinked NIS (1)
Long-term--floating		359
Weighted average interest rate payable on floating rate debt		5.5	%
Total		2,718

(1) Book value approximates fair value at December 31, 2005.

Expected Maturity Dates:

        Our credit facility was divided into three tranches: A multi-currency term loan facility of $383 million, a revolving multi-currency loan facility of $150 million and a fixed-term shekel loan facility of $150 million. This facility was replaced on April 14, 2005 with a new six-year facility including a $450 million term loan facility and a $100 million revolving facility. With effect May 1, 2005, we exercised an option to reduce the term loan facility (excluding an advance of approximately $25 million carried over from the previous facility) to $150 million and shorten the maturity to September 1, 2009.

        The total commitments under our new facility will be reduced during each of the following years to the following amounts:*

	Dollars in Millions
	A*		B		TOTAL
September 1, 2006		165		100		265
September 1, 2007		108		100		208
September 1, 2008		50		100		150
September 1, 2009		0		0		0

* Including approximately $18 million advance carried over from our previous facility.

Foreign Exchange and Inflation

        Substantially all of our revenues and a majority of our operating expenses are denominated in shekels. However, through December 31, 2005, 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, most of our capital expenditures are incurred in, or linked to, non-shekel currencies. Thus, devaluation of the shekel against the dollar (or other foreign currencies), increases 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.

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        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 do not hold or issue derivative financial instruments for trading purposes.

        Our bank credit facility borrowings and Notes due 2012 are currently in shekels, some of which are linked to the Israeli consumer price index, or CPI. We may not be permitted to raised 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. We enter into derivative transactions in order to protect ourselves from an increase in the CPI in respect of the principal of the CPI – linked Notes.

        The transactions are mainly designated to hedge the cash flows related to 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 December 31, 2005		Maturing in 2006		Fair Value at December 31, 2005
	(NIS equivalent in millions)
Forward transactions - for the exchange of: Dollars
into NIS		129		129		(1.5	)
Embedded derivatives - Dollars into NIS		183		183		(1.8	)
Forward transactions - for the changes in the Israeli CPI		1,500		1,500		1.4

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

        (a) Disclosure Controls and Procedures. We carried out an evaluation under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2005. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and chief financial officer concluded that the disclosure controls and procedures in place as of December 31, 2005 were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities Exchange Act is recorded, processed, summarized and reported as and when required.

        (b) Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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        We are aware of the importance of maintaining controls and procedures and are continuing to work towards improving our controls and procedures. Beginning with the fiscal year ending December 31, 2006, Section 404 of the Sarbanes Oxley Act of 2002, or Section 404, will require us to include an internal control report of management with our annual report on form 20-F.

        In connection with this required Section 404 evaluation, we are currently performing the system and process evaluation and testing required (and any necessary remediation) in an effort to comply with such requirements by the effective date of compliance. Our efforts to implement standardized internal control procedures and develop the internal tests necessary to verify the proper application of the internal control procedures and their effectiveness with be a key area of focus for our board of directors, our audit committee and our senior management. This evaluation is expected to underlie the control report of management and auditor attestation requirements of Section 404.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

        The Board of Directors has determined that Moshe Vidman is an “audit committee financial expert” as defined in Item 16A of Form 20-F. All the members of the Audit Committee are “independent directors” as defined in the Nasdaq listing standards applicable to us.

ITEM 16B. CODE OF ETHICS

        We have adopted a code of ethics that applies to our Chief Executive Officer, President, Chief Financial Officer and Corporate Controller. We undertake to provide to any person without charge, upon request, a copy of our code of ethics, which you may request from Partner’s legal department, tel.: +972-54-4814191.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

        Kesselman & Kesselman, independent certified public accountants in Israel and a member of Pricewaterhouse Coopers International Limited (“PwC”) have served as our independent public accountants for each of the fiscal years in the three-year period ended December 31, 2005, for which audited financial statements appear in this annual report on Form 20-F.

        The following table presents the aggregate fees for professional services rendered by PwC to Partner in 2004 and 2005.

	2004 (NIS thousands)		2005 (NIS thousands)
Audit Fees (1)		1,487		2,073
Audit-related Fees (2)		431		788
Tax Fees (3)		98		258
TOTAL		2,016		3,119

(1) Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services that only the external auditor can reasonably provide, and include the group audit; statutory audits; comfort letters and consents; and assistance with and review of documents filed with the SEC.

(2) Audit-related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements or that are traditionally performed by the external auditor, and include consultations concerning financial accounting and reporting standards and internal control reviews. The audit-related fees in 2004 include also fees for due diligence in respect of the Matav transaction which was ultimately not consummated. The audited related fees in 2005 include also fees in respect of the issuance of the Notes and expenses related to the Sarbanes Oxley Act.

(3) Tax Fees include fees billed for tax compliance services, including the preparation of original and amended tax returns and claims for tax refund; tax consultations, such as assistance and representation in connection with tax audits and appeals, and requests for rulings or technical advice from taxing authority; and tax planning services.

Audit Committee Pre-approval Policies and Procedures

        Our Audit Committee has not adopted any pre-approval policies and procedures.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES

        For information on our share repurchase during 2005, see “Item 7B. Related Party Transactions – Repurchase of Shares from Founding Israeli Shareholders”. Other than this share repurchase, neither we nor any “affiliated purchasers”, as defined in Rule 10b – 18(a)(3) under the U.S. Securities Exchange Act of 1934, purchased any of our shares during 2005.

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ITEM 17. FINANCIAL STATEMENTS

The company has responded to “Item 18. Financial Statements” in lieu of responding to this item.

ITEM 18. FINANCIAL STATEMENTS

The following financial statements are filed as part of this annual report.

	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F - 2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets as of December 31, 2004 and 2005	F - 3 - F - 4
Statements of operations for the years ended December 31, 2003, 2004 and 2005	F - 5
Statements of changes in shareholders' equity (capital deficiency) for the years ended December 31,
2003, 2004 and 2005	F - 6
Statements of cash flows for the years ended December 31, 2003, 2004 and 2005	F - 7 - F - 8
Notes to financial statements	F - 9 - F - 40

- 82 -

ITEM 19. EXHIBITS

Pursuant to the rules and regulations of the Securities and Exchange Commission, we have filed certain agreements as exhibits to this Annual Report on Form 20-F. These agreements may contain representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in our public disclosure, (iii) may reflect the allocation of risk among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe our actual state of affairs at the date hereof and should not be relied upon.

Exhibit No. 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).1 Form of Indenture between Partner and The Bank of New York, as trustee, including form of note

^2.(b).2 Form of Indenture between Partner and the Trust Company of Union Bank Ltd.

^4.(a).1 Restatement of the Relationship Agreement dated April 20, 2005

**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 Super-Pharm dated February 12, 2004

**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 Asset Purchase Agreement with Med-1 dated as of January 22, 2006

#***4.(a).14 Amendment No. 1 to License from the Israeli Ministry of Communications issued May 11, 1999

***4.(a).15 Amendment No. 2 to License from the Israeli Ministry of Communications issued September 29, 1999

***4.(a).16 Amendment No. 3 to License from the Israeli Ministry of Communications issued October 3, 1999

***4.(a).17 Amendment No. 4 to License from the Israeli Ministry of Communications issued June 28, 2000

***4.(a).18 Amendment No. 5 to License from the Israeli Ministry of Communications issued September 10, 2000

***4.(a).19 Amendment No. 6 to License from the Israeli Ministry of Communications issued March 19, 2001

+4.(a).20 Amendment No. 7 to License from the Israeli Ministry of Communications issued September 23, 2001

+4.(a).21 Amendment No. 8 to License from the Israeli Ministry of Communications issued December 27, 2001

+4.(a).22 Amendment No. 9 to License from the Israeli Ministry of Communications issued March 13, 2002

+4.(a).23 Amendment No. 10 to License from the Israeli Ministry of Communications issued April 14, 2002

+4.(a).24 Amendment No. 11 to License from the Israeli Ministry of Communications issued April 25, 2002

++4.(a).25 Amendment No. 12 to License from the Israeli Ministry of Communications issued June 26, 2002

++4.(a).26 Amendment No. 13 to License from the Israeli Ministry of Communications issued June 30, 2002

++4.(a).27 Amendment No. 14 to License from the Israeli Ministry of Communications issued September 11, 2002

++4.(a).28 Amendment No. 15 to License from the Israeli Ministry of Communications issued October 24, 2002

++4.(a).29 Amendment No. 16 to License from the Israeli Ministry of Communications issued November 26, 2002

++4.(a).30 Amendment No. 17 to License from the Israeli Ministry of Communications issued February 2, 2003

+++4.(a).31 Amendment No. 18 to License from the Israeli Ministry of Communications issued May 29, 2003

+++4.(a).32 Amendment No. 19 to License from the Israeli Ministry of Communications issued July 31, 2003

+++4.(a).33 Amendment No. 20 to License from the Israeli Ministry of Communications issued October 8, 2003

+++4.(a).34 Amendment No. 21 to License from the Israeli Ministry of Communications issued October 9, 2003

+++4.(a).35 Amendment No. 22 to License from the Israeli Ministry of Communications issued March 16, 2004

+++4.(a).36 Amendment No. 23 to License from the Israeli Ministry of Communications issued March 21, 2004

^4.(a).37 Amendment No. 24 to License from the Israeli Ministry of Communications issued May 9, 2004

^4.(a).38 Amendment No. 25 to License from the Israeli Ministry of Communications issued July 4, 2004

^4.(a).39 Amendment No. 26 to License from the Israeli Ministry of Communications issued July 11, 2004

^4.(a).40 Amendment No. 27 to License from the Israeli Ministry of Communications issued August 8, 2004

^4.(a).41 Amendment No. 28 to License from the Israeli Ministry of Communications issued November 30, 2004

- 83 -

^4.(a).42 Amendment No. 29 to License from the Israeli Ministry of Communications issued December 16, 2004

^4.(a).43 Amendment No. 30 to License from the Israeli Ministry of Communications issued December 23, 2004

^4.(a).44 Amendment No. 31 to License from the Israeli Ministry of Communications issued March 9, 2005.

4.(a).45 Amendment No. 32 to License from the Israeli Ministry of Communications issued May 10,2005.

4.(a).46 Amendment No. 33 to License from the Israeli Ministry of Communications issued July 14, 2005.

4.(1).47 Amendment No. 34 to License from the Israeli Ministry of Communications issued March 2, 2006

+4.(a).48 Amending Agreement to the Facility Agreement dated January 8, 2002

+4.(a).49 Amending Agreement to the Facility Agreement dated January 30, 2002

+4.(a).50 Amending Agreement to the Facility Agreement dated February 6, 2002

+4.(a).51 Amending Agreement to the Facility Agreement dated February 28, 2002

+4.(a).52 Amending Agreement to the Facility Agreement dated March 14, 2002

+4.(a).53 Amending Agreement to the Facility Agreement dated March 24, 2002

+4.(a).54 Amending Agreement to the Facility Agreement of April 2002

+4.(a).55 Amending Agreement to the Facility Agreement dated April 24, 2002

++4.(a).56 Amending Agreement to the Facility Agreement dated December 31, 2002

^4.(a).57 Facility Agreement dated April 14, 2005

#+++4.(a).58 Purchase Agreement with Nortel Networks ISRAEL (Sales and Marketing) Ltd. Dated November 12, 2003.

^4.(a).59 Share Buy Back Agreement dated February 7, 2005

6. See Note 1q to our financial statements for information explaining how earnings (loss) per share information was calculated.

^8. List of Subsidiaries

12.(a).1 Certification by CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

12.(a).2 Certification by CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

13.(a).1 Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

14.(a).1 Consent of Kesselman & Kesselman

* 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.

++ Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2002.

+++ Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2003.

^ Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2004.

# Confidential treatment requested. Confidential material has been redacted and has been separately filed with the Securities and Exchange Commission.

- 84 -

GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS

        The following explanations are not intended as technical definitions, but to assist the reader in understanding 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. Fixed transmitter/receiver equipment in each cell of a mobile

Base Transceiver Station ("BTS") 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.

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.

Dropped call When a mobile phone call is involuntarily terminated.

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.

- 85 -

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.

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.

SMS Short message service, a service which enables mobile telephone users to send and receive written messages on their handsets.

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.

- 86 -

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

2005 ANNUAL REPORT

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation)

2005 ANNUAL REPORT

TABLE OF CONTENTS

	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets as of December 31, 2004 and 2005	F-3-F-4
Statements of operations for the years ended December 31, 2003, 2004 and 2005	F-5
Statements of changes in shareholders' equity (capital deficiency) for the years ended
December 31, 2003, 2004 and 2005	F-6
Statements of cash flows for the years ended December 31, 2003, 2004 and 2005	F-7-F-8
Notes to financial statements	F-9-F-40

The amounts are stated in New Israeli Shekels (NIS) in thousands.

	Kesselman & Kesselman  Certified Public Accountants (Isr.)  Trade Tower, 25 Hamered Street  Tel Aviv 68125 Israel  P.O Box 452 Tel Aviv 61003  Telephone +972-3-7954555  Facsimile +972-3-7954556

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2004 and 2005 and the related consolidated statements of operations, of changes in shareholders’ equity (capital deficiency) and of cash flows for each of the three years in the period ended December 31, 2005. 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 the standards of the Public Company Accounting Oversight Board (United States), and with auditing standards generally accepted in Israel, 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, 2004 and 2005 and the consolidated results of its operations, changes in shareholders’ equity (capital deficiency) and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States.

Tel-Aviv, Israel
    March 7, 2006 /s/ Kesselman & Kesselman
Certified Public Accountants (Israel)

F - 2

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED BALANCE SHEETS

	December 31
	2004		2005		2005
	New Israeli shekels				Convenience translation into U.S. dollars (note 1a)
	In thousands
A s s e t s
CURRENT ASSETS:
Cash and cash equivalents		4,611		4,008		871
Accounts receivable (note 13):
Trade		625,220		795,156		172,747
Other		70,158		97,128		21,101
Inventories		101,656		209,323		45,476
Deferred income taxes (note 10)		255,503		65,361		14,200
T o t a l   current assets		1,057,148		1,170,976		254,395
INVESTMENTS AND LONG-TERM RECEIVABLES:
Accounts receivable - trade (note 13)		96,687		189,013		41,062
Funds in respect of employee rights upon retirement (note 7)		69,128		75,443		16,390
		165,815		264,456		57,452
FIXED ASSETS, net of accumulated depreciation and
amortization (note 3)		1,843,182		1,768,895		384,292
LICENSE AND DEFERRED CHARGES,
net of accumulated amortization (note 4)		1,325,592		1,321,167		287,023
DEFERRED INCOME TAXES (note 10)		94,442		86,505		18,793
T o t a l   assets		4,486,179		4,611,999		1,001,955

        Date of approval of the financial statements: March 7, 2006

——————————————
Amikam Cohen
Chief Executive Officer ——————————————
Alan Gelman
Chief Financial Officer ——————————————
Moshe Vidman
Director

F - 3

	December 31
	2004			2005			2005
	New Israeli shekels						Convenience translation into U.S. dollars (note 1a)
	In thousands
Liabilities and shareholders' equity
CURRENT LIABILITIES:
Current maturities of long-term liabilities (notes 5, 13d)					34,464			7,487
Accounts payable and accruals:
Trade		552,377			665,542			144,589
Other (note 13)		307,364			231,480			50,289
Related party - trade					10,513			2,284
Dividend payable					44,996			9,775
T o t a l   current liabilities		859,741			986,995			214,424
LONG-TERM LIABILITIES:
Bank loans, net of current maturities (note 5)		1,185,088			665,974			144,682
Notes payable (note 6)		753,900			2,022,257			439,335
Liability for employee rights upon retirement (note 7)		92,808			102,238			22,211
Other liabilities (note 13d)		7,567			19,184			4,168
T o t a l   long-term liabilities		2,039,363			2,809,653			610,396
COMMITMENTS AND CONTINGENT LIABILITIES (note 8)
T o t a l   liabilities		2,899,104			3,796,648			824,820
SHAREHOLDERS' EQUITY (note 9):
Share capital - ordinary shares of NIS 0.01 par
value: authorized - December 31, 2004 and 2005 -
235,000,000 shares; issued and outstanding -
December 31, 2004 - 184,037,221 shares and
December 31, 2005 - 152,528,288 shares issued		1,840			1,525			331
Less - receivables in respect of shares		(2,260	)
Capital surplus		2,362,027			2,401,160			521,651
Deferred compensation		(23,650	)		(12,735	)		(2,766	)
Accumulated deficit		(750,882	)		(1,574,599	)		(342,081	)
T o t a l   shareholders' equity		1,587,075			815,351			177,135
		4,486,179			4,611,999			1,001,955

The accompanying notes are an integral part of the financial statements.

F - 4

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS

	Year ended December 31
	2003		2004			2005			2005
	New Israeli shekels								Convenience translation into U.S. dollars (note 1a)
	In thousands (except per share data)
REVENUES - net:
Services		4,117,887		4,615,781			4,619,932			1,003,679
Equipment		349,832		524,956			503,007			109,278
		4,467,719		5,140,737			5,122,939			1,112,957
COST OF REVENUES:
Services		2,586,707		2,885,077			3,022,480			656,633
Equipment		549,749		729,937			743,872			161,606
		3,136,456		3,615,014			3,766,352			818,239
GROSS PROFIT		1,331,263		1,525,723			1,356,587			294,718
SELLING AND MARKETING EXPENSES		314,008		325,244			272,900			59,287
GENERAL AND ADMINISTRATIVE EXPENSES		162,387		181,133			180,781			39,275
OPERATING PROFIT		854,868		1,019,346			902,906			196,156
FINANCIAL EXPENSES, net (note 13)		321,710		260,545			345,448			75,048
LOSS ON IMPAIRMENT OF INVESTMENTS
IN NON-MARKETABLE SECURITIES (note 2)		3,530
INCOME BEFORE TAX		529,628		758,801			557,458			121,108
TAX BENEFIT (TAX EXPENSES) (note 10)		633,022		(287,248	)		(202,898	)		(44,080	)
NET INCOME FOR THE YEAR		1,162,650		471,553			354,560			77,028
EARNINGS PER SHARE ("EPS"):
Basic		6.39		2.57			2.19			0.48
Diluted		6.34		2.56			2.17			0.47
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic		181,930,803		183,389,383			161,711,125			161,711,125
Diluted		183,243,157		184,108,917			163,617,272			163,617,272

The accompanying notes are an integral part of the financial statements.

F - 5

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (CAPITAL DEFICIANCIES)

	Share capital
	Number of shares			Amount			Receivables in respect of shares issued			Capital surplus			Deferred compensation			Accumulated deficit			Total
				( I n   t h o u s a n d s )
New Israeli Shekels:
BALANCE AT DECEMBER 31, 2002		181,595,222			1,816						2,293,270			(6,385	)		(2,385,085	)		(96,384	)
CHANGES DURING THE YEAR ENDED         DECEMBER 31, 2003:
Exercise of options granted to employees		1,100,352			11			(4,374	)		7,754									3,391
Income tax benefit in respect of exercise
of options granted to employees											730									730
Deferred compensation related to employee            stock option grants											2,666			(2,666	)
Amortization of deferred compensation related
to employee stock option grants net of deferred
compensation with respect to stock options            forfeited											(1,365	)		6,542						5,177
Net income																	1,162,650			1,162,650
BALANCE AT DECEMBER 31, 2003		182,695,574			1,827			(4,374	)		2,303,055			(2,509	)		(1,222,435	)		1,075,564
CHANGES DURING THE YEAR ENDED         DECEMBER 31, 2004:
Exercise of options granted to employees		1,341,647			13			2,114			23,671									25,798
Income tax benefit in respect of exercise of options
granted to employees											3,440									3,440
Deferred compensation related to employee stock            option grants											32,560			(32,560	)
Amortization of deferred compensation related to
employee stock option grants net of deferred
compensation with respect to stock options            forfeited											(699	)		11,419						10,720
Net income																	471,553			471,553
BALANCE AT DECEMBER 31, 2004		184,037,221			1,840			(2,260	)		2,362,027			(23,650	)		(750,882	)		1,587,075
CHANGES DURING THE YEAR         ENDED DECEMBER 31, 2005:
Repurchase of Company's shares (including
purchase cost of NIS 17,591,000)		(33,317,933	)		(333	)											(1,091,508	)		(1,091,841	)
Exercise of options granted to employees		1,809,000			18			2,260			34,875									37,153
Income tax benefit in respect of exercise of options
granted to employees											4,820									4,820
Deferred compensation related to employee stock            option grants											2,638			(2,638	)
Amortization of deferred compensation related to
employee stock option grants net of deferred
compensation with respect to stock options            forfeited											(3,200	)		13,553						10,353
Dividend																	(86,769	)		(86,769	)
Net income																	354,560			354,560
BALANCE AT DECEMBER 31, 2005		152,528,288			1,525			-,-			2,401,160			(12,735	)		(1,574,599	)		815,351
Convenience translation into u.s. dollars (note 1a):
BALANCE AT JANUARY 1, 2005		184,037,221			399			(491	)		513,149			(5,137	)		(163,129	)		344,791
CHANGES DURING THE YEAR ENDED         DECEMBER 31, 2005:
Repurchase of Company's shares (including
purchase cost of $3,900,000)		(33,317,933	)		(72	)											(237,130	)		(237,202	)
Exercise of options granted to employees		1,809,000			4			491			7,577									8,072
Income tax benefit in respect of exercise of
options granted to employees											1,047									1,047
Deferred compensation related to employee stock            option grants											573			(573	)
Amortization of deferred compensation related to            employee stock option grants net of            deferred compensation with respect to stock            options forfeited											(695	)		2,944						2,249
Dividend																	(18,850	)		(18,850	)
Net income																	77,028			77,028
BALANCE AT DECEMBER 31, 2005		152,528,288			331			-,-			521,651			(2,766	)		(342,081	)		177,135

The accompanying notes are an integral part of the financial statements.

F - 6

(Continued) – 1

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31
	2003			2004			2005			2005
	New Israeli shekels									Convenience translation into U.S. dollars (note 1a)
	In thousands
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the year		1,162,650			471,553			354,560			77,028
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		536,871			558,222			683,503			148,490
Loss on impairment of investments in
non-marketable securities		3,530
Amortization of deferred compensation related
to employee stock option grants, net		5,177			10,720			10,353			2,249
Liability for employee rights upon retirement		15,540			16,302			9,430			2,049
Deferred income taxes		(633,752	)		283,807			198,079			43,033
Income tax benefit in respect of exercise of options
granted to employees		730			3,440			4,820			1,047
Accrued interest, exchange and linkage
differences on (erosion of) long-term liabilities		(67,438	)		(10,258	)		108,411			23,552
Erosion of security deposit		8,877
Amount carried to deferred charges								(13,820	)		(3,002	)
Capital loss (gain) on sale of fixed assets		(7,829	)		(391	)		493			107
Changes in operating asset and liability items:
Decrease (increase) in accounts receivable:
Trade		22,721			(225,860	)		(262,262	)		(56,976	)
Other		(5,557	)		(13,615	)		(26,970	)		(5,859	)
Increase (decrease) in accounts payable and
accruals:
Related parties								10,513			2,284
Trade		(93,444	)		135,600			112,857			24,518
Other		47,541			41,613			(75,884	)		(16,486	)
Increase (decrease) in asset retirement obligations		1,228			464			(92	)		(20	)
Decrease (increase) in inventories		34,647			1,205			(107,667	)		(23,391	)
Net cash provided by operating activities		1,031,492			1,272,802			1,006,324			218,623
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets		(350,344	)		(609,795	)		(498,851	)		(108,374	)
Proceeds from sale of fixed assets		12,309			552			16			3
Withdrawal of security deposit		98,917
Purchase of additional spectrum		(121,388	)		(53,969	)		(41,542	)		(9,025	)
Funds in respect of employee rights upon retirement		(16,263	)		(10,404	)		(6,315	)		(1,372	)
Net cash used in investing activities		(376,769	)		(673,616	)		(546,692	)		(118,768	)

F - 7

(Concluded) – 2

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31
	2003			2004			2005			2005
	New Israeli shekels									Convenience translation into U.S. Dollars (note 1a)
	In thousands
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease								(1,893	)		(411	)
Repurchase of company's shares (including purchase
cost of NIS 17,591,000 ($ 3,900,000))								(1,091,841	)		(237,202	)
Issuance of notes payable under a prospectus, net of
issuance costs								1,929,223			419,123
Redemption of notes payable								(793,100	)		(172,301	)
Proceeds from exercise of stock options granted to
employees		3,391			25,798			37,153			8,072
Dividend paid								(41,773	)		(9,075	)
Long-term bank loans received		240,000						359,000			77,993
Repayment of long-term bank loans		(895,700	)		(624,147	)		(857,004	)		(186,185	)
Net cash used in financing activities		(652,309	)		(598,349	)		(460,235	)		(99,986	)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS		2,414			837			(603	)		(131	)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR		1,360			3,774			4,611			1,002
CASH AND CASH EQUIVALENTS AT
END OF YEAR		3,774			4,611			4,008			871
SUPPLEMENTARY DISCLOSURE OF CASH
FLOW INFORMATION - cash paid during the year:
Interest		287,629			179,205			235,854			51,239
Advances to income tax authorities		3,750			4,900			30,840			6,700

Supplementary information on investing and financing activities not involving cash flows

At December 31, 2003, 2004 and 2005, trade payables include NIS 65.7 million, NIS 103.8 million and NIS 90.3 million ($ 19.6 million), respectively, in respect of acquisition of fixed assets. In addition, at December 31, 2004 and 2005 trade payables include NIS 13.8 million and NIS 27.7 million ($6.0 million) in respect of acquisition of additional spectrum, respectively.

At December 31, 2005, dividend payable of approximately NIS 45 million ($9.8 million) is outstanding.

These balances are recognized in the cash flow statements upon payment.

During 2005, the Company has undertaken a capital lease with respect to fixed assets in the amount of NIS15.8 million ($ 3.4 million)

The accompanying notes are an integral part of the financial statements.

F - 8

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES:

a. General:

Nature of operations:

1) Partner Communications Company Ltd. (“the Company”) operates a mobile telecommunications network in Israel. The Company launched its 3G network on December 1, 2004. As of April 20, 2005, the Company is a subsidiary of Hutchison Telecommunications International Limited (“HTIL”).

2) The Company was incorporated on September 29, 1997, and 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. The Company commenced full commercial operations on January 1, 1999.

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 an extension of the license for an additional period of six years and then renewal for one or more additional 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 third generation (3G) UMTS band (1900MHz and 2100MHz)). Following the award of the above spectrum, the Company’s license was amended and extended through 2022.

In consideration for the above additional spectrum the Company paid NIS 180 million ($ 39 million) for the 2G spectrum, and is committed to pay NIS 220 million ($ 48 million) for the 3G spectrum in six installments through 2006, of which approximately NIS 198 million (approximately $43 million) was paid as of December 31, 2005.

Under the terms of the amended license, the Company provided a guarantee in NIS equivalent of $ 10 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.

F - 9

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

a. General (continued):

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, 2005 and for the year then ended have been translated into dollars using the representative exchange rate of the dollar at December 31, 2005 ($1 = NIS 4.603). 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.

c. Inventories

Inventories of cellular telephones (handsets) and accessories are stated at the lower of cost or estimated net realizable value. Cost is determined on the “first-in, first-out”basis.

The Company determines its allowance for inventory obsolescence and slow moving inventory, based upon expected inventory turnover, inventory aging and current and future expectations with respect to product offerings.

d. Non-marketable securities

These investments are stated at cost, less provision for impairment losses, see note 2.

F - 10

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

e. Fixed assets:

1) These assets are stated at cost.

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.

During 2004, costs incurred relating to the 3G network, prior to the launch of the network, in the amount of NIS 23.4 million were capitalized.

3) Interest costs in respect of loans and credit which served to finance the construction or acquisition of fixed assets – incurred until installations of the fixed assets are 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 (including reasonably assured option periods), or the estimated useful life of the improvements, whichever is shorter.

5) Fixed assets leased by the Company under capital leases are classified as the Company’s assets and are recorded, at the inception of the lease, at the lower of the asset’s fair value or the present value of the minimum lease payments.

6) Computer Software Costs

The cost of internal-use software 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 - 11

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

f. License and deferred charges:

1) License:

The license (see also 1a(2) above) is stated at cost and is amortized by the straight-line method over the utilization period of the license starting January 1, 1999.

Following the extensions of the license (as described in note 1a(2) above) the unamortized 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 – over the period ending in 2022.

The costs relating to the 3G band are amortized as of December 1, 2004, by the straight-line method over the period ending in 2022.

Interest expenses which served to finance the license fee – incurred until the commencement of utilization of the license – were capitalized to cost of the license. During the years 2003 and 2004 – NIS 10 million and NIS 8 million interest costs were capitalized to the cost of the license, respectively.

2) Deferred charges:

a) Costs relating to the obtaining of long-term credit lines are deferred and amortized using the effective interest rate determined for the borrowing transactions over the life of line of credit.

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”. FAS 144 requires that long-lived assets, including certain intangible 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 written down to their estimated fair values.

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.

F - 12

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

j. Revenue recognition

Revenues from 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, net of credits and adjustments for services discounts. 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.

Emerging Issues Task Force (“EITF”) Issue 00-21, “Revenue Arrangements with Multiple Deliverables” addresses the accounting, by a vendor, for contractual arrangements in which multiple revenue-generating activities will be performed by the vendor. It is effective prospectively for all arrangements entered into in fiscal periods beginning after June 15, 2003. EITF Issue 00-21 addresses when and, if so, how an arrangement involving multiple deliverables should be divided into separate units of accounting. The Company adopted EITF Issue 00-21 in the year ended December 31, 2003. The adoption had no impact on its financial position and results of operations. Based on EITF 00-21, the Company determined that the sale of handsets with accompanying services constitutes a revenue arrangement with multiple deliverables. Accordingly consideration received for handsets, up to their fair value, that is not contingent upon the delivery of additional items (such as the services), is recognized as equipment revenues, when revenue recognition criteria for the equipment as stated above are met. Consideration for services is recognized as services revenues, when earned.

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 (including bad debts), determined as a percentage of specific debts doubtful of collection, based upon historical experience, for the years ended December 31, 2003, 2004 and 2005 totaled NIS 15,601,000, NIS 21,256,000 and NIS 28,739,000 ($ 6,244,000) (see note 13a), respectively.

The cash and cash equivalents as of December 31, 2005 are deposited mainly with leading Israeli banks. Therefore, in the opinion of the Company, the credit risk inherent in these balances is remote.

During 2003 and 2004, the Company factored most of its long-term trade receivables resulting from sales of handsets. The factoring was made through clearing companies, on a non-recourse basis. The sale 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 were charged to “financial expenses-net”, as incurred. During the years ended December 31, 2003, 2004 and 2005, the Company factored NIS 295,827,000, NIS 331,611,000 and NIS 7,834,000 ($1,702,000), respectively, from long-term trade receivables.

F - 13

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

l. Handsets warranty obligations

The provision for handsets warranty obligations is calculated at the rate of 1.5%-3.5% of the cost of the handsets sold, see note 13c. 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 warranty costs at the same time as the revenues are recognized.

m. Advertising expenses

Advertising expenses are charged to the statement of operations as incurred. Advertising expenses for the years ended December 31, 2003, 2004 and 2005 totaled NIS 99,061,000, NIS 115,909,000 and NIS 97,651,000 ($ 21,215,000), 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 applicable tax laws. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized (see note 10d).

Deferred tax assets and liabilities are presented as current or long-term items in accordance with the nature of assets or liabilities to which they relate. Deferred tax assets in respect of carryforward tax losses are presented as current or long-term assets, according to their expected utilization date.

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 amended, which 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. To date, the Company did not have any contracts that qualify for hedge accounting under FAS 133.

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 (see note 12).

F - 14

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

q. Earning Per Share (EPS)

Basic EPS is computed by dividing net income 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 employee stock options, calculated using the treasury-stock-method.

r. Stock based compensation

The Company accounts for employee stock based compensation under the intrinsic value model in accordance with Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. In accordance with FAS 123 – “Accounting for Stock-Based Compensation” (“FAS 123”), the Company discloses pro forma data assuming the group had accounted for employee stock option grants using the fair value-based method defined in FAS 123. As to the Recently issued revised FAS 123, see t. below. 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.

The weighted average fair value of options granted using the Black & Scholes option-pricing model during 2003, 2004 and 2005 is NIS 26.96, NIS 18.98 and NIS 21.36 ($4.64), 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 62%, 55% and 58%, respectively; risk-free interest rate: 2003 – 4.5%, 2004 – 4%, 2005 – 3.5%; weighted expected life: 2003 – 9 years; 2004 and 2005 – 5 years.

F - 15

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

The following table illustrates the effect on net income and EPS assuming the Company had applied the fair value recognition provisions of FAS 123 to its stock based employee compensation:

	Year ended December 31,
	2003			2004			2005			2005
	NIS									Convenience translation into dollars
	In thousands, except per share data
Net income, as reported		1,162,650			471,553			354,560			77,028
Add: stock based employee
compensation expense-net,
included in reported net
income - net of income taxes		3,313			10,122			8,023			1,743
Deduct: stock based employee
compensation expense-net,
determined under fair value
method for all awards - net of income
taxes		(12,225	)		(29,879	)		(30,978	)		(6,730	)
Pro-forma net income		1,153,738			451,796			331,605			72,041
Earning per share:
Basic - as reported		6.39			2.57			2.19			0.48
Basic - pro forma		6.34			2.46			2.05			0.45
Diluted - as reported		6.34			2.56			2.17			0.47
Diluted - pro-forma		6.31			2.46			2.03			0.44

s. Asset retirement obligations

The Company has adopted as of January 1, 2003 FAS 143 “Accounting for Asset Retirement Obligations” (“FAS 143”). FAS 143 requires that an asset retirement obligation (ARO) associated with the retirement of a tangible long lived asset be recognized as a liability in the period in which it is incurred and becomes determinable (as defined by the standard), with an offsetting increase in the carrying amount of the associated asset. The cost of the tangible asset, including the initially recognized ARO, is depreciated such that the cost of the ARO is recognized over the useful life of the asset.

The ARO is recorded at fair value, and the accretion expense will be recognized over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO is measured using expected future cash out flows discounted at the Company’s credit-adjusted risk-free interest rate.

The Company is subject to asset retirement obligations associated with its cell sites operating leases. These lease agreements contain clauses requiring restoration of the leased site at the end of the lease term, creating asset retirement obligations, see also note 13d.

F - 16

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

t. Recently issued accounting pronouncements:

1) FAS 123 (revised 2004) Share-based Payment

In December 2004, the Financial Accounting Standards Board (“FASB”) issued the revised Statement of Financial Accounting Standards (“FAS”) No. 123, Share-Based Payment (FAS 123R), which addresses the accounting for share-based payment transactions in which the company obtains employee services in exchange for (a) equity instruments of the company or (b) liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments .In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) regarding the SEC’s interpretation of FAS 123R.

FAS 123R eliminates the ability to account for employee share-based payment transactions using APB Opinion No. 25 – “Accounting for Stock Issued to Employees”, and requires instead that such transactions be accounted for using the grant-date fair value based method. This Statement will be effective for public companies at the beginning of their next fiscal year that begins after June 15, 2005 (first quarter of 2006 for the Company). Early adoption of FAS 123R is encouraged. This Statement applies to all awards granted or modified after the Statement’s effective date. In addition, compensation cost for the unvested portion of previously granted awards that remain outstanding on the Statement’s effective date shall be recognized on or after the effective date, as the related services are rendered, based on the awards’ grant-date fair value as previously calculated for the pro-forma disclosure under FAS 123.

The Company expects that upon the adoption of FAS 123R, as of January 1, 2006, the Company will apply the modified prospective application transition method, as permitted by the Statement. Under such transition method, upon the adoption of FAS 123R, the Company’s financial statements for periods prior to the effective date of the Statement will not be restated.

Compensation expense for outstanding awards for which the requisite service had not been rendered as of the effective date will be recognized over the remaining service period using the compensation cost calculated for pro-forma disclosure purposes under FAS 123. At December 31, 2005, unamortized compensation expenses related to outstanding unvested options, as determined under FAS 123, that the Company expect to record during 2006 was approximately NIS 20 million (net of forfeited rate).

F - 17

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

t. Recently issued accounting pronouncements (continued):

2) FAS 154 Accounting Changes and Error Corrections – a replacement of Accounting Principles Board Opinion (“APB”) No. 20 and FASB Statement No. 3. In June 2005, the Financial Accounting Standards Board issued FAS No. 154, "Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3". This Statement generally requires retrospective application to prior periods’ financial statements of changes in accounting principle. Previously, Opinion No. 20 required that most voluntary changes in accounting principle were recognized by including the cumulative effect of changing to the new accounting principle in net income of the period of the change.

FAS 154 applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. This Statement shall be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 (Year 2006 for the company). The Company does not expect the adoption of this statement will have a material impact on the Company’s results of operations, financial position or cash flows.

NOTE 2 – INVESTMENTS IN NON-MARKETABLE SECURITIES

The Company and its subsidiary had 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 supplied infrastructure and support services which the start-up companies need to develop their products, in consideration of options and shares in those companies.

Based on the financial position of the companies, management is of the opinion that the fair value of the securities granted to the Group, on the grant date and as of December 31, 2005 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 2003, the Company recorded an impairment loss of approximately NIS 3.5 million, in respect of the above investments.

As of December 31, 2004 and 2005, the balance of these investments was fully impaired.

F - 18

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 3 – FIXED ASSETS:

a. Composition of fixed assets – net, is as follows:

	December 31
	2004		2005		2005
	NIS				Convenience translation into dollars
	In thousands
Communications network		3,059,305		3,428,612		744,865
Computers, hardware and software for
information systems		607,283		707,776		153,764
Office furniture and equipment		37,069		37,699		8,190
Vehicles		2,121		427		93
Leasehold improvements		194,417		212,102		46,079
Cellular telephones - base stock		6,309		6,309		1,371
		3,906,504		4,392,925		954,362
Less - accumulated depreciation and amortization		2,063,322		2,624,030		570,070
		1,843,182		1,768,895		384,292

Depreciation and amortization in respect of fixed assets totaled NIS 469,205,000, NIS 482,390,000 and NIS 575,606,000 ($125,050,000) for the years ended December 31, 2003, 2004 and 2005, 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 or utilization of the related fixed assets) in respect of:

	December 31
	2004		2005		2005
	NIS				Convenience translation into dollars
	In thousands
Communications network		96,939		96,939		21,060
Computers, hardware and software for
information systems		15,920		15,920		3,459
		112,859		112,859		24,519
L e s s   -   accumulated depreciation		75,597		83,096		18,053
Depreciated balance		37,262		29,763		6,466

c. As to pledges on the fixed assets – see note 11.

F - 19

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 4 – LICENSE AND DEFERRED CHARGES:

	December 31
	2004		2005		2005
	NIS				Convenience translation into Dollars
	In thousands
License (note 1a(2))		1,992,455		2,047,843		444,893
Less - accumulated amortization		693,823		773,079		167,951
		1,298,632		1,274,764		276,942
Deferred charges - in respect of:
Obtaining long-term credit lines		55,996		69,816		15,168
Notes payable		22,017		34,265		7,444
		78,013		104,081		22,612
Less - accumulated amortization		51,053		57,678		12,531
		26,960		46,403		10,081
		1,325,592		1,321,167		287,023

License amortization expenses for the years ended December 31, 2003, 2004 and 2005 totaled NIS 58,408,000, NIS 63,931,000 and NIS 79,255,000 ($17,218,000), respectively.

Amortization expenses on deferred charges for the years ended December 31, 2003, 2004 and 2005 totaled NIS 9,258,000 NIS 11,901,000 and NIS 28,642,000 ($ 6,222,000), respectively – 2005 – includes NIS 11,064,000 ($2,404,000) in respect of the redemption of the Notes, see also note 6b.

The expected license amortization expenses for the next five years are as follows:

	NIS		Convenience translation into dollars
	In thousands
Year ended December 31:
2006		79,255		17,218
2007		79,255		17,218
2008		79,255		17,218
2009		79,255		17,218
2010		79,255		17,218

F - 20

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 – LONG-TERM BANK LOANS

On April 14, 2005 the Company entered into a new $550 million bank credit facility. The facility is divided into two tranches: a six year $450 million term loan facility (“Facility A”) and a six year $100 million revolving loan facility (“Facility B”), and is secured by a first ranking floating charge on the Company’s assets. Bank Hapoalim B.M., Bank Leumi Le-Israel B.M. and Israel Discount Bank Ltd. are providing the facility, in which United Mizrahi Bank Ltd. is also participating. The new credit facility replaced the Company’s previous facility.

With effect May 1, 2005, the Company exercised an option to reduce Facility A to $150 million (in addition to an advance of approximately $25 million carried over from the Company’s previous facility, which on balance sheet date, was reduced to $18 million), and to change the final maturity date of both facilities to September 1, 2009. As a result, the total maximum availability under the new credit facility is approximately $268 million.

The amount drawn from Facility A is to be repaid in yearly installments with a final maturity of September 1, 2009. Facility B may be drawn and repaid until September 1, 2009.

The credit facility is a dollar denominated facility, and advances may be drawn in different currencies, see c. below.

a. Status of the credit facility at December 31, 2005 is as follows:

	Total availability		Amounts drawn		Amounts available for drawing
	US Dollars in millions
Facility A		168		140		28
Facility B		100		12		88
		268	*	152		116

b. The amounts outstanding, classified by linkage terms and interest rates, are as follows:

	December 31,	December 31
	2005	2004		2005		2005
	Weighted average interest rates	Amount
	%	NIS				Convenience translation into dollars
		In thousands
In NIS - linked to the Israeli
consumer price index (CPI) (1)	5.8		358,088		337,283		73,274
In NIS - unlinked (2)	5.5		827,000		359,000		77,993
			1,185,088		696,283	*	151,267
Less - current maturities					30,309		6,585
			1,185,088		665,974		144,682

(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 difference between the amounts displayed is the difference in exchange rates between the date the amounts were drawn and that at the balance sheet date.

F - 21

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 – LONG-TERM BANK LOANS (continued):

c. Facilities A and B, may be drawn in NIS or US dollars, provided that the amount of principal outstanding in US dollars under the credit facility with respect to each participating lender shall not exceed 10% of that lender’s total commitment unless otherwise agreed in advance.

d. There is a range of options as to how interest is calculated on borrowings under the credit facility. These options include fixed and variable rates, based upon the lending rates of each participating banks with a margin of 0.85%.

e. The total commitments under the Facilities will be reduced during each of the following years to the following amounts:

		US Dollars in millions
		A		B		Total
December	2006		161		100		261
	2007		104		100		204
	2008		50		100		150
September 1,	2009		0		0		0

f. Under the credit 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. Under the credit facility, the Company has undertaken not to make distributions to its shareholders, including dividends, unless it complies with certain financial ratios specified in the Agreement or as otherwise agreed by the banks. The Company believes that it is in compliance with all covenants stipulated in the credit facility.

g. As to pledges to secure loans and liabilities and other restrictions placed with respect thereto, see note 11.

NOTE 6 – NOTES PAYABLE:

a. On March 31, 2005, the Company completed an offering of NIS 2,000 million of unsecured notes, which were issued at their NIS par value. The notes have been registered in Israel and are traded on the Tel-Aviv stock exchange (TASE). Of these notes approximately NIS 36.5 million were purchased by Partner Future Communications 2000 Ltd., (“PFC”) a wholly owned subsidiary of the Company.

The net proceeds from the offering were approximately NIS 1,929 million (approximately $419 million) after deducting the notes purchased by PFC, commissions and offering expenses.

The principal amount of the Notes is payable in 12 equal quarterly installments, beginning June 30, 2009 until March 31, 2012. The Notes bear NIS interest at the rate of 4.25% per annum, linked to the Israeli Consumer Price Index, which is payable quarterly on the last day of each quarter, commencing June 30, 2005.

F - 22

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6 – NOTES PAYABLE (continued)

On December 31, 2005, the Notes closing price was 101.63 points par value.

Commission fees and offering expenses in respect of the offering of the Notes totaled approximately NIS 34 million. These expenses are presented as deferred charges and the amortization in respect thereof is included in “financial expenses, net”.

b. On August 10, 2000, the Company completed an offering of $ 175 million of unsecured 13% Senior Subordinated Notes due 2010, which were issued at their dollar par value. The notes were registered under the U.S. Securities Act of 1933.

On August 15, 2005, the Company exercised it right to redeem the notes at a redemption price of 106.5% of their dollar par value – according to the option stipulated in the Notes document. As a result of the redemption of the Notes the Company has recognized as financial expenses an amount of approximately NIS 63 million (approximately $ 14), which after tax resulted in a decrease of the Company’s net income of NIS 42 million.

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, 2003, 2004 and 2005 were approximately NIS 20 million, NIS 27 million and NIS 24 million (approximately $ 5 million), respectively.

c. Cash flows information regarding the company’s liability for employee rights upon retirement:

1. The Company expects to contribute NIS 21 million ($ 4.6 million) in respect of severance pay in 2006.

2. Due to the relatively young age of the Company’s employees, benefit payments to employees reaching retirement age in the next 10 years, are not material. The amounts were determined based on the employees’ current salary rates and the number of service years that will accumulate upon their retirement date. These amounts do not include amounts that might be paid to employees who will cease working for the Company before their normal retirement age.

F - 23

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 – COMMITMENTS AND CONTINGENCIES:

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 income of the Company from the granting of Bezeq services under the license – including airtime, roaming services and non-recurring connection fees, but excluding income transferred to another holder of a communications license and deducting bad debts, payments to another communication licensee in respect of interconnection, payments for roaming services to foreign operators and expenses related to the sale of 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 , 4% in 2003 and 3.5% in 2004 and thereafter. In addition, the basis in respect of which the royalties are paid has been expanded (as described above). During 2004, a further redaction was approved; accordingly, the rate of royalty payments paid by cellular operators will be reduced annually by 0.5%, starting January 1st 2006, to a level of 1%.

The royalty expenses for the years ended December 31, 2003, 2004 and 2005 were approximately NIS 119,387,000, NIS 120,131,000 and NIS 122,599,000 ($ 26,635,000), respectively, and are included under “cost of services revenues”.

2) Under the Telegraph Regulations the Company is committed to pay an annual fixed fee for each frequency used. The Company paid a total amount of approximately NIS 31 million, NIS 31 million and NIS 47 million, for the year 2003, 2004 and 2005, respectively. Under the above Regulations should the Company choose to return a frequency such payment is no longer due.

3) Operating leases

The Company has entered into operating lease agreements as follows:

a) Lease agreements for its headquarters facility in Rosh Ha’ayin for a fifteen-year period (until 2018). The Company has an option to shorten the lease periods by 3.5 to 8.5 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. Some of the extension options include an increase of the lease payment in a range of 2%-10%.

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 years (including the original lease periods). The rental payments fees are partly linked to the dollar and are partly linked to the Israeli CPI. Some of the extension options include an increase of the lease payment in a range of 2%-10%.

F - 24

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 – COMMITMENTS AND CONTINGENCIES (continued):

d) Operating lease agreements in respect of vehicles are for periods of three years. The rental payments are linked to the Israeli CPI.

e) The minimum projected rental payments (including the payments in the periods of the reasonably assured option terms) for the next five years, at rates in effect at December 31, 2005, are as follows:

	NIS		Convenience translation into dollars
	I n   t h o u s a n d s
Year ended December 31:
2006		160,579		34,886
2007		140,537		30,532
2008		121,107		26,310
2009		94,325		20,492
2010		79,491		17,269
2011 and thereafter		329,477		71,579
		925,516		201,068

f) The rental expenses for the years ended December 31, 2003, 2004 and 2005 were approximately NIS 163 million, NIS 176 million, and NIS 185 million ($ 40 million), respectively.

4) At December 31, 2005, the Company is committed to acquire fixed assets, for approximately NIS 114 million (approximately $ 25 million).

5) At December 31, 2005, the Company is committed to acquire handsets for approximately NIS 160 million (approximately $ 35 million).

6) As to cost sharing agreement with Hutchison Telecommunications Limited, see note 14c.

7) The Company has signed on January 22, 2006, an agreement with MED I.C.- 1 (1999) Ltd (“Med 1”) to purchase the transmission business activity of MED 1, for a consideration of approximately $15 million, subject to certain adjustments. The transaction is subject to fulfillment of the closing conditions.

b. Contingent Liabilities:

1) On April 8, 2002, a claim was filed against the Company, together with a motion to certify 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 relating to other alleged damages. Only preliminary hearings have taken place. The Company submitted its response to the amended motion to certify the claim as a class action on August 1, 2005. A hearing is scheduled to May 16, 2006.

F - 25

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 – COMMITMENTS AND CONTINGENCIES (continued):

At this stage, and until the claim is recognized as a class action, the Company and its legal council 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 council are of the opinion that even if the request to recognize 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.

2) On April 13, 2003, a claim was filed against the Company and other cellular telecommunication companies, together with a request to recognize this claim as a class action, for alleged violation of antitrust law, alleging that no fee should have been collected for incoming SMS messages or alternatively, that the fee collected is excessive and that it is a result of illegal co-operation between the defendants. The amount of the claim against all the defendants is estimated at approximately NIS 90 million (or according to the claimant’s response – NIS 100 million per year until 1.3.2005). The Company filed its response on October 1, 2003. The claimants have filed their response to the Company’s response on July 12, 2005. A hearing is scheduled for April 26, 2006.

At this stage, no hearings have taken place and unless and until the claim is recognized as a class action, the Company and its legal council are unable to evaluate the probability of success of such claim, and therefore no provision has been made.

3) 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.

4) Section 197 of the Building and Planning Law states that a property owner has the right to be compensated by a local planning committee for reductions in property value as a result of a new building plan. On January 3, 2006, the National Council for Planning and Building published an interim decision conditioning the issuance of cell site permits by local planning and building councils upon indemnification, by the cellular operators, against reduction in property value. The Company provided to local authorities 24 letters of undertaking to provide such indemnifications for the benefit of the local authority within 30 days from the enactment of a law or a final court decision requiring such indemnifications. Management, based on the opinion of legal counsel, cannot at this date, determine the effect, if any, of the above letters of undertaking on the financial results and financial position of the Company.

5) 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, its result of operations and cash flows. The accounts do not include a provision in respect thereof.

F - 26

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – SHAREHOLDERS’ EQUITY:

a. Share capital:

The Company’s shares are traded on the Tel-Aviv stock exchange (TASE), on the London Stock Exchange (“LSE”) and, in the form of American Depository Receipts (“ADRs”), each represent one ordinary share, on the NASDAQ National Market (“Nasdaq – NM”). During 2001, the Company listed its shares in the TASE according to the dual listing regulations. On December 31, 2005, the closing price per ADR on the Nasdaq – NM was $8.41; the Company’s shares were quoted on that date on the TASE at NIS 38.73 ($8.20).

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.

On April 20, 2005, the Company repurchased approximately 33.3 million of its shares pursuant to an offer received from its founding Israeli Shareholders in February 2005. These shareholders held together approximately 22.5% of the Company’s outstanding shares at the time of the offer. As a result of the repurchase, the collective shareholdings of the founding Israeli shareholders was reduced to approximately 5.4% of the Company’s issued and outstanding share capital. The price per share at which these shares were acquired was NIS 32.2216 per share. The shares were cancelled pursuant to the repurchase. The excess of cost over its par value was charged to accumulated deficit.

b. Employee stock option plans:

1) a. On March 3, 1999, the Company’s Board of Directors approved an employee stock option plan (hereafter – the “1998 Plan”), 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 729,166 options were later cancelled. Through December 31, 2005 – 5,505,557 options have been granted pursuant to the 1998 Plan, of which 4,475,942 options have been exercised and 597,141 options have been forfeited (options forfeited were available for subsequent grants).

The options vest in five equal annual batches over a period of five years from the beginning 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 the 1998 Plan in accordance with the terms of the 2000 plan, including the exercise price, vesting schedule and expiration date (see b. below).

As of December 31, 2005 – 195,751 options of the 1998 Plan remain ungranted.

F - 27

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – SHAREHOLDERS’EQUITY (continued):

b. In October 2000, the Company’s Board of Directors approved an employee stock option plan (hereafter – the “2000 Plan”), 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. The options 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. 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 fixed by the Employee Stock Option Committee and will not exceed ten years from the date of option grant.

The NIS denominated exercise price per share of the options, is equal to the market price of the Company’s shares on the date on which the options are granted.

During November 2003, 419,930 options of this plan were transferred to options under the 2003 amendment Plan (see c. below).

Through December 31, 2005 – 5,317,555 options were granted pursuant to the 2000 Plan, of which 2,223,891 options have been exercised, 1,407,833 options were forfeited and 102,250 expired (options forfeited and expired were available for subsequent grants). As of December 31, 2005 – 244,820 options of the 2000 Plan remain ungranted.

c. On November 13, 2003, the Company’s Board of Directors approved an amendment to the terms and provision of the 2000 Plan, in order to adjust the terms of the 2000 Plan to comply with new tax legislation that came into force in January 2003. On December 2003, the Company offered the employees, who received options under the 2000 plan, to exchange their unvested options, with the same amount of identical options, under the amended plan and to benefit from the capital gain’s tax route pursuant to Section 102(b)(2) of the Israeli Income Tax Ordinance. Employees holding options to purchase 962,104 ordinary shares accepted this offer.

On December 30, 2003, the Company’s Board of Directors approved the grant of 195,000 options (out of the 419,930 options that were transferred from the 2000 Plan) under the 2003 amended Plan with an exercise price of NIS 20.45 – which was less than the market price on the date of grant. As of December 31, 2005 – 224,930 options of the 2003 amended Plan remain ungranted.

d. In July 2004, the Company’s Board of Directors approved a stock option plan (hereafter – the “2004 Plan”), pursuant to which 5,775,000 ordinary shares were reserved for issuance upon the exercise of 5,775,000 options to be granted without consideration. The options will be granted to employees under the provisions of the capital gain’s tax route provided for in Section 102 of the Israeli Income Tax Ordinance. The options vest in four equal annual batches, provided the employee is still in the Company’s employ. 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 fixed by the Employee Stock Option Committee and will not exceed ten years from the date of option grant.

F - 28

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – SHAREHOLDERS’EQUITY (continued):

Through December 31, 2005 – 5,614,000 options have been granted to Company’s employees pursuant to the 2004 Plan, of which 257,500 options have been exercised and 500,750 options were forfeited.

As of December 31, 2005 – 661,750 options of the 2004 Plan remain ungranted.

The NIS denominated exercise price per share of the options, is equal to the average market price of the Company’s shares for the 30 trading days preceding the day on which the options are granted, less 15%.

e. The ordinary shares derived from the exercise of the options confer the same rights as the other ordinary shares of the Company.

f. The plans are subject to the terms stipulated by Section 102 of the Israeli Income Tax Ordinance. Inter alia, these terms provide that the Company will be allowed to claim, as an expense for tax purposes, the amounts credited to the employees as a benefit in respect of shares or options granted under the plans, as follows:

Through December 31, 2003, the amount that the Company will be allowed to claim as an expense for tax purposes will be the amount of the benefit taxable in the hands of the employee.

From January 1, 2004, the amount that the Company will be allowed to claim as an expense for tax purposes, will be the amount of the benefit taxable as work income in the hands of the employee, while that part of the benefit that is taxable as capital gains in the hands of the employee shall not be allowable. All the above is subject to the restrictions specified in Section 102 of the Income Tax Ordinance.

The aforementioned expense for tax purposes will be recognized in the tax year that the employee is taxed, except as described below.

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 return, the Company will defer the deduction of such an expense, for a period of 4 years from the date it commences paying income taxes.

The agreement applies only to employees who have agreed to participate in the arrangement, and relates to (1) options that were 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 Section 102 trustee must have held the options for a period of 24 months from the date on which they were granted.

F - 29

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – SHAREHOLDERS’EQUITY (continued):

2) Following is a summary of the status of the plans as of December 31, 2003, 2004 and 2005 and the changes therein during the years ended on those dates:

	Year ended December 31
	2003					2004					2005
	Number			Weighted average exercise price*		Number			Weighted average exercise price*		Number			Weighted average exercise price*
				NIS					NIS					NIS
Balance outstanding at beginning
of year		6,611,110			18.00		5,340,970			19.95		8,911,305			24.12
Changes during the year:
Granted**		195,000			20.45		5,095,500			26.74		518,500			32.75
Exercised		(1,100,352	)		7.06		(1,341,647	)		17.67		(1,809,000	)		19.21
Forfeited		(304,538	)		23.03		(169,768	)		21.86		(525,750	)		26.44
Expired		(60,250	)		26.28		(13,750	)		27.35		(28,250	)		21.49
Balance outstanding at end of year		5,340,970			19.95		8,911,305			24.12		7,066,805			25.85
Options exercisable at end of year		3,504,914			19.35		3,424,675			21.29		2,838,928			23.83

* Includes options under the 1998 Plan, the exercise price of which is weighted based on the applicable date’s NIS – dollar exchange rate.

** Below market price.

The following table summarizes information about options outstanding at December 31, 2005:

Options outstanding							Options exercisable
Range of exercise prices	Number outstanding at December 31, 2005		Weighted average remaining contractual life		Weighted average exercise price		Number exercisable at December 31, 2005		Weighted average exercise price
NIS			Years		NIS				NIS
1.58		187,109		0.7		1.58		187,109		1.58
17.25-22.23		854,856		5.3		20.45		700,354		20.42
26.74		4,341,500		8.9		26.74		743,375		26.74
27.35		1,169,090		3.8		27.35		1,169,090		27.35
30.73-33.72		514,250		9.2		32.77		39,000		30.73
		7,066,805		7.4		25.85		2,838,928		23.83

F - 30

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – SHAREHOLDERS’EQUITY (continued):

c. Dividends

On September 13, 2005, the Company’s shareholders approved the distribution of a cash dividend in the amount of NIS 0.57 per share (approximately NIS 86.8 million ($ 18.9 million)) to shareholders on record as of September 26, 2005.

On February 1, 2006, the Company’s Board of Directors resolved and recommended the distribution of a cash dividend in the amount of NIS 0.65 per share (approximately NIS 100 million ($ 22 million)) to shareholders on record as of April 10, 2006. The Dividend payment is subject to the approval of the Company’s shareholders.

A cash dividend is paid in Israeli currency.

As to restrictions with respect to cash dividend distributions, see note 5f.

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 Israeli subsidiaries (other than income from “approved enterprises”, see c. below) is taxed at the regular rate. Through December 31, 2003, the corporate tax was 36%. In July 2004, Amendment No. 140 to the Income Tax Ordinance was enacted. One of the provisions of this amendment is that the corporate tax rate is to be gradually reduced from 36% to 30%. In August 2005, a further amendment (No. 147) was published, which makes a further revision to the corporate tax rates prescribed by Amendment No. 140. As a result of the aforementioned amendments, the corporate tax rates for 2004 and thereafter are as follows: 2004 – 35%, 2005 –34%, 2006 – 31%, 2007 – 29%, 2008 – 27%, 2009 – 26% and for 2010 and thereafter – 25%.

As a result of the changes in the tax rates, the company adjusted – in each of the years 2004 and 2005 – at the time the aforementioned amendments were made, its deferred tax balances, in accordance with the tax rates expected to be in effect in the coming years; the effect of the change has been carried to income on a current basis.

c. Losses carried forward to future years

At December 31, 2005, the Group had carryforward losses of approximately NIS 111 million (approximately $ 24 million). The carryforward tax losses are linked to the Israeli CPI and can be utilized indefinitely.

F - 31

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10 – TAXES ON INCOME (continued):

d. Deferred income taxes

The major components of the net deferred tax asset, current and non-current, in respect of the balances of temporary differences and the related valuation allowance as of December 31, 2004 and 2005, are as follows:

	December 31
	2004			2005			2005
	NIS						Convenience translation into dollars
	In thousands
In respect of carryforward tax
losses (see c. above)		239,894			33,566			7,292
Subscriber acquisition costs		39,976			31,233			6,786
Allowance for doubtful accounts		28,595			32,640			7,091
Provisions for employee rights		15,297			14,842			3,224
Depreciable fixed assets		(31,053	)		(25,533	)		(5,547	)
Amortized license		52,619			42,074			9,141
Options granted to employees		9,614			24,331			5,286
Other		697			1,952			424
		355,639			155,105			33,697
Valuation allowance - in respect of
carryforward tax losses		(5,694	)		(3,239	)		(704	)
		349,945			151,866			32,993

The changes in the valuation allowance for the years ended December 31, 2003, 2004, and 2005, are as follows:

	2003			2004			2005			2005
	NIS									Convenience translation into dollars
	In thousands
Balance at beginning of year		823,072			8,555			5,694			1,237
Utilization during the year		(161,541	)		(2,107	)
Change during the year		(652,976	)		(754	)		(2,455	)		(533	)
Balance at end of year		8,555			5,694			3,239			704

During 2004 and 2005, the Company utilized approximately NIS 700 million and approximately NIS 549 million ($ 119 million) of its carryforward tax losses, respectively.

As of December 31, 2005, the Company would require approximately NIS 98 million of future taxable income in order to fully realize the carryforward tax losses assets.

A full valuation allowance was provided in respect of the wholly owned subsidiary, as it is more likely than not that its deferred tax assets will not be realized.

F - 32

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10 – TAXES ON INCOME (continued):

e. Following is a reconciliation of the theoretical tax expense, assuming all income is taxed at the regular tax rates applicable to companies in Israel (see b. above), and the actual tax expense:

	Year ended December 31
	2003			2004			2005			2005
	NIS									Convenience translation into dollars
	In thousands
Income before taxes on income,
as reported in the income statements		529,628			758,801			557,458			121,108
Theoretical tax expense		190,666			265,580			189,536			41,177
Increase in taxes resulting from adjustment to
deferred tax balances due to changes in
tax rates, see b above					34,521			11,442			2,486
Difference between the basis of measurement
of income reported for tax purposes and
the basis of measurement of income for
financial reporting purposes - net					(10,124	)		(86	)		(19	)
Decrease in taxes in respect of valuation
allowance reversal		(652,976	)
Decrease in taxes resulting from utilization,
in the reported year, of carryforward
tax losses for which deferred taxes
were not created in previous years		(161,541	)		(2,107	)
Other		(9,171	)		(622	)		2,006			436
Taxes on income for the reported year		(633,022	)		287,248			202,898			44,080

f. Tax assessments:

1) The Company has received final assessment through the year ended December 31, 2001.

2) The subsidiary has not been assessed for tax purposes since incorporation.

NOTE 11 – LIABILITIES SECURED BY PLEDGES AND RESTRICTIONS PLACED IN RESPECT OF LIABILITIES

At December 31, 2005, balances of liabilities of the Company in the amount of NIS 696 million ($ 151 million) under the Company’s credit facility are pledged as a collateral by a first ranking floating charge on all of the Company’s current or future business, property, rights and assets, other than the its license. The Company has also undertaken under the credit facility not to create or permit to subsist any further charges on its assets, with certain limited exceptions.

F - 33

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 12 – FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:

a. Linkage of monetary balances:

1) As follows:

	December 31, 2005
	In or linked to foreign currencies (mainly dollars)		Linked to the Israeli CPI		Unlinked
	In thousands
NIS:
Assets		628		56,348		1,014,943
Liabilities		186,865		2,363,203		1,030,248
Convenience translation into
dollars:
Assets		136		12,242		220,496
Liabilities		40,596		513,405		223,821

2) Data regarding the dollar exchange rate and the Israeli CPI:

	Exchange rate of one dollar	Israeli CPI*
At December 31:
2005	NIS 4.603	185.05 points
2004	NIS 4.308	180.74 points
2003	NIS 4.379	178.58 points
2002	NIS 4.737	182.01 points
Increase (decrease) during the year:
2005	6.8%	2.4%
2004	(1.6)%	1.2%
2003	(7.6)%	(1.9)%

* Based on the index for the month ending on each balance sheet date, on the basis of 1993 average = 100.

F - 34

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 12 – FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued):

b. Derivative financial instrument – foreign exchange risk management

The Company enters into foreign currency derivative transactions in order to protect itself against the risk that the eventual dollar cash flows resulting from the anticipated payments in respect of purchases of handsets and capital expenditures in foreign currency will be affected by changes in exchange rates. In addition the Company enters into derivative transactions in order to protect itself against the increase in the CPI in respect of the principal of the CPI-linked Notes payable. However, these contracts do not qualify for hedge accounting under FAS 133.

The Company does not hold or issue derivative financial instruments for trading purposes.

As the counterparties to the derivatives are Israeli banks, the Company considers the inherent credit risks remote.

The notional amounts of foreign currency derivatives as of December 31, 2004 and 2005 are as follows:

	December 31
	2004		2005		2005
	NIS				Convenience translation into dollars
	(In millions)
Forward transactions for the
changes in the Israeli CPI				1,500		326
Forward transactions for the
exchange of dollars into NIS		*1,094		129		28
Embedded derivatives -
dollars into NIS		132		183		40

* On August 2004, the Company entered into a forward transaction that hedged the Notes payable principal ($ 175 million) until August 2005.

The derivative financial instruments are for a period of up to one year. As of December 31, 2005, the remaining contractual lives are for periods up to one year.

F - 35

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 12 – FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued):

c. Fair value of financial instruments

The financial instruments of the Company as of December 31, 2005 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, 2005, is a liability of approximately NIS 7 million (approximately $1.5 million) and an asset of approximately NIS 5.1 million (approximately $1.1 million) (December 31, 2004 – a liability of approximately NIS 55.3 million).

NOTE 13 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:

a. Accounts receivable:

	December 31
	2004			2005			2005
	NIS						Convenience translation into dollars
	In thousands
1) Trade (current and long-term)
The item is presented after the deduction of:
(a) Deferred interest income*		(16,968	)		(35,946	)		(7,809	)

* Long-term trade receivables (including current maturities) as of December 31, 2004 and 2005 in the amount of NIS 184,706,000 and NIS 406,072,000 ($ 88,219,000), 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 present value of the trade receivable. The current amount is computed on the basis of the interest rate relevant to the date of the transaction (5% – 5.4%) (2004 – 5% –5.9%).

    (b) Allowance for doubtful accounts. The changes in the allowance for the years ended December 31, 2003, 2004, and 2005, are as follows:

	2003			2004			2005			2005
	NIS									Convenience translation into dollars
	In thousands
Balance at beginning of year		74,622			77,295			86,651			18,825
Utilization during the year		(12,928	)		(11,900	)		(6,590	)		(1,432	)
Change during the year		15,601			21,256			28,739			6,244
Balance at end of year		77,295			86,651			108,800			23,637

F - 36

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

2) Other:

	December 31
	2004		2005		2005
	NIS				Convenience translation into dollars
	In thousands
Government institutions		24,183		51,340		11,154
Prepaid expenses		14,248		13,386		2,908
Sundry		31,727		32,402		7,039
		70,158		97,128		21,101

b. Accounts payable and accruals – other:

	December 31
	2004		2005		2005
	NIS				Convenience translation into dollars
	In thousands
Employees and employee institutions		87,537		81,501		17,706
Provision for vacation and recreation pay		22,844		22,827		4,959
Value added tax		45,830		38,332		8,328
Income received in advance		53,019		58,655		12,743
Accrued interest on long-term liabilities		39,553		22,654		4,922
Derivative instruments		55,331		5,138		1,116
Handsets warranty		1,734		1,064		231
Sundry		1,516		1,309		284
		307,364		231,480		50,289

c. Provision for warranty – the changes in the provision for warranty for the years ended December 31, 2003, 2004, and 2005, are as follows:

	2003			2004			2005			2005
	NIS									Convenience translation into dollars
	In thousands
Balance at beginning of year		2,589			2,053			1,734			377
Product warranties issued for
new sales		4,215			2,943			2,420			525
Utilization during the year		(4,751	)		(3,262	)		(3,090	)		(671	)
Balance at end of year		2,053			1,734			1,064			231

F - 37

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

d. Other liabilities:

1. Asset retirement obligations – the changes in the asset retirement obligations for the years ended December 31, 2003, 2004 and 2005, are as follows:

	2003			2004			2005			2005
	NIS									Convenience translation into dollars
	In thousands
Balance at January 1,		4,665			6,367			7,567			1,644
Liability incurred
during the year		626			833			682			148
Liability settled during
the year		(341	)		(271	)		(751	)		(163	)
Accretion expenses		296			638			659			143
Revision in the estimates
during the year		1,121
Balance at December 31,		6,367			7,567			8,157			1,772

2. Capital lease:

	December 31, 2005
	NIS		Convenience translation into U.S dollars
	In thousands
Total commitment		17,018		3,697
Less - deferred interest expenses		1,836		399
Long term lease		15,182		3,298
Less - current maturities		4,155		902
		11,027		2,396

The lease is linked to the US dollar and bears interest at the rate of 5.75%. The lease (net of current maturities) mature in the following years after the balance sheet dates:

	December 31
	NIS		Convenience translation into U.S dollars
	NIS in thousands
Second year		4,175		907
Third year		4,486		975
Fourth year		2,366		514
		11,027		2,396

F - 38

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

e. Financial expenses, net:

	Year ended December 31
	2003			2004			2005			2005
	NIS									Convenience translation into dollars
	In thousands
Financial income		(1,952	)		(3,521	)		(5,934	)		(1,289	)
Financial expenses		320,771			203,115			214,741			46,652
Expenses relating to the
redemption of notes, note 6b								62,615			13,603
Derivative instruments		59,580			63,356			(45,492	)		(9,883	)
Exchange rate differences		(59,168	)		(8,978	)		49,839			10,828
CPI Linkage differences		(4,554	)		2,285			69,029			14,996
Factoring costs		17,111			17,459			650			141
Less - capitalized interest		(10,078	)		(13,171	)
		321,710			260,545			345,448			75,048

f. Diluted EPS

Following are data relating to the net income and the weighted average number of shares that were taken into account in computing the basic and diluted EPS:

	Year ended December 31
	2003		2004		2005		2005
	NIS						Convenience translation into dollars
	In thousands
Net income used for the computation of
basic and diluted EPS (in thousands)		1,162,650		471,553		354,560		77,028
Weighted average number of shares used
in computation of basic EPS		181,930,803		183,389,383		161,711,125		161,711,125
Add - net additional shares from assumed
exercise of employee stock options		1,312,354		719,534		1,906,147		1,906,147
Weighted average number of shares used in
computation of diluted EPS		183,243,157		184,108,917		163,617,272		163,617,272

F - 39

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 14 – TRANSACTIONS AND BALANCES WITH RELATED PARTIES:

a. Transactions with related parties:

	Year ended December 31
	2003		2004		2005		2005
	NIS						Convenience translation into dollars
	I n   t h o u s a n d s
Purchase of fixed assets from related party				4,678
Acquisition of handsets from related
parties		203,675		380,721		180,412		39,194
Financial expenses, mainly in respect
of the Facility agreement, net		67,906		55,048		7,145		1,552
Selling commissions, maintenance and
other expenses		7,458		4,116		14,221		3,090
Dividend						44,996		9,775

As to the repurchase of Company’s share, see note 9a.

The transactions are carried out in the ordinary course of business. Management believes that such transactions were carried out under normal market conditions.

b. Balances with related parties:

	December 31
	2004		2005		2005
	NIS				Convenience translation into dollars
	I n   t h o u s a n d s
Cash and cash equivalents		4,136
Accounts receivable trade				1,273		277
Current liabilities		15,314		58,173		12,638
Long-term liabilities		316,166

c. Cost sharing agreement

The Company entered, on August 15, 2002, into a Cost Sharing Agreement (the “Agreement”) with Hutchison Telecommunications Limited, or HTL, and certain of its 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 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, 2005, the Company had given notice of its participation in 7 projects. The Company’s expected share in these projects in financial terms (including its share of joint expenses and liabilities) is not material.

NOTE 15 – UNAUDITED SUBSEQUENT EVENT:

On April 4, 2006, a claim was filed against the Company, together with a motion requesting certification as a class action, alleging a variety of customer complaints relating primarily to alleged breach of one of the Company’s tariff plan and the termination of such plan as well as the amendment of the terms of other tariff plans. The amount of the claim, should the claim is certified as a class action, is approximately NIS 18.9 million for all customers subscribed to six tariff plans which Partner allegedly changed during the last seven years. The Company is currently preparing their response to this motion.

At this stage, no hearings have taken place, and unless and until the claim is recognized 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.

F - 40

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
——————————————
Alan Gelman
Chief Financial Officer
May 18, 2006

BY: /S/ Amikam Cohen
——————————————
Amikam Cohen
Chief Executive Officer
May 18, 2006

EX-1.1

Exhibit 1.1

Articles of Association

of

Partner Communications Company Ltd.

Table of Contents

Chapter One - General 3 

1.	Definitions and Interpretation	3
2.	Public Company	5
3.	The Purpose of the Company	5
4.	The Objectives of the Company	5
5.	Limited Liability	5

Chapter Two - The Share Capital of the Company 6 

6.	Share Capital	6
7.	The Issuance of Shares and Other Equity Securities	6
8.	Calls for Payment	7
9.	The Shareholder Registers of the Company and the Issuance of Share Certificates	8
10.	Transfer of Shares of the Company	9
10A.	Limitations on Transfer of Shares	11
10B.	Required Minimum Holdings	13
11.	Bearer Share Certificate	13
12.	Pledge of Shares	13
13.	Changes in the Share Capital	14

Chapter Three - General Meetings 16 

14.	The Authority of the General Meeting	16
15.	Kinds of General Meetings	17
16.	The Holding of General Meetings	18
17.	The Agenda of General Meetings	19
18.	Discussions in General Meetings	20
19.	Voting of the Shareholders	21
20.	The Appointment of a Proxy	23
21.	Deed of Vote, Voting Via the Internet	25

Chapter Four - The Board of Directors 25 

22.	The Authority of the Board of Directors	25
23.	The Appointment of Directors and the Termination of Their Office	26
24.	Actions of Directors	30
25.	Committees of the Board of Directors	33
25A.	Committee for Security Matters	33
25B.	Approval of Certain Related Party Transactions	35
26.	Chairman of the Board of Directors	35

Chapter Five - Officers who are not Directors and the Auditor 36 

27.	The General Manager	36
28.	The Corporate Secretary, Internal Controller and Other Officers of the Company	38
29.	The Auditor	39

Chapter Six - The Share Capital of the Company and its Distribution 40 

30.	Permitted Distributions	40
31.	Dividends and Bonus Shares	40
32.	The Acquisition of Shares	44

Chapter Seven - Insurance, Indemnification and Release of Officers 44 

33.	Insurance of Officers	44
34.	Indemnification of Officers	45
35.	Release of Officers	47

Chapter Eight - Liquidation and Reorganization of the Company 47 

36.	Liquidation	47
37.	Reorganization	47

Chapter Nine - Miscellaneous 48 

   38. Notices 48 

Chapter 10 - Intentionally Deleted 49 

39.	Intentionally Deleted	49
40.	Intentionally Deleted	49
41.	Intentionally Deleted	49
42.	Intentionally Deleted	49

Chapter 11 - Compliance with the License/ Limitations on Ownership and Control 49 

43.	Compliance	49
44.	Limitations on Ownership and Control	49

2

Chapter One – General

1. Definitions and Interpretation

1.1. The following terms in these Articles of Association bear the meaning appearing alongside them below:

Articles of Association The Articles of Association of the Company, as set forth herein or as amended, whether explicitly or pursuant to any Law.

Business Day Sunday to Thursday, inclusive, with the exception of holidays and official days of rest in the State of Israel.

Companies Law The Companies Law, 1999.

Companies Ordinance The Companies Ordinance [New Version], 1983.

Companies Regulations Regulations issued pursuant to the Companies Ordinance or Companies Law.

Director A Director of the Company in accordance with the definition in Section 1 of the Companies Law, including an Alternate Director or an empowered representative.

Document A printout and any other form of written or printed words, including documents transmitted in writing, via facsimile, telegram, telex, e-mail, on a computer or through any other electronic instrumentation, producing or allowing the production of a copy and/or an output of a document.

Founding Shareholder A "founding shareholder or its substitute" as defined in Section 21.8 of the License.

Founding Israeli
Shareholder A Founding Shareholder who also qualifies as an "Israeli Entity" as defined for purposes of Section 22A of the License.

Financial Statements The balance sheet, profit and loss statement, statement of changes in the share capital and cash flow statements, including the notes attached to them.

Law The provisions of any law ("din") as defined in the Interpretation Law, 1981.

License The Company's General License for the Provision of Mobile Radio Telephone Services using the Cellular Method in Israel dated April 7, 1998, and the permit issued by the Ministry of Communications dated April 7, 1998.

3

Linkage Payments with respect to changes in the Israeli consumer price index or the representative exchange rate of NIS vis-a-vis the U.S. dollar, as published by the Bank of Israel, or any other rate which replaces such rate.

Minimum Founding
Shareholders Holding The minimum shareholding in the Company required to be held by Founding Shareholders pursuant to Section 22A.1 of the License.

Minimum Israeli
Holding The minimum shareholding in the Company required to be held by Founding Israeli Shareholders pursuant to Section 22A.2 of the License.

NIS New Israeli Shekel

Office The registered office of the Company.

Ordinary Majority A simple majority of the shareholders who are entitled to vote and who voted in a General Meeting in person, by means of a proxy or by means of a deed of voting.

Periodic Statement According to its definition in Chapter B of the Securities Regulations (Periodic and Immediate Reports), 1970, or such Securities Regulations replacing them.

Qualified Israeli
Director A director who at all times (i) is a citizen of Israel and resident in Israel, (ii) qualifies to serve as a director under applicable law, (iii) qualifies as a Director with Clearance as defined in section 25A, and (iv) is appointed to the Board of Directors of the Company pursuant to section 23.2.6 of these Articles.

Record Date The date on which a shareholder must be registered as a Shareholder in order to receive the right to participate in and vote at an upcoming general meeting of Shareholders.

Securities Shares, bonds, capital notes or securities negotiable into shares and certificates, conferring a right in such securities, or other securities issued by the Company.

Securities Law The Securities Law, 1968.

Securities Regulations Regulations issued pursuant to the Securities Law.

Shares shares in the share capital of the Company.

Shareholder Anyone registered as a shareholder in the Shareholder Register of the Company.

4

Special Majority A majority of at least three quarters of the votes of shareholders who are entitled to vote and who voted in a general meeting, in person, by means of a proxy or by means of a deed of voting.

1.2. The provisions of Sections 3 through 10 of the Interpretation Law, 1981, shall also apply to the interpretation of these Articles of Association, mutatis mutandis, unless the context otherwise requires.

1.3. Except as otherwise provided in this Article, each word and expression in these Articles of Association shall have the meaning given to it in accordance with the Companies Law, and to the extent that no meaning is attached to it in the Companies Law, the meaning given to it in the Companies Regulations, and if they lack reference thereto, as stated, the meaning given to it in the Securities Law or Securities Regulations, and in the absence of any meaning, as stated, the meaning given to it in another Law, unless it contradicts the relevant provision or its contents.

2. Public Company

The Company is a public company.

3. The Purpose of the Company

The purpose of the Company is to operate in accordance with business considerations to generate profits; provided, however, the Board of Directors is entitled to donate reasonable amounts to worthy causes, even if such a donation is not within the framework of business considerations, as stated.

4. The Objectives of the Company

The Company shall engage in any legal business.

5. Limited Liability

The liability of the Shareholders of the Company is limited, each one up to the full amount he undertook to pay for the Shares allotted to him, at the time of the allotment.

5

Chapter Two – The Share Capital of the Company

6. Share Capital

6.1. The authorized share capital of the Company is NIS 2,350,000, divided into 235,000,000 ordinary shares at a par value of NIS 0.01 each (hereinafter: the “Ordinary Shares”).

6.2. Each Ordinary Share shall confer upon its holder the right to receive notices of, and to attend and vote in, general meetings, and to one vote for each Ordinary Share held by him.

6.3. Each class of Shares shall also confer equal rights to each holder in the class with respect to the amounts of equity which were paid or credited as paid with respect to their par value, in all matters pertaining to dividends, the distribution of bonus shares and any other distribution, return of capital and participation in the distribution of the balance of the assets of the Company upon liquidation.

6.4. The provisions of these Articles of Association with respect to Shares, shall also apply to other Securities issued by the Company, mutatis mutandis.

7. The Issuance of Shares and Other Securities

7.1. The Board of Directors of the Company may issue Shares and other equity Securities of the Company, up to the limit of the registered share capital of the Company. In the event that the share capital of the Company includes several classes of Shares and other equity Securities, no shares and other equity Securities shall be issued above the limit of the registered share capital for its class.

7.2. The Board of Directors of the Company may issue redeemable Securities, having such rights and subject to such conditions as will be determined by the Board of Directors.

7.3. Subject to the provisions of these Articles of Association, the Board of Directors may allot Shares and other Securities according to such stipulations and conditions, at par value or by way of a premium, as it deems fit.

7.4. The Board of Directors may decide on the issuance of a series of bonds or other debt securities within the framework of its authority or to take a loan on behalf of the Company and within the limits of the same authority.

7.5. The Shareholders of the Company at any given time shall not have any preemption right or priority or any other right whatsoever with respect to the acquisition of Securities of the Company. The Board of Directors, in its sole discretion, may decide to offer Securities of the Company first to existing Shareholders or to any one or more of them.

6

7.6. The Company is entitled to pay a commission (including underwriting fees) to any person, in consideration for underwriting services, or the marketing or distribution of Securities of the Company, whether reserved or unreserved, as determined by the Board of Directors. Payments, as stated in this Article, may be paid in cash or in Securities of the Company, or partly in one manner and partly in another manner.

8. Calls of Payment

8.1. In the event that according to the terms of a Share allotment, there is no fixed date for the payment of any part of the price that is to be paid for the Shares, the Board of Directors may issue from time to time calls of payment to the Shareholders with respect to the moneys which were not yet paid by them in relation to the Shares (hereinafter: “Calls of Payment” or “a Call of Payment”, as the case may be).

8.2. A Call of Payment shall set a date, which will not be earlier than thirty days from the date of the notice, by which the amount indicated in the Call of Payment must be paid, together with interest, Linkage and expenses incurred in consequence of the non–payment, according to the rates and amounts set by the Board of Directors. The notice shall further specify that in the event of a failure to pay within the date fixed, the Shares in respect of which payment or the rate is required may be forfeited. In the event that a Shareholder fails to meet any of its obligations, under a Call of Payment, the Share in respect of which said notice was issued pursuant to the resolution of the Board of Directors may be forfeited at any time thereafter. The forfeiture of Shares shall include the forfeiture of all the dividends on same Shares which were not paid prior to the forfeiture, even if such dividends were declared.

8.3. Any amount, which according to the terms of a Share allotment, must be paid at the time of issuance or at a fixed date, whether at the par value of the Share or at a premium, shall be deemed for the purposes of these Articles of Association to be combined in a duly issued Call of Payment. In the event of non-payment of any such amount, all the provisions of these Articles of Association shall apply with respect to such an amount, as if a proper Call of Payment has been made and an appropriate notice thereof was given.

8.4. The Board of Directors, acting reasonably and in good faith, may differentiate among Shareholders with respect to amounts of Calls of Payment and/or their payment time.

8.5. The joint holders of Shares shall be liable, jointly and severally, for the payment of Calls of Payment in respect of such Shares.

8.6. Any payment for Shares shall be credited, pro rata, according to the par value of and according to the premium on such Shares.

8.7. A Call of Payment may be cancelled or deferred to another date, as may be decided by the Board of Directors. The Board of Directors may waive any interest, Linkage and expenses or any part of them.

7

8.8. The Board of Directors may receive from a Shareholder any payments for his Shares, in addition to the amount of any Call of Payment, and the Board of Directors may pay to the same Shareholder interest on amounts which were paid in advance, as stated above, or on same part of them, in excess of the amount of the Call of Payment, or to make any other arrangement with him which may compensate him for the advancement of the payment.

8.9. A Shareholder shall not be entitled to a dividend or to his other rights as a Shareholder, unless he has fully paid the amounts specified in the Calls of Payment issued to him, together with interest, Linkage and expenses, if any, unless otherwise determined by the Board of Directors.

8.10. The Board of Directors is entitled to sell, re-allot or transfer in any other manner any Share which was forfeited, in the manner it decides, with or without any amount paid on the Share or deemed as paid on it.

8.11. The Board of Directors is entitled at all times prior to the sale, reallotment or transfer of the forfeited Share to cancel the forfeiture on the conditions it may decide.

8.12. A person whose Shares have been forfeited shall, notwithstanding the forfeiture, remain liable to pay to the Company all moneys which, up until the date of forfeiture, were due and payable by him to the Company in respect of the Shares, including interest, Linkage and expenses up until the actual payment date in the same manner as if the Shares were not forfeited, and shall be compelled to fulfill all the requirements and claims which the Company was entitled to enforce with respect to the Shares up until the forfeiture date, without any decrease or discount for the value of the Shares at the time of forfeiture. His liability shall cease only if and when the Company receives the full payment set at the time of allotment of the Shares.

8.13. The Board of Directors may collect any Calls of Payment which were not paid on the forfeited Shares or any part of them, as it deems fit, but it is not obligated to do so.

8.14. The forfeiture of a Share shall cause, as of the time of forfeiture, the cancellation of all rights in the Company and of any claim or demand against the Company with respect to that Share, and of other rights and obligations of the Shareholder in respect of the Company, save as otherwise provided by Law.

9. The Shareholder Registers of the Company and the Issuance of Share Certificates

9.1. The Company shall maintain a Shareholder Register and a Register of Significant Shareholders, together with a notation of any Exceptional Holdings in accordance with the provisions set forth in Article 10A below, to be administered by the corporate secretary of the Company, subject to the oversight of the Board of Directors.

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9.2. A Shareholder is entitled to receive from the Company, free of charge, within two months after an allotment or the registration of a transfer (unless the conditions of the allotment fix a different period) one or several certificates with respect to all the Shares of a certain class registered in his favor, which certificate must specify the number of the Shares, the class of the Shares and the amount paid for them and also any other detail deemed important by the Board of Directors. In the event a Share is held jointly, the Company shall not be obligated to issue more than one certificate for all the joint holders, and the delivery of such a certificate to any of the joint holders shall be viewed as if it was delivered to all of them.

9.3. Each and every Share certificate shall be stamped with the seal or the stamp of the Company or bear the Company’s printed name, and shall also bear the signature of one Director and of the corporate secretary of the Company, or of two Directors or of any other person appointed by the Board of Directors for this purpose.

9.4. The Company is entitled to issue a new Share certificate in place of an issued Share certificate which was lost or spoiled or corrupted, following evidence thereto and guarantees and indemnities, as may be required by the Company and the payment of an amount determined by the Board of Directors.

9.5. Where two people or more are registered as joint holders of Shares, each of them is entitled to acknowledge the receipt of a dividend or other payments in connection with such jointly held Shares, and such acknowledgement of any one of them shall be good discharge of the Company’s obligation to pay such dividend or other payments.

10. Transfer of Shares

10.1. The Shares are transferable. The transfer of Shares shall not be registered unless the Company receives a deed of transfer (hereinafter: “Deed of Transfer”) or other proper Document or instrument of transfer. A Deed of Transfer shall be drawn up in the following manner or in any substantially similar manner or in any other manner approved by the Board of Directors.

Deed of Transfer

I, _________________, (hereinafter: “The Transferor”) of ____________, do hereby transfer to ___________ (hereinafter: “The Transferee”) of __________, for valuable consideration paid to me, _________ Share(s) having a par value of NIS 0.01 each, numbered ________ to ________ (inclusive), of Partner Communications Company Ltd. (hereinafter: the “Company”) to hold unto the Transferee, his executors, administrators and assigns, subject to the same terms and conditions on which I held the same at the time of the execution hereof; and I, the said Transferee, do hereby agree to take the said Share(s) subject to the aforesaid terms and conditions.

In witness whereof we have hereunto set our hands this _____ day of _________, _____.

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The Transferor	The Transferee
Name: _______________	Name: _______________
Signature: ____________	Signature: ____________
Witness to the Signature of:
The Transferor	The Transferee
Name: _____________	Name: _____________
Signature: ____________	Signature: ____________

10.2. The transfer of Shares which are not fully paid, or Shares on which the Company has a lien or pledge, shall have no validity unless approved by the Board of Directors, which may, in its absolute discretion and without giving any reasoning thereto, decline the registration of such a transfer. The Board of Directors may deny a transfer of Shares as aforesaid and may also impose a condition of the transfer of Shares as aforesaid an undertaking by the transferee to meet the obligations of the transferor with respect to the Shares or the obligations for which the Company has a lien or pledge on the Shares, signed by the transferee together with the signature of a witness, authenticating the signature of the transferee.

10.3. The transfer of a fraction of a Share shall lack validity.

10.4. A transferor of Shares shall continue to be regarded as the holder of the transferred Shares, until the name of the transferee of the Shares is registered in the Shareholder Register of the Company.

10.5. A Deed of Transfer shall be filed with the Company’s office for registration, together with the Share Certificates for the Shares which are to be transferred (if such are issued) and also any other evidence which the Company may require with respect to the proprietary right of the transferor or with respect to his right to transfer the Shares. Deeds of Transfer which are registered shall remain with the Company. The Company is not obligated to retain the Deeds of Transfer and the Share Certificates, which may be cancelled, after the completion of a seven-year period from the registration of the transfer.

10.6. A joint Shareholder may transfer his right in a Share. In the event the transferring Shareholder does not hold the relevant Share Certificate, the transferor shall not be obligated to attach the Share Certificate to the Deed of Transfer, so long as the Deed of Transfer shall indicate that the transferor does not hold the Share Certificate, that the right he has in the Shares therein is being transferred, and that the transferred Share is held jointly with others, together with their details.

10.7. The Company may require payment of a fee for the registration of the transfer, at an amount or a rate determined by the Board of Directors from time to time.

10.8. The Board of Directors may close the Shareholder Register for a period of up to thirty days in each year.

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10.9. Subject to Article 10.10, upon the death of a Shareholder, the Company shall recognize the custodians or administrators of the estate or executors of the will, and in the absence of such, the lawful heirs of the Shareholder, as the only holders of the right for the Shares of the deceased Shareholder, after receipt of evidence to the entitlement thereto, as determined by the Board of Directors.

10.10. In the event that a deceased Shareholder held Shares jointly with others, the Company shall acknowledge each survivor as a joint Shareholder with respect to said Shares, unless all the joint holders in the Share notify the Company in writing, prior to the death of any of them, of their will that the provisions of this Article shall not apply to them. The foregoing shall not release the estate of a joint Shareholder of any obligation in relation to a Share which is held jointly.

10.11. A person acquiring a right in Shares in consequence of being a custodian, administrator of the estate, the heir of a Shareholder, a receiver, liquidator or a trustee in a bankruptcy of a Shareholder or according to another provision of the Law, is entitled, after providing evidence to his right, to the satisfaction of the Board of Directors, to be registered as the Shareholder or to transfer such Shares to another person, subject to the provisions of these Articles of Association with respect to transfers.

10.12. A person becoming entitled to a Share because of the death of a Shareholder shall be entitled to receive, and to give receipts for, dividends or other payments paid or distributions made, with respect to the Share, but shall not be entitled to receive notices with respect to General Meetings of the Company or to participate or vote therein with respect to that Share, or to exercise any other right of a Shareholder, until he has been registered in the Shareholder Register as the holder of that Share.

10.13. Notwithstanding anything to the contrary in Articles 10.5 and 10.7, the transfer of Shares as a result of a realization of a share pledge entered into by a Shareholder of the Company in connection with the Company’s $650 million credit facility dated August 13, 1998, as amended from time to time, will not require additional evidence with respect to the proprietary right of the transferor or with respect to his right to transfer the shares other than a properly completed deed of transfer and valid Share Certificate (if issued), nor will the Company require a fee for the registration of said transfer.

10A. Limitations on Transfer of Shares

10A.1. Exceptional Holdings shall be registered in the Register of Members (Shareholder Register) together with a notation that such holdings have been classified as “Exceptional Holdings”, immediately upon the Company’s learning of such matter. Notice of such registration shall be sent by the Company to the registered holder of the Exceptional Holding and to the Minister of Communications.

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10A.2. Exceptional Holdings, registered in the manner set forth in Article 10A.1, shall not entitle the holder to any rights in respect to his holdings, and such holdings shall be considered “Dormant Shares” within the meaning of Section 308 of the Companies Law, except, however, that the holder of such shares shall be entitled to receive dividends and other distributions to shareholders (including the right to participate in a rights offering calculated on the basis of Means of Control of the Company (as defined in the License), provided, however, that such additional holdings shall be considered Exceptional Holdings). Therefore, any action taken or claim made on the basis of a right deriving from an Exceptional Holdings shall have no effect, except for the receipt of dividends or other distribution as stated above.

Without derogating from the above:

10A2.1 A Shareholder participating in a vote of the General Meeting will certify to the Company prior to the vote or, if the vote is by Deed of Vote, on the Deed of Vote, as to whether or not his holdings in the Company or his vote require consent pursuant to Sections 21 and 23 to the License; in the event the shareholder does not provide notification as aforesaid, he shall not vote and his vote shall not be counted.

10A.2.2 No Director shall be appointed, elected or removed on the basis of Exceptional Holdings. In the event a Director is appointed, elected or removed from his position as a Director as set forth above, such appointment, election or removal shall have no effect.

10A.2.3 Exceptional Holdings shall have no voting rights at a General Meeting of the Company.

For the purposes of this Article 10A, “Exceptional Holdings” means the holdings of Traded Means of Control held without the consent of the Minister of Communications pursuant to Section 21 to the License or as a result of a breach of the provisions of Section 23 to the License, and all holdings of a holder of Traded Means of Control who acted contrary to the provisions of Section 24 to the License; and as long as the consent of the Minister of Communications is required but has not been obtained pursuant to Section 21 to the License, or the circumstances exist which constitute a violation of the provisions of Sections 23 or 24 to the License.

For the purposes of this Article 10A, “Traded Means of Control” means Means of Control (as defined in the License) including Global or American Depositary Shares (GDRs or ADRs) or similar certificates, registered for trade on a securities exchange in Israel or abroad or which have been offered to the public in connection with a prospectus, and are held by the public in Israel or abroad.

10A.3. The provisions of Article 10A shall not apply to those who were Shareholders of the Company on the eve of the first registration of the Company’s Shares for trade.

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10B. Required Minimum Holdings

10B.1. Our License requires that Founding Shareholders hold Shares constituting at least the Minimum Founding Shareholders Holding and that Founding Israeli Shareholders hold Shares constituting at least the Minimum Israeli Holding.

10B.2. Shares held by Founding Shareholders, to the extent such Shares constitute all or a portion of the Minimum Founding Shareholders Holding, shall be registered directly in the name of the Founding Shareholder in the shareholder register of the Company, with a note indicating that such Shares are “Minimum Founding Shareholders Shares.” Minimum Founding Shareholders Shares that are held by Founding Israeli Shareholders, to the extent such Shares constitute all or a portion of the Minimum Israeli Holding, shall also be recorded in the shareholder register with a note indicating that such Shares are “Minimum Israeli Holding Shares.

10B.3. No transfer by a Founding Shareholder of Minimum Founding Shareholder Shares or by a Founding Israeli Shareholder of Minimum Israeli Holding Shares shall be recorded in the Company’s shareholder register, or have any effect, unless the Company’s Secretary shall have received written confirmation from the Ministry of Communications that the transfer complies with section 21.8 of the License. The Company Secretary may, in his or her discretion, refer any question in connection with the recording of Minimum Founding Shareholders Shares or Minimum Israeli Holding Shares, or their transfer, to the Company’s audit committee whose decision shall be binding on the Company. As a condition to any transfer of Minimum Founding Shareholders Shares or Minimum Israeli Holding Shares, the transferee shall be required to deliver to the Company’s Secretary (a) a share transfer deed that includes an undertaking by the transferee to comply with all requirements of section 22A of the License and (b) all information requested with respect to the transferee’s qualification as a Founding Shareholder and/or a Founding Israeli Shareholder.

11. Bearer Share Certificate

The Company shall not issue bearer Share Certificates which grant the bearer rights in the Shares specified therein.

12. Pledge of Shares

12.1. The Company shall have a first degree pledge on, and a right to create a lien on, all Shares which are not fully paid and registered in the name of any Shareholder, and the proceeds of their sale, with respect to moneys (which payment time is due or not) whose payment was already called or are to be paid up within a fixed time. Furthermore, the Company shall have a first degree pledge right on all the Shares (other than Shares which were fully paid) registered in the name of any Shareholder to secure the payment of moneys which are due from him or from his property, whether with respect to his own debts or debts jointly with others. The said pledge shall also apply to dividends, declared from time to time, with respect to these Shares.

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12.2. For purposes of the realization of any such pledge and or lien, the Board of Directors is entitled to sell the Shares which are the subject of the pledge or lien, or any part of them, as it deems fit. No sale, as aforesaid, shall be carried out, until the date fixed for the payment has passed and a notice in writing was transferred to same Shareholder with respect to the intention of the Company to sell them, on condition that the amounts were not paid within fourteen days after the notice.

12.3. The proceeds of any such sale, after deduction for the payment of the sale expenses, shall serve for the covering of the debts or obligations of said Shareholder, and the balance (if any) shall be paid to him.

12.4. In the event that a sale of Shares was carried out pursuant to the realization of a pledge or a lien, pursuant to the presumptive authority conferred above, the Board of Directors is entitled to register such Shares in the Shareholder Register in favor of the buyer, and the buyer shall not be under the obligation to examine the fitness of such actions or the manner in which the purchase price paid for such Shares was used. After the said Shares are registered in the Shareholder Register in favor of the buyer, no person shall have the right to object to the validity of the sale.

13. Changes in the Share Capital

The General Meeting is entitled to take any of the following actions at all times, so long as the resolution of the General Meeting is adopted by a Special Majority.

13.1. Increasing the Share Capital

To increase the share capital of the Company, regardless of whether all the Shares registered at such a time were issued or not. The increased share capital shall be divided into Shares having ordinary rights or preference rights or deferred rights or other special rights (subject to the special rights of an existing class of Shares) or subject to conditions and restrictions with respect to entitlement to dividend, return of capital, voting or other conditions, as may be instructed by the General Meeting in a resolution with respect to the increase of the share capital, and in the absence of a special provision, according to the terms determined by the Board of Directors.

13.2. Classes of Shares

To divide the share capital of the Company into various classes of Shares, and to set and change the rights attaching to each class of Shares, according to the conditions specified below:

13.2.1. So long as it was not otherwise set in the Share allotment conditions, the rights of any class may be changed pursuant to a resolution of the General Meeting of the Shareholders of each class of Shares, separately, or upon the written consent of all the Shareholders of all classes.

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13.2.2. The rights conferred on the holders of Shares of a certain class shall not be deemed to have been changed as a result of the creation or allotment of other Shares having identical rights, unless it was otherwise stipulated in the allotment conditions of said Shares.

13.3. Amalgamation and Redivision of the Share Capital

To amalgamate and redivide the share capital of the Company, entirely or partially, into Shares having a higher or lesser par value than that stated in these Articles of Association. In the event that in consequence of such amalgamation, there are Shareholders left with fractions of Shares, the Board of Directors if approved by the Shareholders at a General Meeting in adopting the resolution for amalgamation of the capital, may agree as follows:

13.3.1. To sell the total of all the fractional shares and to appoint a trustee for this purpose, in whose name Share Certificates representing the fractions shall be issued, who will sell them, with the proceeds received after the deduction of commissions and expenses to be distributed to those entitled. The Board of Directors shall be entitled to decide that Shareholders who are entitled to proceeds which are below an amount determined by it, shall not receive the proceeds of the sale of the fractional shares, and their share in the proceeds shall be distributed among the Shareholders who are entitled to proceeds, in an amount greater than the amount that was determined, relative to the proceeds to which they are entitled;

13.3.2. To allot to any Shareholder, who is left with a fractional Share following the amalgamation, Shares of the class of Shares prior to the amalgamation, which are fully paid, in such a number, the amalgamation of which together with the fractional Share shall complete a whole Share, and an allotment as stated shall be viewed as valid shortly before the amalgamation;

13.3.3. To determine that Shareholders shall not be entitled to receive a Share in exchange for a fractional Share resulting from the amalgamation of a half or smaller fraction of the number of Shares, whose amalgamation creates a single Share, and they shall be entitled to receive a whole Share in exchange for a fractional Share, resulting from the amalgamation of more than a half of the number of Shares, whose amalgamation creates a whole Share.

In the event that an action pursuant to Articles 13.3.2 or 13.3.3 above requires the allotment of additional Shares, their payment shall be effected in a manner similar to that applicable the payment of Bonus Shares. An amalgamation and redivision, as aforesaid, shall not be regarded as a change in the rights attaching to the Shares which are the subject of the amalgamation and redivision.

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13.4. Cancellation of Unissued Share Capital

To cancel registered share capital which has not yet been allotted, so long as the Company is not under an obligation to allot these Shares.

13.5. The Division of the Share Capital

To divide the share capital of the Company, entirely or partially, into Shares having a lower par value than those stated in these Articles of Association, by way of dividing the Shares of the Company at such a time, entirely or partially.

13.6. The provisions specified in this Article 13 shall also apply to other equity Securities of the Company, mutatis mutandis.

Chapter Three – General Meetings

14. The Authority of the General Meeting

14.1. Subjects within the authority of the General Meeting

The following matters shall require the approval of the General Meeting:

14.1.1. Changes in the Articles of Association, if adopted by a Special Majority.

14.1.2. The exercise of the authority of the Board of Directors, if resolved by a Special Majority that the Board of Directors is incapable of exercising its authority, and that the exercise of any of its authority is essential to the orderly management of the Company.

14.1.3. The appointment or reappointment of the Company’s auditor, the termination or non-renewal of his service, and to the extent required by Law and not delegated to the Board of Directors, the determination of his fee.

14.1.4. The appointment of Directors, including external Directors.

14.1.5. To the extent required by the provisions of Section 255 of the Companies Law, the approval of actions and transactions with interested parties and also the approval of an action or a transaction of an officer which might constitute a breach of the duty of loyalty.

14.1.6. Changes in the share capital of the Company, if adopted by a Special Majority as set forth in Article 13 above.

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14.1.7. A merger of the Company, as defined in the Companies Law.

14.1.8. Changes in the objectives of the Company as set forth in Article 4 above, if adopted by a Special Majority.

14.1.9. Changes in the name of the Company, if adopted by a Special Majority.

14.1.10. Liquidation, if adopted by a Special Majority.

14.1.11. Settlements or Arrangements pursuant to Section 233 of the Companies Ordinance.

14.1.12. Any other matters which applicable Law requires to be dealt with at General Meetings of the Company.

14.2. The authority of the General Meeting to transfer authorities between corporate organs.

The General Meeting, by a Special Majority, may assume the authority which is given to another corporate organ, and may transfer the authority which is given to the General Manager to the Board of Directors.

The taking or transferring of authorities, as aforesaid, shall be with regard to a specific issue or for a specific period of time, all as stated in the resolution of the General Meeting.

15. Kinds of General Meetings

15.1. Annual Meetings

A General Meeting shall be convened at least once a year, within fifteen months of the last general meeting. The meeting shall be held at the registered offices of the Company, unless otherwise determined by the Board of Directors. These General Meetings shall be referred to as “Annual Meetings”.

15.1.1. An Annual Meeting shall be convened to approve the following:

(One) The Financial Statements and the Report of the Board of Directors, as of December 31st of the calendar year preceding the year of the annual meeting.

(Two) The Report of the Board of Directors with respect to the fee paid to the Company’s auditor.

15.1.2. The Annual Meeting shall be convened to adopt resolutions on the following matters:

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(One) The appointment of Directors and the termination of their office in accordance with Article 23 below.

(Two) The appointment of an auditor or the renewal of his office, and authorization of the Board of Directors to determine his fee, subject to the provisions of Article 29 below.

15.2. Extraordinary Meetings

General Meetings of the Shareholders of the Company which are not convened in accordance with the provisions of Article 15.1 above, shall be referred to as “Extraordinary Meetings”. An Extraordinary Meeting shall discuss and decide in all matters which are not discussed and decided in the Annual Meeting, and for which the Extraordinary Meeting was convened.

15.3. Class Meetings

The provisions of these Articles of Association with respect to General Meetings shall apply, mutatis mutandis, to meetings of a class of Shareholders of the Company.

16. The Holding of General Meetings

16.1. The Convening of the Annual Meeting

The Board of Directors shall convene Annual Meetings in accordance with the provisions of Article 15.1 above.

16.2. The Convening of an Extraordinary Meeting

The Board of Directors may convene an Extraordinary Meeting, as it decides, provided, however, that it shall be obligated to convene an Extraordinary Meeting upon the demand of one of the following:

16.2.1. Any two Directors or a quarter of the Directors, whichever is lower; or

16.2.2. any one or more Shareholders, holding alone or together at least 4.99% of the issued share capital of the Company.

16.3. Date of Convening an Extraordinary Meeting Upon Demand

The Board of Directors, which is required to convene a general meeting in accordance with Article 16.2 above shall announce the convening of the General Meeting within twenty-one (21) days from the receipt of a demand in that respect, and the date fixed for the meeting shall not be more than thirty-five (35) days from the publication date of the announcement of the General Meeting.

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In the event that the Board of Directors shall not have convened an Extraordinary Meeting, as required in this Article, those demanding its convening or half of the Shareholders which demand it subject to Article 16.2.2, are entitled to convene the meeting themselves, so long as it is convened within three months from the date on which the demand was filed, and it shall be convened, inasmuch as possible, in the same manner by which meetings are convened by the Board of Directors. In the event that a General Meeting is convened as aforesaid, the Company shall bear the reasonable costs and expenses incurred by those demanding it.

16.4. Notice of Convening a General Meeting

Notice of a General Meeting shall be sent to each registered Shareholder of the Company as of the Record Date set by the Board of Directors for that meeting, within five (5) days after that Record Date, unless a different notice time is required by Law and cannot be altered or waived in the Company’s Articles of Association.

A General Meeting may be convened following a shorter notice period, if the written consent of all the Shareholders who are entitled at such time to receive notices has been obtained. A waiver by a Shareholder can also be made in writing after the fact and even after the convening of the General Meeting.

16.5. Contents of the Notice

Subject to the provisions of any Law, a notice with respect to a general meeting shall specify the agenda of the meeting, the location, the proposed resolutions and also the arrangements for voting by means of a deed of voting or a deed of authorization, and the requirements of Article 10A.2.1.

Any notice to be sent to the Shareholders shall also include a draft of the proposed resolutions or a concise description of their particulars.

17. The Agenda of General Meetings

17.1. The agenda of the General Meeting shall be determined by the Board of Directors and shall also include issues for which an Extraordinary Meeting is being convened in accordance with Article 15.2 above, or demanded in accordance with Article 17.2 below.

17.2. One or more Shareholders holding alone or in the aggregate, 4.99% or more of the share capital of the Company may request that the Board of Directors include an issue on the agenda of a general meeting to be convened in the future. The Board of Directors shall incorporate such issue on the agenda of such a future general meeting, provided that the Board of Directors determines, in its discretion, such issue is suitable to be discussed in the General Meeting of the Company.

17.3. The General Meeting shall only adopt resolutions on issues which are on its agenda.

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17.4. So long as it is not otherwise prescribed by Law, the General Meeting is entitled to accept or reject a proposed resolution which is on the agenda of the General Meeting, the draft or concise description of the particulars of which were published by the Company, including slight alterations, however, it is not entitled to take a resolution, which is materially different than the proposed resolution.

18. Discussions in General Meetings

18.1. Quorum

No discussion shall be held in the General Meeting unless a lawful quorum is present. Subject to the requirements of the applicable Law in force at the time these Articles of Association come into force, the rules of the Nasdaq National Market, the London Stock Exchange and any other exchange on which the Company’s securities are or may become quoted or listed, and the provisions of these Articles, any two Shareholders, present by themselves or by means of a proxy, or who have delivered to the Company a Deed of Voting indicating their manner of voting, and who hold or represent at least one-third of the voting rights in the Company shall constitute a lawful quorum. A Shareholder or his proxy, who may also serve as a proxy for other Shareholders, shall be regarded as two Shareholders or more, in accordance with the number of Shareholders he is representing.

18.2. Deferral of the General Meeting in the Absence of Lawful Quorum

In the event that a legal quorum is not present after the lapsing of 30 minutes from the time specified in the convening notice for the commencement of the meeting, the meeting may be adjourned to the same day of the following week (or the first business day thereafter) at the same time and venue, or to another time and venue, as determined by the Board of Directors in a notice to the Shareholders, and the adjourned meeting shall discuss the same issues for which the original meeting was convened. If at the adjourned meeting, a legal quorum is not present at the time specified for the commencement of the meeting, then and in such event one or more Shareholders holding or representing in the aggregate at least 10% of the voting rights in the Company shall be deemed to form a proper quorum, subject to the provisions of Section 79 of the Companies Law.

18.3. The Chairman of the General Meeting

The chairman of the Board of Directors (if appointed) shall preside at each General Meeting. In the absence of the chairman, or if he fails to appear at the meeting within 15 minutes after the time fixed for the meeting, the Shareholders present at the meeting shall choose any one of the Directors of the Company as the chairman, and if there is no Director present at the meeting, one of the Shareholders shall be chosen to preside over the meeting. The chairman shall not have an additional vote or casting vote.

18.4. Adjourned Meeting

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Upon adoption of a resolution at a General Meeting at which a lawful quorum is present, the chairman may and upon demand of the General Meeting shall adjourn the General Meeting from time to time and from venue to venue, as the meeting may decide (for the purpose of this Article: an “Adjourned Meeting”). In the event that a meeting is adjourned for fourteen days or more, a notice of the Adjourned Meeting shall be given in the same manner as the notice of the original meeting. With the exception of the aforesaid, a Shareholder shall not be entitled to receive notice of an Adjourned Meeting or of the issues which are to be discussed in the Adjourned Meeting. The Adjourned Meeting shall only discuss issues that could have been discussed at the General Meeting which was adjourned. The provisions of Articles 17.1, 17.2 and 17.3 of the Articles of Association shall apply to an Adjourned Meeting.

19. Voting of the Shareholders

19.1. Resolutions

In any General Meeting, a proposed resolution shall be adopted if it receives an Ordinary Majority, or any other majority of votes set by Law or in accordance with these Articles of Association. For the avoidance of doubt, any proposed resolution requiring a Special Majority under the Companies Ordinance shall continue to require the same Special Majority even after the effective date of the Companies Law.

In the event of a tie vote, the resolution shall be deemed rejected.

19.2. Checking Majority

19.2.1. The checking of the majority shall be carried out by means of a count of votes, at which each Shareholder shall be entitled to vote in each case in accordance with rights fixed for such Shares, subject to Articles 10A above and Article 44 below. A Shareholder shall be entitled to a single vote for each share he holds which is fully paid or that Calls of Payment in respect of which was fully paid.

19.2.2. The announcement of the chairman that a resolution in the General Meeting was adopted or rejected, whether unanimously or with a specific majority, shall be regarded as prima facie evidence thereof.

19.3. Written Resolutions

Subject to the provisions of applicable Law, a written resolution signed by all of the Shareholders of the Company holding Shares which entitle their holders to participate in General Meetings of the Company and vote therein, or of the same class of Shares to which the resolution refers, as the case may be, shall be regarded as a valid resolution for all purposes, and as a resolution adopted at a General Meeting of the Company or at a class meeting of the relevant class of Shares, as the case may be, which was properly summoned and convened, for the purpose of adopting such a resolution.

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Such a resolution could be stated in several copies of the same document, each of them signed by one Shareholder or by several Shareholders.

19.4. Record Date For Participation and Voting

The Record Date shall be set by the Board of Directors, or by a person or persons authorized by the Board of Directors, in accordance with applicable Law.

19.5. A Right to Participate and Vote

A Shareholder shall not be entitled to participate and vote in any General Meeting or to be counted among those present, so long as (i) he owes the Company a payment which was called for the Shares held by him, unless the allotment conditions of the Shares provide otherwise, and/or (ii) his holdings are registered in the Shareholder Register together with a notation that such holdings have been classified as Exceptional Holdings, as defined in Article 10A or Affected Shares, as defined in Article 44.

19.6. Personal Interest in Resolutions

A Shareholder seeking to vote with respect to a resolution which requires that the majority for its adoption include at least a third of the votes of all those not having a personal interest (as defined in the Companies Law) in the resolution shall notify the registered office of the Company at least two business days prior to the date of the General Meeting, whether he has a personal interest in the resolution or not, as a condition for his right to vote and be counted with respect to such resolution.

A Shareholder voting on a resolution, as aforesaid, by means of a Deed of Vote, may include his notice with regard to his personal interest on the Deed of Vote.

19.7. The Disqualification of Deeds of Vote

Subject to the provisions of applicable Law, the corporate secretary of the Company may, in his discretion, disqualify Deeds of Vote and Deeds of Authorization and so notify the Shareholder who submitted a Deed of Vote or Deeds of Authorization in the following cases:

19.7.1. If there is a reasonable suspicion that they are forged;

19.7.2. If there is a reasonable suspicion that they are falsified, or given with respect to Shares for which one or more Deeds of Vote or deeds of authorization have been given and not withdrawn; or

19.7.3. If there is no note on the Deed of Vote or Deed of Authorization as to whether or not his holding in the Company or his vote require the consent of the Minister of Communications pursuant to Sections 21 and 23 to the License.

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19.7.4. With respect to Deeds of Vote:

(One) If more than one choice is marked for the same resolution; or

(Two) With respect to resolutions which require that the majority for their adoption includes a third of the votes of those not having a personal interest in the approval of the resolution, where it was not marked whether the relevant Shareholder has a personal interest or not, as aforesaid.

Any Shareholder shall be entitled to appeal on any such disqualification to the Board of Directors at least one business day prior to the relevant General Meeting.

19.8. The Voting of a Person without Legal Capacity

A person without legal capacity is entitled to vote only by means of a trustee or a legal custodian.

19.9. The Voting of Joint Holders of a Share

Where two or more Shareholders are registered joint holders of a Share, only the first named joint holder shall vote, without taking into account the other registered joint holders of the Share. For this purpose, the first named joint holder shall be the person whose name is registered first in the Shareholder Register.

19.10. Minutes of the General Meeting

The chairman of the General Meeting shall cause that the minutes of each General Meeting shall be properly maintained and shall include the following:

19.10.1. The name of each Shareholder present in person, by Deed of Vote or by proxy and the number of Shares held or represented by him;

19.10.2. The principal issues of the discussion, all the resolutions which were adopted or rejected at the General Meeting, and if adopted – according to what majority.

20. The Appointment of a Proxy

20.1. Voting by Means of a Proxy

A Shareholder registered in the Shareholder Register is entitled to appoint by deed of authorization a proxy to participate and vote in his stead, whether at a certain General Meeting or generally at General Meetings of the Company, whether personally or by means of a Deed of Vote, so long as the deed of authorization with respect to the appointment of the proxy was delivered to the Company at least two Business Days prior to the date of the General Meeting.

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In the event that the deed of authorization is not limited to a certain General Meeting, then the deed of authorization, which was deposited prior to a certain General Meeting, shall also be good for other General Meetings thereafter. This Article 20 shall also apply to a Shareholder which is a corporation, appointing a person to participate and vote in a General Meeting in its stead. A proxy is not required to be a Shareholder of the Company.

20.2. The Draft of the Deed of Authorization

The deed of authorization shall be signed by the Shareholder and shall be in or substantially in the form specified below or any such other form acceptable to the Board of Directors of the Company. The corporate secretary, in his discretion, may accept a deed of authorization differing from that set forth below provided the changes are immaterial.

The corporate secretary shall only accept either an original deed of authorization, or a copy of the deed of authorization which is certified by a lawyer having an Israeli license or a notary.

Deed of Authorization

Date: ________

To:	Partner Communications Company Ltd.
Attn.:	Corporate Secretary

Re: [Annual/Extraordinary] General Meeting of the Company
to be Held On __________________

        I, the undersigned _________________, Identification No. / Registration No. _____________, of ________________, being the registered holder of ________ (*) Shares [Ordinary Shares having a par value of NIS 0.01, each], hereby authorize ___________, Identification No. ___________ (**) and/or ___________, Identification No. ___________ and/or ___________, Identification No. ___________ to participate and vote in my stead and on my behalf at the referenced meeting and in any adjournment of the referenced meeting of the Company / at any General Meeting of the Company, until I shall otherwise notify you .

——————————————
Signature

(*) A Shareholder is entitled to give several deeds of authorization, each of which refers to a different quantity of Shares of the Company held by him, so long as he shall not give deeds of authorization with respect to an aggregate number of Shares exceeding the total number he holds.

(**) In the event that the proxy does not hold an Israeli Identification number, indicate a passport number, if any, and the name of the country which issued the passport.

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20.3. A vote in accordance with a deed of authorization shall be lawful even if prior to it, the appointer died or became incapacitated or bankrupt, or if it is a corporation – was liquidated, or if he cancelled the deed of authorization or transferred the Share in respect of which it was given, unless a notice in writing was received at the Office of the Company prior to the meeting with respect to the occurrence of such an event.

21. Deed of Vote, Voting Via the Internet

21.1. A Shareholder may vote in a General Meeting by means of a Deed of Vote (ktav hatba’ah) on any issue for which voting by Deed of Vote is required to be offered under applicable Law and on any other issue for which the Board of Directors has approved voting by Deed of Vote, either generally or specifically. The form of the Deed of Vote shall be set by the corporate secretary or any one so authorized by the Board of Directors.

21.2. The Board of Directors may authorize Shareholder voting in a General Meeting via the Internet, subject to any applicable Law.

Chapter Four – The Board of Directors

22. The Authority of the Board of Directors

22.1. The authority of the Board of Directors is as specified both in the Law and in the provisions of these Articles of Association.

22.2. Signature Authority and Powers of Attorney

22.2.1. The Board of Directors shall determine the person(s) with authority to sign for and on behalf of the Company with respect to various issues. The signature of such person(s), appointed from time to time by the Board of Directors, whether generally or for a specific issue, whether alone or together with others, or together with the seal or the stamp of the Company or its printed name, shall bind the Company, subject to the terms and conditions set by the Board of Directors.

22.2.2. The Board of Directors may set separate signature authorities with respect to different issues and different amounts.

22.2.3. The Board of Directors may, from time to time, authorize any person to be the representative of the Company with respect to those objectives and subject to those conditions and for that time period, as the Board of Directors deems fit. The Board of Directors may also grant any representative the authority to delegate any or all of the authorities, powers and discretion given to the Board of Directors.

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22.3. The Registered Office of the Company

The Board of Directors shall fix the location of the Office of the Company.

23. The Appointment of Directors and the Termination of Their Office

23.1. The Number of Directors

The number of Directors in the Company shall not be less than seven (7) or more than seventeen (17).

23.2. The Identity of a Director

23.2.1. A member of the Board of Directors may hold another position with the Company.

23.2.2. A corporation may serve as a Director in the Company, subject to the provisions of Article 23.6 below.

23.2.3. For as long as any individual or an entity which is an Interested Party in the Company is also an Interested Party in Cellcom (Israel) Ltd. (hereinafter “Cellcom”), such Interested Party or an Office Holder of an Interested Party in Cellcom or an Office Holder of any entity controlled by an Interested Party in Cellcom (other than Elron Electronic Industries Ltd (“Elron”) or an entity controlled by Elron) will not serve as an Office Holder of the Company, and no Interested Party in Cellcom or any entity controlled by such Interested Party, may appoint more than two Directors to the Board of Directors of the Company. For the purposes of this Article, the terms “control”, “Interested Party” and “Office Holder” shall bear the same meaning as in, and shall be interpreted in accordance with, the License.

23.2.4. The Board of Directors shall include independent and/or external Directors required to comply with the applicable requirements of any Law, the Nasdaq Stock Market, the London Stock Exchange and any other investment exchange on which the securities of the Company are or may become quoted or listed. The requirements of the Companies Law applicable to an external Director (Dahatz) shall prevail over the provisions of these Articles of Association to the extent these Articles of Associations are inconsistent with the Companies Law, and shall apply to the extent these Articles of Associations are silent.

23.2.5. At least 10% of the members of the Board of Directors of the Company shall be comprised of Qualified Israeli Directors. Notwithstanding the above, if the board is comprised of up to 14 members, one Qualified Israeli Director shall be sufficient, and if the board is comprised of between 15 and 24 members, two Qualified Israeli Directors shall be sufficient.

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23.2.6. Notwithstanding any other provision of these Articles, a Qualified Israeli Director shall be appointed as a member of the Board of Directors, and may be removed from such office, only upon written notice to the Company Secretary of his or her appointment or removal by the Founding Israeli Shareholders holding Minimum Israeli Holding Shares. For purposes of this section, a notice signed by at least two of the Founding Israeli Shareholders who are the record holders of at least 50% of Minimum Israeli Holding Shares shall be deemed to be sufficient notice on behalf of all holders of Minimum Israeli Holding Shares.

23.3. The Election of Directors and their Terms of Office

23.3.1. The Directors shall be elected at each Annual Meeting and shall serve in office until the close of the next Annual Meeting, unless their office becomes vacant earlier in accordance with the provisions of these Articles of Association. Each Director of the Company shall be elected by an Ordinary Majority at the Annual Meeting; provided, however, that external Directors shall be elected in accordance with applicable law and/or any relevant stock exchange rule applicable to the Company. The elected Directors shall commence their terms from the close of the Annual Meeting at which they are elected, unless a later date is stated in the resolution with respect to their appointment. Election of Directors shall be not conducted by separate vote on each candidate, unless so determined by the Board of Directors.

23.3.2. In each Annual Meeting, the Directors that were elected in the previous Annual Meeting, and thereafter, in any Extraordinary Meeting shall be deemed to have resigned from their office. A resigning Director may be reelected.

23.3.3. Notwithstanding the other provisions of these Articles of Association and without derogating from Article 23.4, 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 (Dahatz) or an independent Director and also in any event in which 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 (Dahatz) shall serve in office until the coming Annual Meeting, unless his office becomes vacant earlier in accordance with the provisions of these Articles of Association and may be reelected.

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23.3.4. An elected external Director (Dahatz) shall commence his term from the date of, and shall serve for the period stated in, the resolution of the General Meeting at which he was elected, notwithstanding Article 23.3 above, unless his office becomes vacant earlier in accordance with the provisions of the Companies Law. A General Meeting may reelect an external Director (Dahatz) for additional term(s) as permitted by the Companies Law.

23.4. The election of Directors by the Board of Directors

The Board of Directors shall have the right, at all times, upon approval of at least 75% of the Directors of the Company, to elect any person as a Director, to fill an office which became vacant, and also in any event in which 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 shall serve in office until the coming Annual Meeting and may be reelected.

23.5. Alternate Director

Any Director may, from time to time, appoint for himself an alternate Director (hereinafter: the “Alternate Director”), dismiss such Alternate Director and also appoint another Alternate Director instead of any Alternate Director, whose office becomes vacant, due to whatever cause, whether for a certain meeting or generally. Anyone who is not qualified to be appointed as a Director and also anyone serving as a Director or as an existing Alternate Director shall not serve as an Alternate Director.

23.6. Representatives of a Director that is a Corporation

A Director that is a corporation shall appoint an individual, qualified to be appointed as a Director in the Company, in order to serve on its behalf, either generally or for a certain meeting, or for a certain period of time and the said corporation may also dismiss that individual and appoint another in his stead (hereinafter: “Representatives of a Director”).

23.7. Manner of Appointment or Dismissal of an Alternate Director or a Representative of a Director that is a Corporation

Any appointment or dismissal of Representatives of Directors, when such Directors are corporations, or of Alternate Directors, shall be made by means of a notice in writing to the corporate secretary, signed by the appointing or dismissing body and shall become valid upon the date indicated in the appointment or dismissal notice or upon the date of its delivery to the corporate secretary, whichever is the later.

23.8. Miscellaneous Provisions with Respect to Alternate Directors and Representatives of Directors that are Corporations.

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23.8.1. Any person, whether he is a Director or not, may serve as the representative of a Director, and any one person may serve as the representative of several Directors.

23.8.2. The Representative of a Director – in addition to his own vote, if he is serving as a Director – shall have a number of votes corresponding to the number of Directors represented by him.

23.8.3. An Alternate Director and the Representative of a Director shall have all the authority of the Director for whom he is serving as an Alternate Director or as a representative, with the exception of the authority to vote in meetings at which the Director is present in person.

23.8.4. The office of an Alternate Director or a representative of a Director shall automatically become vacant, if the office of the Director for whom he is serving as an Alternate Director or as a representative becomes vacant.

23.9. Termination of the Term of a Director

The term of a Director shall be terminated in any of the following cases:

23.9.1. If he resigns from his office by way of a signed letter, filed with the corporate secretary at the Company’s Office;

23.9.2. If he is declared bankrupt or if he reaches a settlement with his creditors within the framework of bankruptcy procedures;

23.9.3. If he is declared by an appropriate court to be incapacitated;

23.9.4. Upon his death and, in the event of a corporation, if a resolution has been adopted for its voluntary liquidation or a liquidation order has been issued to it;

23.9.5. If he is removed from his office by way of a resolution, adopted by the General Meeting of the Company, even prior to the completion of his term of office;

23.9.6. If he is convicted of a crime, as stated in Section 232 of the Companies Law; or

23.9.7. If his term is terminated by the Board of Directors in accordance with the provisions of Section 231 of the Companies Law.

23.10. The Implications on the Board of Directors of the Termination of the Term of a Director.

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In the event that an office of a Director becomes vacant, the remaining Directors are entitled to continue operating, so long as their number has not decreased below the minimum number of Directors set forth in Article 23.1.

In the event that the number of Directors decreased below that minimum number, the remaining Directors shall be entitled to act solely for the convening of a General Meeting of the Company for the purpose of electing additional Directors to the Board of Directors.

23.11. Compensation of Members of the Board of Directors

Members of the Board of Directors who do not hold other positions in the Company and who are not external Directors shall not receive any compensation from the Company, unless such compensation is approved by the General Meeting and according to the amount determined by the General Meeting, subject to the provisions of the Law.

The compensation of the Directors may be fixed, as an all-inclusive payment or as payment for participation in meetings or in any combination thereof.

The Company may reimburse expenses incurred by a Director in connection with the performance of his office, to the extent provided in a resolution of the Board of Directors.

24. Actions of Directors

24.1. Convening Meetings of the Board of Directors

24.1.1. The chairman of the Board of Directors may convene a meeting of the Board of Directors at any time.

24.1.2. The chairman of the Board of Directors shall convene a meeting of the Board of Directors at least four times a year, in a manner allowing the Company to fulfil the provisions of the Law with respect to the publication of Financial Statements and reporting to the public.

24.1.3. The chairman of the Board of Directors shall convene a meeting of the Board of Directors on a specific issue if requested by at least two Directors or one Director, if he is an external Director, within no more than 14 days from the date of the request.

24.1.4. The chairman of the Board of Directors shall act forthwith for the convening of a meeting of the Board of Directors, within 14 days from the time that a Director in the Company has informed him of a matter related to the Company in which there is an apparent violation of the Law or a breach of proper management of the business, or from the time that the auditor of the Company has reported to him that he had become aware of material flaws in the accounting oversight of the Company.

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24.1.5. In the event that a notice or a report of the General Manager requires an action of the Board of Directors, the chairman of the Board of Directors shall forthwith convene a meeting of the Board of Directors, which should be held within 14 days from the date of the notice or the report.

24.2. Convening of a Meeting of the Board of Directors

24.2.1. Any notice with respect to a meeting of the Board of Directors may be given in writing, so long as the notice is given at least 14 days prior to the date fixed for the meeting, unless all the members of the Board of Directors or their Alternate Directors or their representatives agree on a shorter time period. A notice, as stated, shall be delivered in writing or transmitted via facsimile or E-mail or through another means of communication, to the address or facsimile number or to the E-mail address or to an address where messages can be delivered through other means of communication, as the case may be, as the Director informed the corporate secretary, upon his appointment, or by means of a written notice to the corporate secretary thereafter.

A notice, which was delivered or transmitted, as provided in this Article, shall be deemed to be personally delivered to the Director on its delivery date.

24.2.2. In the event that a Director appointed an Alternate Director or a representative, the notice shall be delivered to the Alternate Director or the representative, unless the Director instructed that the notice should be delivered to him as well.

24.2.3. The notice shall include the venue, date and time of the meeting of the Board of Directors, arrangements with respect to the manner of management of the meeting (in cases where telecommunications are used), the details of the issues on its agenda and any other material that the chairman of the Board of Directors requests be attached to the summoning notice with respect to the meeting.

24.3. The Agenda of Meetings of Board of Directors

The agenda of meetings of the Board of Directors shall be determined by the chairman of the Board of Directors and shall include the following issues:

24.3.1. Issues determined by the chairman of the Board of Directors.

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24.3.2. Issues for which the meeting is convened in accordance with Article 24.1 above.

24.3.3. Any issue requested by a Director or by the General Manager within a reasonable time prior to the date of the meeting of the Board of Directors (taking into account the nature of the issue).

24.4. Quorum

The quorum for meetings of the Board of Directors shall be a majority of the Directors, which must include one external Director.

24.5. Conducting a Meeting Through Means of Communication

The Board of Directors may conduct a meeting of the Board of Directors through the use of any means of communications, provided all of the participating Directors can hear each other simultaneously.

24.6. Voting in the Board of Directors

Subject to Article 23.4 and Article 44, Issues presented at meetings of the Board of Directors shall be decided upon by a majority of the votes of the Directors present (or participating, in the case of a vote through a permitted means of communications) and voting, subject to the provisions of Article 23.8 above, with respect to Alternate Directors and representatives of Directors that are corporations.

Each Director shall have a single vote.

24.7. Written Resolutions

A written resolution signed by all the Directors shall be deemed as a resolution lawfully adopted at a meeting of the Board of Directors. Such a resolution may be made in several copies of the same Document, each of them signed by one Director or by several Directors. Such a resolution may be adopted by signature of only a portion of the Directors, if all of the Directors who have not signed the resolution were not entitled to participate in the discussion and to vote on such resolution in accordance with any Law whatsoever, so long as they confirm in writing that they are aware of the intention to adopt such a resolution.

24.8. Resolutions Approved by Means of Communications

A resolution approved by use of a means of communications by the Directors shall be deemed to be a resolution lawfully adopted at a meeting of the Board of Directors, and the provisions of Article 24.6 above shall apply to the said resolution.

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24.9. The Validity of Actions of the Directors

All actions taken in good faith in a meeting of the Board of Directors or by a committee of the Board of Directors or by any person acting as a Director shall be valid, even if it subsequently transpires that there was a flaw in the appointment of such a Director or person acting as such, or if any of them were disqualified, as if any such person was lawfully appointed and was qualified to serve as a Director.

24.10. Minutes of Meetings of the Board of Directors

The chairman of the Board of Directors shall cause that the minutes of meetings of the Board of Directors shall be properly maintained and shall include the following:

24.10.1. Names of those present and participating at each meeting.

24.10.2. All the resolutions and particulars of the discussion of said meetings.

Any such minutes signed by the chairman of the Board of Directors presiding over that meeting or by the chairman of the Board of Directors at the following meeting, shall be viewed as prima facie evidence of the issues recorded in the minutes.

25. Committees of the Board of Directors

25.1. Subject to the provisions of the Companies Law, the Board of Directors may delegate its authorities or any part of them to committees, as they deem fit, and they may from time to time cancel the delegation of such an authority. Any such committee, while utilizing an authority as stated, is obligated to fulfil all of the instructions given to it from time to time by the Board of Directors.

25.2. Subject to the provisions of the Companies Law, each committee of the Board of Directors shall consist of at least two Directors, and it may include members who are not Directors, with the exception of the audit committee which shall consist of at least three (3) Directors, and all of the external Directors of the Company shall be members of it.

25.3. The provisions with respect to meetings of the Board of Directors shall apply to the meetings and discussions of each committee of the Board of Directors, with the appropriate changes, provided that no other terms are set by the Board of Directors in this matter, and provided that the lawful quorum for the meetings of the committee, as stated, shall be at least a majority of the members of the committee, unless otherwise required by Law.

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25A. Committee for Security Matters

25A.1. Notwithstanding any other provision in these Articles, the Board of Directors shall appoint from among its members who have security clearance and security compatibility to be determined by the General Security Service (“Directors with Clearance”) a committee to be designated the “Committee for Security Matters”. The members of the Committee for Security Matters shall include at least four (4) Directors with Clearance including at least one external director. Subject to section 25A.2 below, security matters shall be considered only in the context of the Committee for Security Matters. Any decision of, or action by the Committee for Security Matters shall have the same effect as if it had been made or taken by the Board of Directors. The Board of Directors shall consider a security matter only if required pursuant to section 25A.2 below, and subject to the terms of that section. For purposes of this section 25A, “security matters” shall be defined in the same manner as defined in the Bezeq Order (Determination of Essential Service Provided by Bezeq-The Israeli Telecommunications Company Ltd.), 1997, as of March 9, 2005.

25A.2. Security matters which the audit committee or board of directors shall be required to consider in accordance with the mandatory rules of the Companies Law or other Law applicable to the Company, shall be considered to the extent necessary only by Directors with Clearance. Other Directors shall not be entitled to participate in meetings of the audit committee or board of directors dealing with security matters, or to receive information or documents related to these matters. A quorum for these meetings shall include only Directors with Clearance.

25A.3. Any director or officer of the Company who would otherwise be required to receive information or participate in meetings by virtue of his or her position or these Articles or any Law, but who is prevented from doing so by the provisions of this Article 25A, will be released from any liability for any claim of breach of duty of care to the Company which results from her or his inability to receive information or participate in meetings, and the Company shall indemnify any such director or officer and hold her or him harmless to the maximum extent permitted by law for any injury or damage she or he incurs as a result of the inability to receive such information or participate in such meetings.

25A.4. The shareholders at a general meeting shall not be entitled to assume, delegate, transfer or exercise any of the authorities granted to any other corporate body in the Company with respect to security matters.

25A.5. (1)       The Minister of Communications shall be entitled to appoint an observer (the “Security Observer”) to all meetings of the board of directors and its committees. The Security Observer shall have the security clearance and security compatibility to be determined by the General Security Service.

(2)       The Security Observer shall be an employee of the State of Israel qualified to serve as a director pursuant to Chapter C of the Government Companies Law, 1975.

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(3)        In addition to any other obligations under Law, the Security Observer shall be bound to preserve the confidentiality of [information relating to] the Company, except as required to fulfill his responsibilities as an observer. The Security Observer will not act as an observer or in any other position at a competitor of the Company, and will avoid a conflict between his position as an observer and the interests of the Company. The Security Observer shall undertake not to serve as an observer or officer or director, and not serve in any other capacity or be employed, directly or indirectly, by any entity competing with the Company or in a position of conflict of interest with the Company during the period of his service as the Security Observer and for two years after termination of such period.

(4)        Notices of meetings of the board of directors and its committees, including of the Committee for Security Matters, shall be delivered to the Security Observer, and he shall be entitled to participate in each such meeting.

(5)        The Security Observer shall have the same right to obtain information from the Company as that of a Director. If the Company believes that specific information requested is commercially sensitive and not required by the Security Observer for fulfillment of his duties, the Company may delay delivery of the information upon notice to the Security Observer. If the Security Observer still believes the information is needed for his duties, the matter shall be brought for decision to the head of the General Security Service.

(6)        If the Security Observer believes that the Company has made a decision, or is about to make a decision, in a security matter, which conflicts with a provision of the License or section 13 of the Communications Law (Telecommunications and Broadcasting), 1982 or section 11 of the General Security Service Law, 2002, he shall promptly notify the Company in writing. Said notice shall be delivered to the chairman of the board of directors and chairman of the Committee for Security Matters and shall provide an appropriate defined period of time, in light of the circumstances, in which the Company shall be required to correct the violation or change the decision, to the extent possible.”

25B. Approval of Certain Related Party Transactions

A transaction of the type described in Section 270(1) of the Companies Law i.e. a transaction with directors or officers or a transaction in which an officer or a director has a personal interest, provided that such transactions are in the Company’s ordinary course of business, are on market terms and are not likely to substantially influence the profitability of the Company, its assets or its liabilities, may be approved by the Audit Committee, without the need for Board of Director’s approval, or by the Board of Directors, subject to any applicable Law and any relevant stock exchange rule applicable to the Company.

26. Chairman of the Board of Directors

26.1. Appointment

26.1.1. The Board of Directors shall choose one of its members to serve as the chairman of the Board of Directors, and shall set in the appointing resolution the term for his service.

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26.1.2. Unless otherwise provided in the appointing resolution, the chairman of the Board of Directors shall be chosen each and every calendar year at the first meeting of the Board of Directors held after the General Meeting in which Directors were appointed to the Company.

26.1.3. In the event that the chairman of the Board of Directors ceases to serve as a Director in the Company, the Board of Directors in its first meeting held thereafter shall choose one of its members to serve as a new chairman who will serve in his position for the term set in the appointing resolution, and if no period is set, until the appointment of a chairman, as provided in this Article.

26.1.4. In the event that the chairman of the Board of Directors is absent from a meeting, the Board of Directors shall choose one of the Directors present to preside at the meeting.

26.2. Authority

26.2.1. The chairman of the Board of Directors shall preside over meetings of the Board of Directors.

26.2.2. In the event of a deadlock vote, the chairman of the Board of Directors shall not have an additional or casting vote.

26.2.3. The chairman of the Board of Directors is entitled, at all times, at his initiative or pursuant to a resolution of the Board of Directors, to require reports from the General Manager in matters pertaining to the business affairs of the Company.

26.3. Reservations with Regard to Actions of the Chairman of the Board of Directors

26.3.1. The chairman of the Board of Directors shall not serve as the General Manager of the Company, unless he is appointed in accordance with the provisions of Article 27.2 below.

26.3.2. The chairman of the Board of Directors shall not serve as a member of the Audit Committee.

Chapter Five – Officers who are not Directors, and the Auditor

27. The General Manager

27.1. The Appointment and Dismissal of the General Manager

27.1.1. The Board of Directors shall appoint a General Manager for a fixed period of time or for an indefinite period of time. The Board of Directors may appoint more than one General Manager.

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27.1.2. The compensation and employment conditions of the General Manager shall be determined by the Board of Directors in any manner it deems fit. Where the compensation of the General Manager is regarded by the Board of Directors in accordance with the Company Law as an “exceptional transaction” and also in cases of the granting of a release, insurance, liability for indemnification or indemnification given by a permit, said compensation requires the prior approval of the audit committee.

27.1.3. The Board of Directors may from time to time remove the General Manager from his office or dismiss the General Manager and appoint another or others in his stead.

27.2. The Chairman of the Board of Directors as the General Manager

27.2.1. The General Meeting of the Company is entitled to authorize the chairman of the Board of Directors to fulfil the position of the General Manager and to exercise his authority, so long as the majority of the votes in the General Meeting adopting such a resolution include at least two thirds of the votes of Shareholders present and entitled to vote at the meeting who are not controlling Shareholders of the Company as defined in the Companies Law or representatives of any of them. “Abstain” votes shall not be taken into account in the counting of the votes of the Shareholders.

27.2.2. The validity of a resolution provided in Article 27.2.1 above is restricted to a maximum period of three years from the date of the adoption of the resolution by the General Meeting. In the event that no period was set in the resolution, the period shall be deemed to be for three years. Prior to the completion of the three year period, as aforesaid, and even after the end of this period, the General Meeting is entitled to extend the validity of such resolution.

27.2.3. A resolution, as stated, may relate to the authority of the chairman of the Board of Directors, generally, or to a specific person who is serving as the chairman of the Board of Directors.

27.3. The Authority of the General Manager and Subordination to the Board of Directors

27.3.1. The General Manager is responsible for the day-to-day management of the affairs of the Company within the framework of the policy set by the Board of Directors and subject to its instructions.

The General Manager shall have all administrative and operational authority which were not conferred by Law or pursuant to these Articles of Association to any other corporate organ of the Company, and he shall be under the supervision of the Board of Directors and subject to its instructions.

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The General Manager shall appoint and dismiss officers of the Company, with the exception of Directors, and he shall also determine the terms of their employment, unless otherwise resolved by the Board of Directors and provided, however, that the appointment and dismissal of senior managers of the Company shall require consultation with and approval by the Board of Directors.

27.3.2. The Board of Directors may instruct the General Manager on how to act with respect to a certain issue. If the General Manager fails to fulfil the instruction, the Board of Directors may exercise the required authority in order to act in the place of the General Manager.

The Board of Directors may assume the authority granted to the General Manager, either with respect to a certain issue or for a certain period of time.

27.3.3. In the event that the General Manager is unable to exercise his authority, the Board of Directors may exercise such authority in his stead, or authorize another to exercise such authority.

27.4. Reporting Duties of the General Manager

The General Manager is obligated to notify the chairman of the Board of Directors of any exceptional matter which is material to the Company, or of any material deviation by the Company from the policy set by the Board of Directors. In the event that the Company shall be without a chairman of the Board of Directors for whatever reason the General Manager shall notify all the members of the Board of Directors, as aforesaid. The General Manager shall deliver to the Board of Directors reports on issues, at such time and in such scope, as is determined by the Board of Directors.

27.5. Delegating Authority of the General Manager

The General Manager, upon approval of the Board of Directors, may delegate to his subordinates any of his authority. However, such delegation of authority shall not release the General Manager from his liability.

28. The Corporate Secretary, Internal Controller and Other Officers of the Company

28.1. The corporate secretary

28.1.1. The Board of Directors is entitled to appoint a corporate secretary on terms it deems fit, joint secretaries, sub–secretaries and to determine the areas of their functions and authorities.

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28.1.2. In the event that no corporate secretary has been appointed, the General Manager or anyone authorized by him shall fulfil the functions assigned to the corporate secretary, in accordance with any Law, to these Articles of Association and the resolutions of the Board of Directors.

28.1.3. The corporate secretary shall be responsible for all documents which are kept at the Office, as stated in Section 124 of the Companies Law, and he shall manage all the registries maintained by the Company in accordance with the Law or Companies Law.

28.2. Internal Controller

28.2.1. The internal controller of the Company shall report to the chairman of the Board of Directors.

28.2.2. The internal controller shall file with the Board of Directors a proposal for an annual or other periodic work plan, which shall be approved by the Board of Directors, subject to any changes it deems fit.

28.3. Other Officers of the Company

The Board of Directors may decide that in addition to the General Manager and the corporate secretary, other officers may be appointed, whether generally or for a specific issue. In such event, the Board of Directors shall appoint the officer, define his position and authority, and set his compensation and terms of employment.

The Board of Directors is entitled to authorize the General Manager to fulfil any or all of its authorities, as stated.

29. The Auditor

29.1. The Shareholders at the Annual Meeting shall appoint an auditor for a period until the close of the following Annual Meeting. The Annual Meeting may appoint an auditor for a period not to extend beyond the close of the third Annual Meeting following the Annual Meeting in which he was appointed. In the event that the auditor was appointed for said period, the Annual Meeting shall not address the appointment of the auditor during said period, unless a resolution is adopted with respect to the termination of his service.

29.2. The General Meeting is entitled at all times to terminate the service of the auditor or to decide not to renew it.

29.3. The Board of Directors shall determine the compensation of the auditor of the Company and it shall report in that respect to the Annual Meeting of the Company.

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29.4. The Board of Directors shall set the compensation of the auditor for additional services which are not regarded as oversight activities, and it shall report in this respect at the Annual Meeting of the Company.

Chapter Six – The Share Capital of the Company and its Distribution

30. Permitted Distributions

30.1. Definitions

In this Chapter, the following terms shall be construed, in accordance with their definition in Sections 301 and 302 of the Companies Law: “distribution”, “acquisition”, “profits”, “profit test”, “adjusted financial statements” and “balances”.

30.2. Distribution of Profits

The Company shall not make any distribution except from its profits, provided that the Company shall not make any distribution if there is a reasonable fear that such distribution shall preclude the Company from having the ability to meet its present and anticipated liabilities, as they become due. Notwithstanding the aforesaid, the Company, with the approval of the Court, is entitled to make a distribution which fails to meet the profit test.

30.3. Allotment for a Consideration Below the Par Value

In the event the Board of Directors decides to allot Shares having a par value, for consideration which is less than their par value, including Bonus Shares, the Company shall convert into share capital from its profits, premium on its Shares, or any other source, included in its shareholders equity, as stated in its most recent Financial Statements, an amount equal to the difference between the par value and the consideration.

Even if the aforesaid is not done, with the approval of the Court, the Company shall be entitled to make an allotment of Shares, for consideration which is less than their par value.

31. Dividends and Bonus Shares

31.1. Right to Dividends or Bonus Shares

31.1.1. A Shareholder of the Company shall have the right to receive dividends or Bonus Shares, if the Company so decides in accordance with Article 31.2 below, consistent with the rights attaching to such Shares.

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31.1.2. Dividends or Bonus Shares shall be distributed or allotted to those who are registered in the Shareholder Register on the date of the resolution approving the distribution or allotment or upon a latter date, if another date is determined for this purpose in same resolution (hereinafter: the “Determining Date”).

31.1.3. In the event that the share capital of the Company consists of Shares having various par values, dividends or Bonus Shares shall be distributed in proportion to the par value of each Share.

31.1.4. Subject to special rights conferred upon Shares in accordance with the conditions of their allotment, profits of the Company which the Company decides to distribute as a dividend or as Bonus Shares shall be paid in proportion to the amount which was paid or credited on the account of the par value of the Shares, held by the Shareholder.

31.1.5. In the event that it was not otherwise determined in the conditions applicable to the allotment of the Shares or in a resolution of the General Meeting, all the dividends or Bonus Shares with respect to Shares, which were not fully paid within the period in which the dividends or Bonus Shares are paid, shall be paid in proportion to the amounts which were actually paid or credited as paid on the par value of the Shares during any part of said period (pro rata temporis).

31.2. Resolution of the Company with Respect to a Dividend or Bonus Shares

31.2.1. The Authority to Distribute Dividends or Bonus Shares

The resolution of the Company on the distribution of a dividend or Bonus Shares to be distributed to the Shareholders according to their respective rights and benefits, and on their time of payment, shall be made by the Board of Directors.

31.2.2. Funds

The Board of Directors may, in its discretion, allocate to special funds any amount whatsoever from the profits of the Company or from the revaluation of its assets or its relative share in the revaluation of assets of “branch companies,” and also to determine the designation of these funds.

31.3. The Payment of Dividends

31.3.1. Manner of Payment

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Unless otherwise provided in the resolution with respect to the distribution of the dividend, the Company may pay any dividend with the withholding of any tax required by Law, by way of a cheque to the order of the beneficiary alone, which should be sent by means of registered mail to the registered address of the Shareholder entitled thereto, or by way of a bank transfer. Any cheque, as stated, shall be drawn up to the order of the person to whom it is intended.

In the event of registered joint holders, the cheque shall be passed to the same Shareholder whose name is registered first in the Shareholder Register with respect to the joint holding.

The sending of a cheque to a person whose name is registered in the Shareholder Register as the holder of the Share upon the Determining Date or, in the case of joint holders, to any of the joint holders, shall serve as evidence with respect to all the payments made in connection with same Shares.

The Company may decide that a cheque under a certain amount shall not be sent and the amount of the dividend which was supposed to be paid shall be deemed to be an unclaimed dividend.

31.3.2. An Unclaimed Dividend

The Board of Directors is entitled to invest the amount of any unclaimed dividend for one year after it was declared or to utilize it in any other manner to the benefit of the Company until it is claimed. The Company shall not be obligated to pay interest or Linkage on an unclaimed dividend.

31.3.3. Specific Dividend

In the event the Company declares a dividend, as provided in Article 31.2.1 above, it may decide that same dividend shall be paid, entirely or partially, by way of the distribution of certain assets, including fully paid Shares or bonds of any other company or in any combination of these assets.

31.4. Manner of Capitalization of Profits and the Distribution of Bonus Shares

31.4.1. Subject to the provisions of Article 30 above in the event of a capitalization of profits and distribution of Bonus Shares, the undistributed profits of the Company, or premium on Shares, or funds derived from the revaluation of the assets of the Company, or funds derived on the basis of equity from the profits of “branch companies,” or from the revaluation of assets of “branch companies” and capital redemption funds shall be capitalized and distributed among the Shareholders entitled thereto, as per the provisions of Article 31.1 above, to be held by the shareholders as capital, and that this capital, entirely or partially, shall be used on behalf of same Shareholders as full payment, whether according to the par value of the Shares or together with premium decided upon, for Shares to be distributed accordingly, and that this distribution or payment shall be received by same Shareholders as full consideration for their portion of the benefit in the capitalized amount, as determined by the Board of Directors.

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The provisions of this chapter six shall also apply to the distribution of bonds.

31.4.2. The Company, in the resolution with respect to the distribution of Bonus Shares, is entitled in accordance with the recommendation of the Board of Directors, to decide that the Company shall transfer to a special fund, designated for the future distribution of Bonus Shares, an amount the capitalization of which shall be sufficient in order to allot to anyone having at such time a right to acquire Shares of the Company (including a right which can be exercised only upon a later date), Bonus Shares at the par value which would have been due to him had he exercised the right to acquire the Shares shortly before the Determining Date, at the price of the right in effect at such time. In the event that after the Determining Date, the holder of said right shall exercise his right to acquire the Shares or any part of them, the Board of Directors shall allot to him fully paid Bonus Shares at such par value and of such class, which would have been due to him had he exercised shortly before the Determining Date the right to acquire those Shares he actually acquired, by way of an appropriate capitalization made by the Board of Directors out of the special fund, as aforesaid. For the purpose of the determination of the par value of the Bonus Shares which are to be distributed, any amount transferred to the special fund, with respect to a previous distribution of previous Bonus Shares shall be viewed as if it had already been capitalized and that Shares entitling the holders to the right to acquire Shares of the Company were already allotted as Bonus Shares.

31.4.3. Upon the distribution of Bonus Shares, each Shareholder of the Company shall receive Shares of a uniform class or of the class which confers on its holder the right to receive the Bonus Shares, as determined by the Board of Directors.

31.4.4. For purposes of carrying out any resolution pursuant to the provisions of Article 30, the Board of Directors may settle, as it deems fit, any difficulty arising with regard to the distribution of Bonus Shares, and, in particular, to issue certificates for fractions of Shares and sell such fractions of Shares, in order to pay their consideration to those entitled thereto, and also to set the value for the distribution of certain assets and to decide that cash payments shall be paid to the Shareholders on the basis of the value determined in such a way, or that fractions whose value is less than NIS 0.01 shall not be taken into account, pursuant to the adjustment of the rights of all parties. The Board of Directors may pay cash or convey these certain assets to trustees in trust in favor of those people who are entitled to a dividend or to a capitalized fund, as the Board of Directors shall deem beneficial.

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32. Acquisition of Shares

32.1. The Company is entitled to acquire or to finance an acquisition, directly or indirectly, of Shares of the Company or securities convertible into Shares of the Company or which could be exercised into Shares of the Company, including incurring an obligation to take any of these actions, subject to the fulfillment of the conditions of a permissible distribution, as stated in Article 30 above.

32.2. In the event that the Company acquired any of its Shares, such a Share shall become a dormant Share, and shall not confer any rights, so long as it is in the holding of the Company.

32.3. A subsidiary or another corporation in the control of the Company is entitled to acquire Shares of the Company or securities convertible into Shares of the Company or which can be exercised into Shares of the Company, including an obligation to take any of these actions, to the same extent the Company may make a distribution, so long as the board of directors of the subsidiary or the managers of the acquiring corporation have determined that had the acquisition of the Shares been carried out by the Company it would have been regarded as a permissible distribution, as specified in Article 30 above. Notwithstanding the foregoing, an acquisition by a subsidiary or by another corporation in the control of the Company, which is not fully-owned by the Company, will be considered a distribution of an amount equal to the product of the amount acquired multiplied by the percentage of the rights in the capital of the subsidiary or in the capital of said corporation which is held by the Company.

32.4. In the event that a Share of the Company is acquired by a subsidiary or by a corporation in the control of the Company, the Share shall not confer any voting rights, for so long as said Share is held by the subsidiary or by said controlled corporation.

Chapter Seven – Insurance, Indemnification and Release of Officers

33. Insurance of Officers

33.1. The Company shall not insure the liability of an officer in the Company, other than pursuant to the provisions of this Article.

33.2. The Company may enter into an insurance contract or arrange and pay all premiums in respect of an insurance contract, for the insurance of the liability of an officer in the Company, resulting from the consequence of an action by him in his capacity as an officer in the Company, for any of the following:

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33.2.1. The breach of the duty of care toward the Company or toward any other person;

33.2.2. The breach of the duty of loyalty toward the Company provided the officer has acted in good faith and had reasonable grounds to assume that the action would not harm the Company; and

33.2.3. A financial liability imposed on him in favor of another person.

33.3. The Company shall not enter into a contract for the insurance of the liability of an officer in the Company for any of the following:

33.3.1. The breach of the duty of loyalty toward the Company, unless the officer acted in good faith and had reasonable grounds to assume that the action would not harm the Company;

33.3.2. The breach of the duty of care made intentionally or recklessly (“pezizut”), unless otherwise permitted by law;

33.3.3. An intentional act intended to unlawfully yield a personal profit;

33.3.4. A criminal fine or a penalty imposed on him.

34. Indemnification of Officers

34.1. The Company may indemnify an officer in the Company.to the fullest extent permitted by Law. Without derogating from the aforesaid, the Company may indemnify an officer in the Company as specified in Articles 34.2 through 34.4 below.

34.2. Indemnification in Advance

The Company may indemnify an officer in the Company for liability or expense he incurs or that is imposed on him in consequence with an action or inaction by him (or together with other officers of the Company) in his capacity as an officer in the Company, as follows:

34.2.1. Any financial liability he incurs or is imposed on him in favor of another person in accordance with a judgment, including a judgment given in a settlement or a judgment of an arbitrator, approved by the Court.

34.2.2. Reasonable litigation expenses, including legal fees, incurred by the officer or which he was ordered to pay by the Court, in the context of proceedings filed against him by the Company or on its behalf or by a third party, or in a criminal proceeding in which he was acquitted, or in a criminal proceeding in which he was convicted of an offense which does not require criminal intent.

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34.2.3. Reasonable litigation expenses, including legal fees, incurred by the officer due to such investigation or proceeding conducted against him by an authority authorized to conduct an investigation or proceeding, and which was ended without filing an indictment against him and without the imposition of a financial liability as a substitute for a criminal proceeding, or that was ended without filing an indictment against him but for which he was subject to a financial liability as a substitute for a criminal proceeding relating to an offense which does not require criminal intent, within the meaning of the relevant terms in the Law.

34.2.4. Any other liability or expense in respect of which it is permitted or will be permitted under Law to indemnify an officer in the Company.

34.3. Indemnification in Advance

The Company may undertake in advance to indemnify an officer of the Company in respect of the following matters:.

34.3.1. Matters as detailed in Article 34.2.1 provided however, that the undertaking to indemnify is restricted to events which in the opinion of the Board of Directors are anticipated in light of the Company’s activities at the time of granting the obligation to indemnify, and is limited to a sum or measurement determined by the Board of Directors to be reasonable in the circumstances. The undertaking to indemnify shall specify the events that, in the opinion of the Board of Directors are expected in light of the Company’s actual activity at the time of grant of the indemnification and the sum or measurement which the Board of Directors determined to be reasonable in the circumstances.

34.3.2. Matters as detailed in Article 34.2.2 and 34.2.3.

34.3.3. Any other matter permited by Law.

34.4. Indemnification after the Fact

The Company may indemnify an officer in the Company for all kinds of events, retrospectively, subject to any applicable Law

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35. Release of Officers

35.1. The Company shall not release an officer from his liability for a breach of the duty of care toward the Company, other than in accordance with the provisions of this Article.

35.2. The Company may release an officer in the Company, in advance, from his liability, entirely or partially, for damage in consequence of the breach of the duty of care toward the Company.

35.3. Notwithstanding the foregoing, the Company may not release an officer from his liability, resulting from any of the following events:

35.3.1. The breach of the duty of loyalty toward the Company.

35.3.2. The breach of the duty of care made intentionally or recklessly (“pezizut”);

35.3.3. An intentional act intended to unlawfully yield a personal profit;

35.3.4. A criminal fine or a penalty imposed on him.

Chapter Eight – Liquidation and Reorganization of the Company

36. Liquidation

36.1. In the event that the Company is liquidated, whether voluntarily or otherwise, the liquidator, upon the approval of an Extraordinary Meeting, may make a distribution in kind to the Shareholders of all or part of the property of the Company, and he may with a similar approval of the General Meeting, deposit any part of the property of the Company with trustees in favor of the Shareholders, as the liquidator with the aforementioned approval, deems fit.

36.2. The Shares of the Company shall confer equal rights among them with respect to capital amounts which were paid or which were credited as paid on the par value of the Shares, in all matters pertaining to the refund of the capital and to the participation in the distribution of the balance of the assets of the Company in liquidation.

37. Reorganization

37.1. Upon the sale of the property of the Company, the Board of Directors or the liquidators (in case of a liquidation), if they are so authorized by a resolution of the General Meeting of the Company adopted with a Special Majority, may receive fully or partially paid up Shares, bonds or securities of another company, either Israeli or foreign, whether incorporated or which is about to incorporated for the purpose of acquiring property of the Company, or any part thereof, and the Directors (if the profits of the Company allow for it) or the liquidators (in case of a liquidation) may distribute among the Shareholders the Shares or the securities mentioned above or any other property of the Company without selling them or depositing them with trustees on behalf of the Shareholders.

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37.2. The General Meeting may, pursuant to a resolution adopted by a Special Majority, decide on the valuation of the securities or of the aforementioned property at a price and in the same manner as it deems appropriate and all the Shareholders shall be obligated to accept any valuation or distribution, authorized in accordance with the foregoing and to waive their rights in this matter, unless the Company is about to liquidate or is in a liquidation process, of same lawful rights (if any) which according to the provisions of the Law should not be altered or denied.

Chapter Nine – Miscellaneous

38. Notices

38.1. A notice or other document may be sent by the Company to any Shareholder appearing in the Shareholder Register of the Company either personally or by way of sending by registered mail, at the registered address of the Shareholder in the Shareholder Register, or at such address as the Shareholder shall have provided in writing to the Company as the address for the delivery of notices.

38.2. All the notices to be given to Shareholders, shall, in respect of Shares held jointly, be given to the person whose name is mentioned first in the Shareholder Register, and any notice given in such a manner shall be viewed as a sufficient notice to all the joint Shareholders.

38.3. Any Shareholder registered in the Shareholder Register, with an address, whether in Israel or overseas, is entitled to receive, at such address, any notice he is entitled to receive in accordance with the Articles of Association or according to the provisions of the Law. Unless otherwise stated above, no person who is not registered in the Shareholder Register shall be entitled to receive any notices from the Company.

38.4. Any notice or other document which is sent to a Shareholder in accordance with these Articles of Association shall be considered lawfully sent with respect to all the Shares held by him (whether with respect to Shares held by him alone or held by him jointly with others) even if same Shareholder had died by that time or had become bankrupt or had received an order for its liquidation or if a trustee or a liquidator or a receiver was appointed with respect to his Shares (whether the Company was aware of it or not) until another person is registered in the Shareholder Register in his stead, as the holder thereof. The sending of a notice or other document, as aforesaid, shall be viewed as a sufficient sending to any person having a right in these Shares.

38.5. Any notice or other document which was sent by the Company via registered mail, to an address in Israel, shall be considered sent within 72 hours from its posting at the post office. In order to prove sufficient sending, it is enough to show that the letter containing the notice or the document was addressed to the correct address and was posted at the post office.

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38.6. Any accidental omission with respect to the giving of a notice of a General Meeting to any Shareholder or the non-receipt of a notice with respect to a meeting or any other notice on the part of whatever Shareholder shall not cause the cancellation of a resolution taken at that meeting, or the cancellation of processes based on such notice.

38.7. Any Shareholder and any member of the Board of Directors may waive his right to receive notices or waive his right to receive notices during a specific time period and he may consent that a General Meeting of the Company or a meeting of the Board of Directors, as the case may be, shall be convened and held notwithstanding the fact that he did not receive a notice with respect to it, or notwithstanding the fact that the notice was not received by him within the required time, in each case subject to the provisions of any Law prohibiting any such waiver or consent.

Chapter 10 – Intentionally Deleted

39. Intentionally Deleted

40. Intentionally Deleted

41. Intentionally Deleted

42. Intentionally Deleted

Chapter 11 – Compliance with the License /
Limitations on Ownership and Control

43. Compliance

The Shareholders shall at all times comply with the terms of the License. Nothing herein shall be construed as requiring or permitting the performance of any acts which are inconsistent with the terms of the License. If any article of these Articles shall be found to be inconsistent with the terms of the License, the provisions of such article shall be null and void, but the validity, legality or enforceability of provisions of the other Articles shall not be affected thereby.

44. Limitations on Ownership and Control

44.1. This Article is to ensure that so long as and to the extent that any Operating Right is conditional on or subject to any conditions or restrictions relating to ownership or control over the Company imposed by the Ministry, the Company is so owned and controlled. This Article shall not affect or influence in any way the interpretation or application of Article 10A.

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44.2. In this Article:

“Affected Share” means any Share determined to be dealt with as such pursuant to Article 44.4;

“ Affected Share Notice” means a notice in writing served in accordance with Article 44.5;

“Depositary” means a custodian or other person appointed under contractual arrangements with the Company (or a nominee for such custodian or other person) whereby such custodian or other person holds or is interested in Shares and which issues securities evidencing the right to receive such Shares;

“ Depositary Receipts” means receipts or similar documents of title issued by or on behalf of a Depositary;

“ Depositary Shares” means the Shares held by a Depositary or in which a Depositary is interested in its capacity as a Depositary;

“ Intervening Act” means the refusal, withholding, suspension or revocation of any Operating Right applied for, granted to or enjoyed by the Company, or the imposition of any conditions or limitations upon any such Operating Right which materially inhibit the exercise thereof, in either case by any state, authority or person (including the Ministry) by reason of the activities of persons holding Shares in and/or controlling the Company;

“Ministry” means the Ministry of Communications and/or Minister of Communications;

“ Operating Right” means all or any part of any authority, permission, licence or privilege applied for, granted to or enjoyed by the Company, including the Licence, for the establishment, subsistence, maintenance and operation of a mobile radio telephone system using the cellular method and the provision of mobile radio telephone services to the public in Israel;

“Permitted Maximum” means the maximum aggregate permitted number of Relevant Shares specified by the Board of Directors in accordance with the terms of the Licence, any other requirements of the Ministry and any relevant requirements of Law;

“Relevant Person”means:

(a) any person who, without the approval of the Ministry, acquires, directly or indirectly, any Means of Control (as defined in the Licence) in breach of Section 21 of the Licence other than a person who falls within Article 10A; or

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(b) any Interested Party (as defined in the Licence) who, or who has an Officer Holder (as defined in the Licence) who, is in breach of Sections 23 or 24 of the Licence other than a person who falls within Article 10A;

“Relevant Share” means any Share (other than a Share removed from the Relevant Shares Register (defined in Article 44.3.2) pursuant to Article 44.3.5), in which a Relevant Person has an interest or which is declared to be a Relevant Share pursuant to Article 44.3.4;

44.3.

44.3.1. The Board of Directors shall not register a person as a holder of a Share unless the person has given to the Board of Directors a declaration (in a form prescribed by the Board of Directors) signed by him or on his behalf, stating his name, nationality, that he is not a Relevant Person falling within paragraphs (c) or (d) of the definition of that term and other information required by the Board of Directors.

44.3.2. The Board of Directors shall maintain a register (the “Relevant Shares Register”), in which shall be entered particulars of any Share which has been:

(a) acknowledged by the holder (or by a joint holder) to be a Relevant Share;

(b) declared to be a Relevant Share pursuant to Article 44.3.4; or

(c) determined to be an Affected Share pursuant to Article 44.4.2.;

and which has not ceased to be a Relevant Share. The particulars in the Relevant Shares Register in respect of any Share shall include the identity of the holder or joint holders and information requested by and supplied to the Board of Directors.

44.3.3. Each registered holder of a Share which has not been acknowledged to be a Relevant Share who becomes aware that such Share is or has become a Relevant Share shall forthwith notify the Company accordingly.

44.3.4. The Board of Directors may notify in writing the registered holder of a Share which is not in the Relevant Shares Register and appears to be a Relevant Share, requiring him to show that the Share is not a Relevant Share. Any person to whom such notice has been issued may within 21 clear days after the issue of the notice (or such longer period as the Board of Directors may decide) represent to the Board of Directors why such Share should not be treated as a Relevant Share but if, after considering such representations and other relevant information, the Board of Directors is not so satisfied, it shall declare such Share to be a Relevant Share and treat it as such.

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44.3.5. The Board of Directors shall remove a Relevant Share from the Relevant Shares Register if the holder of the Relevant Share gives to the Board of Directors a declaration (in a form prescribed by the Board of Directors), together with such other evidence as the Board of Directors may require, which satisfies it that such Share is no longer, or should not be treated, as a Relevant Share.

44.4.

44.4.1. Article 44.4.2 shall apply for so long as the Company holds or enjoys any Operating Right where the Board of Directors determines that it is necessary to take steps to protect any Operating Right because an Intervening Act is contemplated, threatened or intended, may take place or has taken place;

44.4.2. Where a determination has been made under Article 44.4.1, the Board of Directors shall take such of the following steps as they consider necessary or desirable to overcome, prevent or avoid an Intervening Act:

44.4.2.1. the Board of Directors may remove any Director from office, by a resolution passed by a majority of 75 per cent or more of the other Directors present and voting at the relevant meeting;

44.4.2.2. the Board of Directors may seek to identify those Relevant Shares which gave rise to the determination under Article 44.4.1 and by a resolution passed by a majority of 75 per cent or more of the Directors present and voting at the relevant meeting deal with such Shares as Affected Shares; and

44.4.2.3. when the aggregate number of Relevant Shares in the Relevant Shares Register exceeds the Permitted Maximum, the Board of Directors may deal with the Relevant Shares which it decides, by a resolution passed by a majority of 75 per cent or more of the Directors present and voting at the relevant meeting, are in excess of the Permitted Maximum as Affected Shares.

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44.5. The Board of Directors shall give an Affected Share Notice to the registered holder of any Affected Share and state that Article 44.6 is to be applied forthwith in respect of such Affected Share. The registered holder of the Affected Share may within 21clear days after the issue of the notice (or such longer period as the Board of Directors may decide) represent to the Board of Directors why such Share should not be treated as an Affected Share and if, after considering such representations and other relevant information, the Board of Directors considers that the Share should not be treated as an Affected Share it shall forthwith withdraw the Affected Share Notice and Article 44.6 shall no longer apply to the Share.

44.6. An Affected Share in respect of which an Affected Share Notice has been served shall be treated as a dormant share (as defined in section 308 of the Companies Law) except that the registered holder of the Affected Share shall continue to have the right to receive dividends and other distributions of the Company and participate in bonus or rights issues of the Company in respect of such Share.

44.7. In deciding which Shares are to be treated as Affected Shares, the Board of Directors shall have regard to the Relevant Shares which in its opinion have directly or indirectly caused the determination under Article 44.4 and the chronological order in which Relevant Shares have been entered in the Relevant Shares Register (and accordingly treat as Affected Shares those Relevant Shares entered in the Relevant Shares Register most recently) except where such criterion would in their opinion be inequitable, in which event the Board of Directors shall apply such other criterion or criteria as they may consider appropriate.

44.8. Subject to the other provisions of this Article 44, the Board of Directors shall be entitled to assume without enquiry that:

44.8.1. all Shares not in the Relevant Shares Register and not falling within clause 44.8.2 are neither Relevant Shares nor Shares which would be or be capable of being treated as Affected Shares; and

44.8.2. all or some specified number of the Shares are Relevant Shares falling within paragraphs (a)-(b) in the definition of that term if they (or interests in them) are held by a Depositary, trustee, registration or nominee company or other agent unless and for so long as, in respect of any such Shares, it is established to their satisfaction that such Shares are not Relevant Shares.

44.9. Any resolution or determination of, or any decision or the exercise of any discretion or power by, the Board of Directors or any one of the Directors under this Article 44 shall be final and conclusive.

44.10.

44.10.1. On withdrawal of the determination under Article 44.4.1, the Board of Directors shall cease to act pursuant to such determination and inform every person on whom an Affected Share Notice has been served that Article 44.6 no longer applies in respect of such Share. The withdrawal of such a determination shall not affect the validity of any action taken by the Board of Directors under this Article whilst that determination remained in effect and such actions shall not be open to challenge on any ground whatsoever.

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44.10.2. The Board of Directors shall, so long as it acts reasonably and in good faith, be under no liability to the Company or to any other person for failing to treat any Share as an Affected Share or any person as a Relevant Person in accordance with this Article and it shall not be liable to the Company or any other person if, having acted reasonably and in good faith it determines erroneously that any Share is an Affected Share, or any person is a Relevant Person or on the basis of such determination or any other determination or resolution, they perform or exercise their duties, powers, rights or discretions under this Article in relation to such Share.

44.11. A person who has an interest in Shares by virtue of having an interest in Depositary Receipts shall be deemed to have an interest in the number of Shares represented by such Depositary Receipts and not (in the absence of any other reason why he should be so treated) in the remainder of the Depositary Shares held by the relevant Depositary.

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EX-4

Exhibit 4.(a).13
Redacted Version

ASSET PURCHASE AGREEMENT

BY AND AMONG

MED - 1 I.C.1 (1999) LTD.

AND

PARTNER COMMUNICATIONS COMPANY LTD.

Dated as of January 22, 2006

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

EXHIBITS AND SCHEDULES

EXHIBITS:
Exhibit A-1	Form of Adjustment Escrow Agreement
Exhibit A-2	Form of Indemnity Escrow Agreement
Exhibit B	Form of Indemnity Bank Guarantee
Exhibit C	Form of Employee Waiver
Exhibit D-1/2	Forms of Notice of Assumption
Exhibit E	Form of Hosting Agreement
SCHEDULES:
Schedule 1.1.26	Dual Contracts
Schedule 1.1.40	Leased Real Property
Schedule 1.1.52	Repair Plan
Schedule 1.1.54	Certain Retained Claims
Schedule 2.1(a)	Map of System Location
Schedule 2.1(b)	Tangible Property
Schedule 2.1(d)	Certain Assigned Contracts
Schedule 2.1(f)	Certain Assigned Approvals
Schedule 2.1(i)	Certain Assigned Claims
Schedule 2.2(d)	Excluded Approvals
Schedule 2.5(c)	Certain Approved Investments
Schedule 2.5(d)	Additional Assumed Liabilities
Schedule 5	Company Disclosure Letter
Schedule 6	Purchaser Disclosure Schedule
Schedule 7.2.2	Required Governmental Filings & Approvals
Schedule 7.2.4	Required Third Party Approvals
Schedule 7.7.1	List of Employees

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

         THIS ASSET PURCHASE AGREEMENT (this “Agreement”), dated as of January 22, 2006, is made by and among MED-1 I.C.1 (1999) Ltd., a company organized under the laws of the State of Israel with offices located at 6, HaNechoshet St., Tel-Aviv, Israel (the “Company”), and Partner Communications Company Ltd. (“Partner”), organized under the laws of the State of Israel with offices located at 8 Amal St., Afeq Industrial Park, Rosh Ha’ayin, Israel (“Purchaser”).

WHEREAS:

A. The Company owns and operates, inter alia, the Business, as defined herein; and

B. Purchaser desires to acquire all of certain rights and other assets of the Company and to assume certain liabilities and obligations relating to the Business, all on the terms and subject to the conditions hereinafter set forth, and the Company desires to sell such rights and assets to Purchaser, and to transfer and assign such liabilities and obligations to Purchaser on the terms and subject to the conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements herein contained, and intending to be legally bound hereby, the Company and Purchaser hereby agree, as follows:

1. DEFINITIONS & INTERPRETATION.

    1.1.        Definitions. Wherever used in this Agreement, the following capitalized terms shall have the meanings attached to them:

    1.1.1.        “Acquired Assets” shall have the meaning set out in Section 2.1.

    1.1.2.        “Purchaser Disclosure Schedule” shall have the meaning set out in Section 6.

    1.1.3.        “Action” means any lawsuit, action, arbitration proceeding, Claim, complaint, criminal prosecution, investigation, demand letter, governmental or other administrative proceeding, before or by any Court or Governmental Authority.

    1.1.4.        “Adjustment Escrow Agreement” means an escrow agreement to be entered into by and between the parties and Escrow Agent, in the form attached hereto as Exhibit A-1 [*].

    1.1.5.        “Affected Employees” shall have the meaning set out in Section 7.7.1.

    1.1.6.        “Approval” means any license, permit, consent, approval, authorization, registration, filing, waiver, qualification or certification, including, without limitation, rights of way, easements and other intangible licenses, utility rights, digging permits, and licenses to use Software.

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

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    1.1.7.        “Approved Investments” shall have the meaning set out in Section 2.5(d).

    1.1.8.        “Assigned Approvals” shall have the meaning set out in Section 2.1(f).

    1.1.9.        “Assigned Claims” shall have the meaning set out in Section 2.1(j).

    1.1.10.        “Assigned Contracts” shall have the meaning set out in Section 2.1(d).

    1.1.11.        “Assumed Liability” shall have the meaning set out in Section 2.5.

    1.1.12.        “Business” means the fiber optic transmission business, operations and activities of the Company.

    1.1.13.        “Business Customer” means a client or customer of the Business designated in Section 5.10 of the Company Disclosure Schedule as a “Business Customer”.

    1.1.14.        “Business Day” means any day other than a Friday, a Saturday, a public holiday or the eve of a public holiday in the State of Israel, or any other day on which banks are permitted to close in the State of Israel.

    1.1.15.        “Business Data and Records” shall have the meaning set out in Section 2.1(c).

    1.1.16.        “Claim” means any claim, suit, service of process, demand, cause of action, chose in action, right of recovery, right of set off, or right of recoupment.

    1.1.17.        “Closing” shall have the meaning set out in Section 4.1.

    1.1.18.        “Closing Date” shall have the meaning set out in Section 4.1.

    1.1.19.        “Company Disclosure Schedule” shall have the meaning set out in Section 5.

    1.1.20.        “Contract” means any written or oral contract, agreement, arrangement, understanding, commitment, purchase order or other instrument, and all amendments, modifications and supplements thereto.

    1.1.21.        “Cooperation Agreement” means a cooperation agreement to be entered into by the Company and Purchaser under which each party shall offer the other party’s services to its prospective clients and customers, and to current clients and customers who may be interested in entering into new undertakings, all of the foregoing as more particularly described in Section 7.11.

    1.1.22.        “Court” means any court or arbitration tribunal of any jurisdiction, or any state, province or other subdivision thereof, including, without limitation, the State of Israel.

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    1.1.23.        “Customer Contracts” means Assigned Contracts entered into by and between the Company and clients or customers of the Business, with respect to the sale, lease, or grant of indefeasible right of use or other rights (of use or otherwise), and the provision of related services, by the Company, in, to, or on the System.

    1.1.24.        [*]

    1.1.25.        “Deducted Amounts” shall have the meaning set out in Section 3.3.3 (a).

    1.1.26.        “Dual Contracts” means those Customer Contracts listed on Schedule 1.1.26, relating both to the Business and to the data center, hosting, collocation and DRP business and operations of the Company.

    1.1.27.        “Dual Customers” means clients or customers of the data center, hosting, collocation and/or DRP business and operations of the Company, who are also clients or customers of the Business pursuant to Dual Contracts to which they are party.

    1.1.28.        “Employee Waiver” means a release and waiver, to be executed by each Affected Employee in accordance with Section 7.7.1, substantially in the form attached hereto as Exhibit C.

    1.1.29.        “Escrow Agent” means Gross, Kleinhendler, Hodak, Halevy, Greenberg, Trustees Ltd.

    1.1.30.        “Excluded Assets” shall have the meaning set out in Section 2.2.

    1.1.31.        “Excluded Liabilities” shall have the meaning set out in Section 2.6.

    1.1.32.        “Existing Pledge” means a Bond (Floating Charge) issued by the Company in favor of Bank HaPoalim BM on July 24, 2005, granting Bank HaPoalim BM an unsubordinated floating charge over all of the Company’s assets and properties.

    1.1.33.        “Governmental Authority” means any governmental, municipal (including, local and/or district planning and construction committee) or other public agency, authority, department, commission, board, bureau, Court or instrumentality of any jurisdiction, and any subdivision or agency thereof, having governmental, quasi-governmental or administrative jurisdiction or powers.

    1.1.34.        “Impositions” means any real property Taxes, general and special assessments, water and sewer charges, license fees and other similar fees and charges assessed or imposed by any municipal authority upon any real property or in connection with the title, lease, occupancy or use thereof.

    1.1.35.        “Indemnity Bank Guarantee” means an autonomous bank guarantee to be issued by Bank HaPoalim BM and/or Bank Le’umi Le’Israel Ltd., in favor of the Escrow Agent, substantially in the form attached hereto as Exhibit B, in the amount of two million US dollars (US$2,000,000).

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

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    1.1.36.        “Indemnity Escrow Agreement” means an escrow agreement to be entered into by and between the parties and Escrow Agent, in the form attached hereto as Exhibit A-2, in connection with the holding and release of the Indemnity Bank Guarantee.

    1.1.37.        “Independent Auditor” means an accountant who shall be designated by the parties out of the “Big 4" accounting firms, excluding, however, Ernst & Young and/or PriceWaterhouseCoopers. If the parties are unable to agree on the identity of such a designated accountant within twenty one (21) days of the date hereof, then the parties shall request from the president of the Institution of Certified Public Accountants in Israel to designate such an accountant in accordance with the above principles of designation; such request shall be submitted at least thirty (30) days prior to the intended Closing Date. If the Independent Auditor designated pursuant to this provision above is unwilling or unable to serve as an Independent Auditor, then the parties shall request that the president of the Institution of Certified Public Accountants in Israel designate a substitute Independent Auditor, in accordance with the above principles of designation.

    1.1.38.        “knowledge” (including any derivation thereof, such as “know” or “knowing”) means, with respect to any individual, that such individual is actually aware of such fact or other matter.

    1.1.39.        “Law” means any law, statute, code, written policy, licensing requirements, ordinances, rules and regulations of any Governmental Authority.

    1.1.40.        “Leased Real Property” means any leasehold or sub-leasehold estate and other rights to use or occupy any land, buildings, structures, improvements, fixtures or other interest in real property held by the Company in relation to the Business, as set forth in Schedule 1.1.40.

    1.1.41.        “Liabilities” means any debt, obligation, duty or liability of any nature regardless of whether such debt, obligation, duty or liability would be required to be disclosed on a balance sheet prepared in accordance with any generally accepted accounting principles, and regardless of whether such debt, obligation, duty or liability is immediately due and payable.

    1.1.42.        “Licensed Software” means any and all Software that is licensed to the Company and required for the conduct the Business.

    1.1.43.        “Lien” means any encumbrance, mortgage, hypothecation, pledge, lien, Claim, option, proxy, right of first refusal, charge, security interest, conditional sale agreement, activity or use limitation, conservation easement, servitude, deed restriction, equitable interest, or exception to title, or any other third party right or interest in any asset, property or right; excluding, however, any such third party rights or interests disclosed to Purchaser, and which are created by, arising out of, or specifically contemplated by any of the Acquired Assets or the Assumed Liabilities, provided such third party rights or interests are not imposed as a result of any breach or violation occurring prior to the Closing Date.

    1.1.44.        “Losses” means losses, damages, Liabilities, Actions, sanctions, deficiencies, assessments, judgments, costs, interest, penalties and expenses (including, without limitation, reasonable attorneys’ fees).

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    1.1.45.        “Material Adverse Effect” means, with respect to the Business, any material adverse effect on or change in the legal, financial, business or operational condition of any of the Acquired Assets, that is material to the assets, liabilities, operations or results of operations of the Business (other than changes or circumstances affecting general market conditions or which are generally applicable to the industry in which the Company engages).

    1.1.46.        “Material Contracts” shall mean Contracts or transactions that are material to, or may materially affect, the assets, liabilities, operations or results of operations of the Business, or the benefits to be assigned to Purchaser pursuant to this Agreement, including, without limitation, Contracts for the grant of indefeasible rights of use in the System, or involving an investment by the Company in relation to the Business in excess of twenty five thousand US dollars (US$25,000) per each such Contract, or a monthly aggregate of one hundred thousand US dollars (US$100,000).

    1.1.47.        “Order” means any judgment, order, writ, injunction, ruling, verdict, decision or decree of, or any settlement under the jurisdiction of any Court or Governmental Authority.

    1.1.48.        “Organizational Documents” means, with respect to any corporation incorporated under the Laws of the State of Israel, the memorandum of incorporation, if any, of such corporation, and the articles of association of such corporation, including all restatements thereof and amendments thereto, and, with respect to any other entity, the equivalent organizational or governing documents of such entity.

    1.1.49.        “Person” means an individual, corporation, partnership, association, trust, unincorporated organization, limited liability company or other legal entity.

    1.1.50.        “Purchase Price” shall have the meaning set out in Section 3.1.

    1.1.51.        “Real Property Transfer Agreement” means the agreement entered into by and between the Company and Purchaser of even date herewith, pursuant to which the Company shall sell, transfer and convey to Purchaser the Transferred Real Property.

    1.1.52.        “Repair Plan” means a plan for the current repair of certain parts of the System, as more particularly described in Schedule 1.1.52.

    1.1.53.        “Revenues Table” shall have the meaning set out in Section 5.11

     1.1.54.        “Retained Claims” means all Claims of the Company relating to disputes to which the Company is a party or which are threatened by or against the Company, including, without limitation, all pending, anticipated or future litigation arising out of, and all rights and interest of the Company in, all such Claims, other than the Assigned Claims. The Retained Claims include, without limitation, all Claims of the Company relating to the disputes described in Schedule 1.1.54

    1.1.55.        “Software” means computer programs, known by any name, including all versions thereof, and all other material related to any such computer programs.

    1.1.56.            “System” shall have the meaning set out in Section 2.1(a).

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    1.1.57.        “Tangible Property” shall have the meaning set out in Section 2.1(b).

    1.1.58.        “Tax Returns” shall have the meaning set out in Section 7.7.1.

    1.1.59.        “Taxes” means any state, local, foreign and other taxes, assessments, or other governmental charges, including, without limitation, income, estimated income, business, occupation, franchise, property, sales, use, employment or withholding taxes, including interest, penalties and additions in connection therewith.

    1.1.60.        “Telecom Customer” means a client or customer of the Business designated in Section 5.10 of the Company Disclosure Schedule as a “Telecom Customer”.

    1.1.61.        “Transaction Documents” means the documents, instruments and certificates contemplated by this Agreement or to be executed in connection with the consummation of the transactions contemplated by this Agreement (each, a “Transaction Document”).

    1.1.62.        “Transferred Real Property” means the long term leasehold interest (“zchut hachira le’dorot”) in the base floor of the building situated in Kiryat Nordau Industrial Zone, Netanya, which is the subject matter of the Real Property Transfer Agreement and is more particularly described therein.

    1.1.63.        “Utility Charges” means, with respect to any real property, charges for electricity, power, gas, oil, water, telephone, sanitary sewer service and all other utilities used in or on such real property, excluding, however, any Impositions.

    1.1.64.        “Withheld Amounts” shall have the meaning set out in Section 3.3.3(a).

    1.2.        Interpretation. The schedules and exhibits attached hereto are an integral part of this Agreement. All schedules and exhibits attached to this Agreement are incorporated herein by this reference and all references herein or therein to this “Agreement” shall mean this Agreement together with all such schedules and exhibits. Except as may be otherwise specifically indicated, when a reference is made in this Agreement to Sections, Schedules, or Exhibits, such reference shall be to a Section, schedule or exhibit to this Agreement unless otherwise indicated. The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.” The word “herein” and similar references mean, except where a specific Section or Article reference is expressly indicated, the entire Agreement rather than any specific Section. The words “disclosed to Purchaser” refer to any disclosure made within this Agreement or to any disclosure made in writing in the process of the due diligence investigations carried out by Purchaser with respect to the transactions contemplated hereby. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. As used herein, all pronouns shall include the masculine, feminine, neuter, singular and plural thereof whenever the context and facts require such construction.

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2. PURCHASE AND SALE OF ASSETS.

    2.1        Purchase and Sale of Acquired Assets. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, the Company shall sell, transfer, convey, assign and deliver to Purchaser, free and clear of all Liens, all right, title and interest in and to all of the Acquired Assets.

        As used in this Agreement, the term “Acquired Assets” means any and all of the business, assets, properties, goodwill and rights of the Company, of any kind and nature whatsoever, whether tangible and intangible, owned, used or held for use by the Company in relation to any and all of the Business as conducted at the Closing Date, including, without limitation, the following, but excluding, however, the Excluded Assets:

     (a)        A fiber-optic cable infrastructure comprising of a network of approximately 900 kilometers of submerged and terrestrial transmission fiber, the location of which is specified on the map attached hereto as Schedule 2.1(a) (the “System”).

     (b)        All working equipment, inventory and other tangible property of the Company required for the operation and activation of the System and the performance of services relating to the Business, as listed in Schedule 2.1(b), and all additional Tangible Property as may be owned, used or held for use by the Company between the date hereof and the Closing Date (together, the “Tangible Property”). Schedule 2.1(b) shall be updated on the Closing Date, accordingly;

     (c)        All data and records relating to the Business, including, to the extent available, client and customer lists and records, installed base information, referral sources, research and development reports and records, production reports and records, test reports, quality and process documentation, service and warranty records, equipment, logs, operating guides and manuals, financial and accounting records, copies of all personnel records, creative materials, advertising materials, promotional materials, studies, reports, correspondence and other similar documents relating to the Business (together, “Business Data and Records”), provided, that where any Business Data and Records do not relate exclusively to the Business, then (i) the Company shall retain the original copies of any such Business Data and Records relating primarily to the Excluded Assets, in which case Purchaser shall be delivered a copy of such Business Data and Records, without transfer of rights in and to the information contained therein; and (ii) the Company may retain for its own use copies of any such Business Data and Records relating primarily to the Business and relating also to the Excluded Assets;

     (d)        All rights, title, interests and benefits of the Company under all Contracts to which the Company is a party, and which are required for or related to the operation and activation of the System and the performance of services relating to the Business, as listed in Schedule 2.1(d), and under any and all such additional Contracts to which the Company may enter into in relation to the Business between the date hereof and the Closing Date, subject to Section 7.1 (together, the “Assigned Contracts”), in each case to the extent such rights, title, interests or benefits are attributable to the period from and after the Closing Date;

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     (e)        All rights of the Company under the Dual Contracts, to the extent such rights are required for or related to the operation and activation of the System and the performance of services relating to the Business, and to the extent such rights are attributable to the period from and after the Closing Date;

     (f)        All Approvals held by the Company, which are required for the operation and activation of the System and the performance of services relating to the Business (the “Assigned Approvals”), as listed in Schedule 2.1(f);

     (g)        All accounts receivable of the Company, and all other rights to receive payment, however evidenced, whether by notes, instruments, chattel paper or otherwise, in each case to the extent attributable to the conduct of the Business from and after the Closing Date. In addition, accounts receivable of the Company [*] regardless of the period to which such accounts receivable are attributed;

     (h)        All cash amounts the Company has received from any clients or customers of the Business, from and after September 5th, 2005, and all cash amounts which the Company shall receive from any client or customer of the Business, from and after the date hereof, in each case to the extent attributable to the conduct of the Business from and after the Closing Date (including for the sake of clarity, any amounts the Company may have received on account of [*]);

     (i)        All Claims which the Company has or may have against third parties in connection with the Business, as described in Schedule 2.1(i), and all Claims of the Company against third parties (other than the Retained Claims) which shall arise from or relate to the Business between the date hereof and the Closing Date and which Purchaser shall decide, at its sole discretion, to assume, provided Purchaser shall so notify the Company, in writing, at least two (2) Business Days prior to the Closing Date (the “Assigned Claims”);

     (j)        All rights, benefits or interests of the Company to insurance claims, refunds and proceeds under any insurance policies of the Company, to the extent relating to the Business, except for such rights to insurance claims and proceeds: (i) relating to actual expenses incurred by the Company prior to the Closing Date, (ii) relating to expenses incurred or payable by the Company in connection with the Repair Plan, or (iii) to which the Company is entitled in connection with any of the Excluded Assets;

     (k)        All rights of the Company under non-disclosure or confidentiality, non-compete, or non-solicitation agreements with employees and agents of the Company or with third parties, in each case to the extent relating to the Business (or any portion thereof); and

     (l)        All rights of the Company under or pursuant to all warranties, representations and guarantees made by suppliers, manufacturers and contractors to the extent relating to the Acquired Assets or any part thereof.

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

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    2.2        Excluded Assets. Notwithstanding anything to the contrary in Section 2.1, the following assets and properties are to be retained by the Company and shall not constitute Acquired Assets (collectively, the “Excluded Assets”):

     (a)        All of the business, assets, properties, goodwill and rights of the Company of every kind and nature, tangible and intangible (i) other than the Acquired Assets, or (ii) to the extent relating to any business or operations of the Company other than the Business, including, without limitation, the data center, hosting, collocation and DRP business and operations of the Company, and any rights and obligations pertaining thereto;

     (b)        All rights of the Company under any Contract other than the Assigned Contracts, and all rights of the Company under any Assigned Contract to the extent attributable to the period prior to the Closing Date;

     (c)        All rights of the Company under the Dual Contracts, other than to the extent required for or related to the operation and activation of the System and the performance of services relating to the Business, or which are attributable to the period prior to the Closing Date;

     (d)        The Approvals set forth in Schedule 2.2(d).

     (e)        All ownership, leasehold or other interest of the Company in any real property, or in any improvements, fixtures and other appurtenances thereto, other than the Leased Real Property;

     (f)        All accounts receivable of the Company, and all other rights to receive payment, however evidenced, whether by notes, instruments, chattel paper or otherwise, to the extent attributable to the conduct of the Business prior to the Closing Date, excluding however accounts receivable of the Company [*] regardless of the period to which such accounts receivable are attributed.

     (g)        Subject to Section 2.1(i), all cash or cash equivalents of the Company;

     (h)        All Retained Claims including, without limitation, [*]. For the avoidance of any doubt, any right, obligation, liability or cause of action with respect to the disputes with such Persons shall be retained by and ascribed only to the Company, and the Purchaser shall not be assigned any right or claim, and shall not assume any obligation or liability, toward such Persons in connection with such disputes;

     (i)        All insurance policies of the Company, and all rights to insurance claims, proceeds and benefits relating to actual expenses incurred by the Company in connection with the Business prior to the Closing Date, or to which the Company is entitled in connection with any of the Excluded Assets;

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

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     (j)        All trade names, trademarks, service marks, symbols, logos, copyrights and other proprietary materials or trade rights, whether or not used by the Company in the conduct of the Business, and all registrations, applications and Approvals relating to any of the foregoing;

     (k)        All rights and interests of the Company in, to and in respect of the Excluded Liabilities; and

     (l)        All rights, title and interest of the Company in, to and under this Agreement and any of the Transaction Documents.

    2.3        Assignment of Assigned Contracts.

    2.3.1.        Notwithstanding anything in this Agreement to the contrary, this Agreement shall not constitute an agreement to assign or otherwise transfer any Assigned Contract or Assigned Approval if an attempted assignment or transfer thereof, without the consent of a third party to such assignment or transfer, would constitute a breach thereof, would be ineffective, or would adversely affect the rights of Purchaser hereunder or thereunder.

    2.3.2.        Prior to the Closing Date, and without limiting the generality of Section 7.2.4 the Company shall use its best reasonable efforts to consummate the irrevocable assignment to Purchaser of any and all of the rights and obligations of the Company under the Assigned Contracts, pursuant to the provisions of this Agreement. Without limiting the generality of the above, prior to the Closing Date the Company shall use its best reasonable efforts to obtain the express written consent of each client or customer of the Business, whereby such client or customer expressly acknowledges and agrees to the irrevocable assignment to Purchaser of any and all of the rights and obligations of the Company under such clients’ or customer’s Customer Contract, pursuant to the provisions of this Agreement. The parties agree that such irrevocable consent may be subject to reasonable conditions imposed by said customers or clients.

    2.3.3.        In the event that, at or prior to the Closing Date, the Company is unable to obtain the express written consent of any Business Customer to the irrevocable assignment to Purchaser of any and all of the rights and obligations of the Company under such Business Customer’s Customer Contract, pursuant to the provisions of this Agreement, then such Customer Contract shall not be assigned to Purchaser but shall be retained by the Company (each such Customer Contract, a “Retained Business Customer Contract”) [*].

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

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    2.3.4.        In the event that, at or prior to the Closing Date, the Company is unable to obtain the express written consent of any Telecom Customer to the irrevocable assignment to Purchaser of any and all of the rights and obligations of the Company under such Telecom Customer’s Customer Contract, pursuant to the provisions of this Agreement, then such Telecom Customer’s Customer Contract shall not be assigned to Purchaser but shall be retained by the Company and shall be held by the Company, from and after the Closing Date and until the irrevocable assignment thereof to Purchaser, in trust for Purchaser until the assignment thereof to Purchaser (each such Customer Contract, a “Retained Telecom Customer Contract”). Upon the Closing, Purchaser shall assume, and agree to perform and discharge, in the Company’s name, all Liabilities that would have been assumed by Purchaser hereunder with respect to any Retained Telecom Customer Contract, and the Company shall provide Purchaser with all rights and benefits that would have been assigned to Purchaser hereunder with respect to such Retained Telecom Customer Contract, had such Retained Telecom Customer Contract been assigned. To the extent practicable, the parties shall endeavor that all proceeds payable under any Retained Telecom Customer Contracts shall be paid directly to Purchaser. In addition, the Company shall take or cause to be taken, at Purchaser’s expense, such actions in its own name or otherwise as Purchaser may reasonably request, so as to enforce the rights and benefits of any Retained Telecom Customer Contracts and to effect collection of money or other consideration that becomes due and payable thereunder, for the benefit of Purchaser, and the Company shall promptly pay over to Purchaser all such money or other consideration received by it in respect of such Retained Telecom Customer Contracts.

    2.4.        Separation of Dual Contracts.

    2.4.1.        Notwithstanding anything in this Section 2.4 to the contrary, this Section 2.4 shall not constitute an agreement to assign or otherwise transfer any Dual Contract if an attempted assignment or transfer thereof, without the consent of a third party to such assignment or transfer, would constitute a breach thereof, would be ineffective, or would adversely affect the rights of Purchaser hereunder or thereunder.

    2.4.2.        Prior to the Closing Date, the Company shall use its best reasonable efforts to obtain the consent of its Dual Customers to the irrevocable assignment to Purchaser of any and all rights and obligations of the Company under such Dual Customers’ Dual Contracts, to the extent required for or related to the operation and activation of the System and the performance of services relating to the Business, and to the extent such rights are attributable to the period from and after the Closing Date. The parties agree that such irrevocable consents may be subject to reasonable conditions imposed by said Dual Customers. Such assignment shall be intended at separating the Dual Contracts into two legally independent contracts, one relating to the Acquired Assets as set forth in Section 2.1(e) (which shall be assigned to the Purchaser) and one relating to the Excluded Assets as set forth in Section 2.2(c) (which shall be retained by the Company). Where a Dual Contract does not specify the consideration payable for service provided thereunder in relation to the Business, the instrument of assignment shall specify such consideration, which the parties intend to be based on the amounts specified in the Revenues Table, subject at all times to Section 3.3.3.

    2.4.3.        In the event that, at or prior to the Closing Date, the Company is unable to separate and assign any Dual Contract pursuant to the provisions of Section 2.4.2 above, then no rights or obligations shall be assigned under such Dual Contract, and such Dual Contract shall be deemed a Retained Telecom Customer Contract (where the Dual Contract Customer is a telecom operator), or, as the case may be, a Retained Business Customer Contract (in all other cases).

    2.4.4.        In the event that a Dual Customer agrees to the assignment of such Dual Customer’s Dual Contract, pursuant to the provisions of Section 2.4.2 above, but does not agree to separate such Dual Contract into two legally independent contracts, then the Company and Purchaser will each provide their respective services and will indemnify each other for any damages, expenses, or harm caused or incurred to the other party as a result of a breach of the Dual Contract, for which such party is responsible, provided that neither party shall assume any liabilities for compensation that do not result from its own failure to provide its respective services.

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    2.5.        Assumption of Liabilities. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Purchaser shall assume, and from and after the Closing, Purchaser shall pay, discharge when due, and perform, all of the following Liabilities of the Company and only such Liabilities (collectively, the “Assumed Liabilities”):

    (a)        All of the Company’s Liabilities under the Assigned Contracts and the Assigned Approvals, to the extent attributable to the conduct of the Business from and after the Closing Date;

    (b)        All accounts payable incurred in the ordinary course of the Business, to the extent attributable to the conduct of the Business from and after the Closing Date;

    (c)        All Liabilities of the Company relating to investments made by the Company in respect of the System or any Tangible Property, as listed in Schedule 2.5(c), and all Liabilities of the Company relating to any additional investments which the Company shall make between the date hereof and the Closing Date in respect of the System or any Tangible Property, provided that Purchaser has given its prior written consent to such additional investments (together, “Approved Investments”). For the removal of doubt, as used in this Section 2.5(c), the term “Liabilities” shall include accounts payable incurred by the Company in connection with any Approved Investments, regardless of the due date of payment thereof; and

    (d)        The Liabilities set forth in Schedule 2.5(d); and

    (e)        All other Liabilities attributable to the conduct of the Business from and after the Closing Date, to the extent created by, arising out of, or specifically contemplated by any of the Acquired Assets provided however, such Liabilities have been disclosed to Purchaser.

    2.6.        Excluded Liabilities. Notwithstanding any provision of this Agreement to the contrary, except for the Assumed Liabilities, Purchaser shall not be deemed to assume, nor shall it assume or be obligated to pay, discharge, indemnify or perform, any other Liability of the Company, including, without limitation, the following Liabilities (collectively, the “Excluded Liabilities”), all of which shall remain the sole responsibility of the Company, and shall be retained, paid, performed and discharged by the Company:

    (a)        All Liabilities of the Company attributable to the conduct of the Business prior to the Closing Date;

    (b)        All Liabilities of the Company arising under any Contract of the Company other than the Assigned Contracts, or arising under any Assigned Contract terminated or effectively terminated as of the Closing Date, or arising under or relating to any breach or violation by the Company of any Assigned Contract occurring prior to the Closing Date;

    (c)        All Liabilities of the Company in respect of the Excluded Assets;

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    (d)        All Liabilities of the Company for salaries, wages, vacation pay or other rights and benefits due or accrued by any present or former employee and/or subcontractor of the Company, including, as more particularly set forth in Section 7.7.2;

    (e)        All Liabilities of the Company arising out of or resulting from the Company’s non-compliance with any Law or Order of, or Approval granted by, any Governmental Entity;

    (f)        All Liabilities of the Company resulting from any act or omission of the Company occurring from and after the Closing Date;

    (g)        All Liabilities of the Company for Taxes payable in connection with the Company’s conduct of the Business prior to the Closing Date; and

    (h)        All Claims of the Company alleging infringement, of patents, trademarks or trade names held by others and any Losses based upon or arising out of such Claims; and

    (i)        All Liabilities of the Company under this Agreement and any of the Transaction Documents.

        The Company shall timely perform, satisfy and discharge all Excluded Liabilities, whether known at the Closing or determined anytime thereafter and, upon the terms and subject to the conditions set forth in Sections 9.4.1 and 9.5, shall indemnify and hold the Purchaser harmless therefor.

3. PURCHASE PRICE, VAT, ADJUSTMENTS, APPORTIONMENTS.

    3.1.        Purchase Price. The entire purchase price (the “Purchase Price”) payable by Purchaser to the Company in consideration for the Acquired Assets and the transactions contemplated hereby shall be US$14,800,000 (fourteen million eight hundred thousand US dollars), subject to any requisite adjustment pursuant to Section 3.3.

    3.2.        Value Added Taxes. The Purchase Price does not include any value added taxes applicable to the acquisition of the Acquired Assets. Value added taxes, to the extent applicable, shall be added to all payments hereunder and paid by Purchaser to the Company, against receipt of a duly issued invoice.

     3.3.        Purchase Price Adjustments.

     3.3.1.        Adjustment for Approved Investments. The amounts set forth in Section 3.1 shall be increased, at the Closing, by an amount equal to the aggregate cash payments that the Company has made between September 5^th, 2005 and the date hereof, or that the Company shall make between the date hereof and the Closing Date, in connection with any Approved Investment, provided, however, such cash payments are consistent with the payments that were consented to by the Purchaser for any Approved Investment and further provided that the cash payments made by the Company are evidenced by a certificate which shall be executed by an officer of the Company and delivered to Purchaser at least four (4) Business Days prior to the Closing Date, setting forth in reasonable detail a calculation of all such payments and attaching copies of all receipts thereof.

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     3.3.2.        Adjustment for Certain Post Closing Attributions. The amounts set forth in Section 3.1 shall be reduced, at the Closing, by an amount equal to the aggregate cash payments that (i) the Company has received from any client or customer of the Business, between September 5^th, 2005 and the date hereof, to the extent attributable to the conduct of the Business from and after the Closing Date, as described in Section 5.11 of the Company Disclosure Schedule, and (ii) the Company may receive from any client or customer of the Business, between the date hereof and the Closing Date, to the extent attributable to the conduct of the Business from and after the Closing Date, in each case as evidenced by a certificate which shall be executed by an officer of the Company and delivered to Purchaser at least four (4) Business Days prior to the Closing Date, setting forth in reasonable detail a calculation of all such payments.

     3.3.3.        [*]

     (a)        [*]

     (b)        [*]

     (c)        [*]

     (d)        [*]

     (e)        As promptly as practicable prior to the Closing Date, the parties shall discuss in good faith any adjustments necessary to be made under this Section 3.3.3, and shall attempt to reach an agreement on the Withheld Amounts and the Deducted Amounts, if any. In the event the parties shall be unable to reach such an agreement, then the parties shall proceed to Closing subject to the deposit of any Withheld Amounts or Deducted Amounts in dispute (such amounts, as the case may be, “Disputed Withheld Amounts” or “Disputed Deducted Amounts”, and collectively, “Disputed Adjustments”), with the Escrow Agent, who shall hold and release the same in accordance with the Adjustment Escrow Agreement, until such dispute is resolved as set forth below.

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

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     (f)        In the event of any Disputed Adjustments, either party may, by written notice to the other party and the Independent Auditor, delivered within thirty (30) days of the Closing Date, appoint the Independent Auditor to review and audit the Disputed Adjustments (and all related financial information as shall be deemed relevant by the Independent Auditor). The Independent Auditor shall be instructed to prepare a reasonably detailed statement determining the Withheld Amounts and the Deducted Amounts, if any (the “Audited Adjustment Statement”) pursuant to the instructions in this Agreement. The Audited Adjustment Statement shall be final and binding on the parties absent manifest error. The costs of the Independent Auditor shall be borne equally by the parties, unless either party’s determination of the Withheld Amounts and the Deducted Amount, in the aggregate (as set forth in each party’s position statement submitted to the Independent Auditor) deviated by more than 20% from such amounts as stated in the Audited Adjustment Statement, in which case such party shall bear the costs of the Independent Auditor. For the purposes hereof, the “Final Withheld Amount” and the “Final Deducted Amounts” shall respectively equal either (i) the Withheld Amount and the Deducted Amounts, if any, as agreed by the parties prior to the Closing Date, (ii) the Withheld Amount and the Deducted Amounts, if any, as mutually agreed upon by the Company and Purchaser at any time after the Closing, or (iii) the Withheld Amount and the Deducted Amounts, if any, as set forth in the Audited Adjustment Statement, if the Independent Auditor is appointed and delivers a calculation of such amounts.

     (g)        (i)        Upon the determination of the Final Withheld Amount, if any, then the Escrow Agent shall, pursuant to the Audited Adjustment Statement and in accordance with the Adjustment Escrow Mechanism, either release the Disputed Withheld Amounts to the Company or retain in the same as additional Withheld Amounts, to be held and released by the Escrow Agent in accordance with the Adjustment Escrow Agreement.

     (ii)        Upon the determination of the Final Deducted Amount, if any, then the Escrow Agent shall, pursuant to the Audited Adjustment Statement and in accordance with the Adjustment Escrow Mechanism, release the Disputed Deducted Amounts either to the Company or to Purchaser.

     (h)        Notwithstanding the aforesaid, neither the Minimum Commitment nor anything else in this Section 3.3.3 shall diminish the Company’s obligation under this Agreement to use its best reasonable efforts to obtain the express written consent to the irrevocable assignment of all Customer Contracts and Dual Contracts, pursuant to the provisions of this Agreement.

    3.4.        Apportionments. Each party will cooperate with the other and will prepare, execute and deliver such instruments, and take such further action, as may be required, or as may be reasonably requested by the other party, in order to give effect to the parties’ agreement that all items of income and expense attributable to the Acquired Assets and the Assumed Liabilities shall be apportioned between them as of the Closing. Without limiting the generality of the preceding sentence, all current Taxes or payments attributable to the Acquired Assets and the Assumed Liabilities, including, without limitation, any Impositions and Utility Charges incurred in respect of the use or occupancy of any Leased Real Property, shall be apportioned as of the Closing Date, such that the Company shall be obligated for all such Taxes and other payments apportioned in respect of the period through and including the Closing Date, and Purchaser shall be obligated for all such Taxes and other payments apportioned in respect of the period following the Closing Date. In the case of any such current Taxes and other payments covering a payment period commencing before the Closing Date and ending thereafter, the party required to make such payments (the “Paying Party”) shall timely prepare and file any Tax Returns and make all payments required thereunder, and the other party will promptly reimburse the Paying Party upon receipt of evidence of payment to the extent any payment made by the Paying Party relates to that portion of the period for which the other party is obligated hereunder. For the sake of clarity, reimbursement pursuant to this Section is not subject to the terms and conditions of Section 9 and shall not be limited or restricted by the provisions of Section 9.4.

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4. CLOSING.

    4.1.        Closing. Upon the terms and subject to the conditions hereof (including fulfillment or, where permitted, the waiver of the conditions precedent set forth in Section 8), the closing of the transactions contemplated by this Agreement (the “Closing”) will take place at 11:00 a.m. (Israel Time) on the third (3^rd) Business Day following the date on which all of the conditions set forth in Section 8 have been satisfied or waived, but in any event not earlier than the 60^th day following the date hereof, unless another time or date is agreed to in writing by the parties (the “Closing Date”). Notwithstanding the foregoing, if the conditions precedent set forth in Section 8 have not been fulfilled on or before the Closing Date, the Closing Date shall be automatically extended for an additional thirty (30) days provided that the conditions precedent in Section 8 have been fulfilled by such date. The Closing shall be held at the offices of Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co., Law Offices, located at One, Azrieli Center (the Round Building), Tel-Aviv, unless another place is agreed to in writing by the parties. The consummation of the transactions contemplated by this Agreement shall be deemed to occur on the Closing Date.

    4.2.        Transactions at Closing. At the Closing, all of the actions set forth in this Section 4.2 below shall occur and shall be deemed to occur simultaneously, such that no action shall be deemed to have been completed or any document delivered until all such actions have been completed and all such documents have been delivered:

    4.2.1.        The Company shall deliver or cause to be delivered to Purchaser:

    (a)        a certificate (the “Company Closing Certificate”), executed by an officer thereof, certifying that, except as expressly set forth in the Company Closing Certificate, each of the conditions set forth in Section 8.2(a), and in Sections 8.2(d) through 8.2(i), has been satisfied in all material respects;

    (b)        a certificate, executed by an authorized representative of the Company, certifying as to the incumbency of the officers executing this Agreement and any Transaction Documents to which the Company is a party, on behalf of the Company, and further certifying that the execution, delivery and performance of this Agreement, the Transaction Documents to which the Company is a party, and the transactions contemplated hereby and thereby, and the acts of the officers of the Company in carrying out the terms and provisions hereof and thereof, have been authorized and approved by all corporate action required to be taken on the part of the Company;

    (c)        all deeds and bills of sale, assignments, endorsements, certificates of title, consents and other good and sufficient instruments and documents of conveyance and transfer in a form reasonably satisfactory to Purchaser, duly executed by the Company, as necessary to vest in or confirm to Purchaser full and complete right, title and interest in and to all of the Acquired Assets, free and clear of any and all Liens, including, without limitation, any written consents of assignment of Customer Contracts executed by clients or customers of the Business;

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    (d)        copies of all filings made by the Company with, all notification made by the Company to, and all Approvals obtained by the Company from any Governmental Authority, in connection with the authorization, execution and delivery of this Agreement and the Transaction Documents required to be executed by such party hereunder or thereunder;

    (e)        copies of all notifications made by the Company, and all consents or acknowledgements received by the Company from third parties, in respect of the assignment, transfer and conveyance to Purchaser of all right, title and interest in and to the Assigned Contracts pursuant to the provisions of this Agreement;

    (f)        copies of the Employee Waivers of each Affected Employee who has accepted Purchaser’s offer of employment;

    (g)        a notice issued by Bank HaPoalim BM, in form and substance fully satisfactory both to Bank HaPoalim BM and to Purchaser and its counsel, confirming the exclusion of the Existing Pledge in respect of the Acquired Assets and the Transferred Real Property, and the sale, transfer and conveyance thereof pursuant to the transactions contemplated by this Agreement.

    (h)        a certificate issued by the Company’s insurers or insurance advisors, evidencing that the insurance coverage carried by the Company with respect to the Business or any of the Acquired Assets, as at the date hereof, is valid and enforceable as of the Closing Date, and specifying any claims made by the Company thereunder between the date hereof and the Closing Date.

    4.2.2.        The Company shall deposit with the Escrow Agent the Indemnity Bank Guarantee, which shall serve to secure Claims by Purchaser for indemnification pursuant to Section 9.2 and Purchaser’s reimbursement for payment of the Company’s real estate taxes pursuant to the Real Property Transfer Agreement. The Indemnity Bank Guarantee shall be held and released by the Escrow Agent in accordance with the terms of the Indemnity Escrow Agreement.

    4.2.3.        Purchaser shall deliver or cause to be delivered to the Company:

     (a)        a certificate (the “Purchaser Closing Certificate”), executed by an officer thereof, certifying that, except as expressly set forth in the Purchaser Closing Certificate, each of the conditions set forth in Sections 8.3(a) and 8.3(c) has been satisfied in all material respects;

     (b)        a certificate, executed by an authorized representative of Purchaser, certifying as to the incumbency of the officers executing this Agreement and any Transaction Documents to which Purchaser is a party, on behalf of Purchaser, and further certifying that the execution, delivery and performance of this Agreement, the Transaction Documents to which Purchaser is a party, and the transactions contemplated hereby and thereby, and the acts of the officers of Purchaser in carrying out the terms and provisions hereof and thereof, have been authorized and approved by all corporate action required to be taken on the part of Purchaser.

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     (c)        a duly executed, irrevocable notice of assumption in respect of the Assigned Contracts and Dual Contracts, substantially in the forms attached hereto as Exhibits D1 and D2, as necessary to enable the Company to vest in or confirm to Purchaser full and complete right, title and interest in and to all of the Acquired Assets pursuant to the provisions of this Agreement.

    4.2.4.        Purchaser shall pay to the Company the Purchase Price, as adjusted pursuant to Section 3.3. Such payment shall be made in immediately available funds transferred by wire transfer to the Company’s bank account designated by the Company to Purchaser, in writing, at least three (3) Business Days prior to the Closing Date.

    4.2.5.        The parties shall duly execute, deliver and exchange, and shall procure the execution, delivery and exchange by the Escrow Agent, of the Adjustment Escrow Agreement and the Indemnity Escrow Agreement.

    4.2.6.        The parties shall duly execute, deliver and exchange the Hosting Agreement, in the form attached hereto as Exhibit E.

    4.2.7.        The parties shall duly execute, deliver and exchange the Cooperation Agreement.

     4.3.        Further Assurances. From time to time after the Closing, at the request of Purchaser, the Company will execute and deliver such other instruments of sale, transfer, conveyance, assignment and confirmation, and will take such further action, as may be reasonably requested in order to more effectively transfer, convey and assign to Purchaser, and to confirm Purchaser’s rights, title and interest in and to, the Acquired Assets. Each of the parties shall diligently cooperate with the other, and shall execute such other documents and take such further action as may be reasonably required to carry out the provisions of this Agreement and the transactions contemplated hereby.

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5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

        Except as disclosed by the Company in the disclosure schedule attached hereto as Schedule 5 (the “Company Disclosure Schedule”) or as disclosed to Purchaser, the Company hereby represents and warrants to Purchaser that the statements contained in this Section 5 are complete and accurate as of the date of this Agreement.

    5.1.        Organization and Qualification of the Company. The Company is a corporation duly organized and validly existing under the Laws of the State of Israel. The Company has all requisite power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted.

    5.2.        Authorization; Binding Obligation. Subject to the fulfillment of all of the conditions precedent contained in Section 8.1, the Company has all necessary power and authority to execute and deliver this Agreement, and each Transaction Document required to be executed and delivered by it pursuant to this Agreement, and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by the Company of this Agreement and each Transaction Document required to be executed and delivered by it pursuant to this Agreement, the performance of its obligations hereunder and thereunder, and the consummation by the Company of the transactions contemplated hereby and thereby, have been duly and validly authorized by all required corporate action on the part of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or any such Transaction Document or to consummate the transactions so contemplated herein and therein. This Agreement has been, and each of the Transaction Documents required to be executed and delivered by it pursuant to this Agreement, when executed and delivered by the Company, will be, duly and validly executed and delivered by the Company, and this Agreement constitutes, and each such Transaction Document, when executed and delivered, will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms.

    5.3.        Consents and Approvals. Subject to the fulfillment of all of the conditions precedent contained in Section 8.1 and in Section 8.3(b), the execution and delivery by the Company of this Agreement, and each Transaction Document required to be executed and delivered by it pursuant to this Agreement, do not, and the performance of the foregoing shall not, require the Company to obtain any Approval of any Person or Governmental Authority, or make any filing with or notification to, any Governmental Authority.

    5.4.        No Violation. The execution and delivery by the Company of this Agreement, and each Transaction Document required to be executed and delivered by it pursuant to this Agreement, do not, and the performance of this Agreement, and each Transaction Document required to be executed and delivered by it pursuant to this Agreement, will not, (a) conflict with or violate the Organizational Documents of the Company, (b) conflict with or violate any Law applicable to the Company or by which its properties are bound or affected, or (c) subject to the fulfillment of all of the conditions precedent contained in Section 8.2(h), result in any breach or violation of, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, any Contract to which the Company is a party or by which the Company is bound; which conflict, violation, breach or default is likely to affect the transactions contemplated hereby or the Company’s ability to fulfill its obligations under this Agreement or any Transaction Document required to be executed and delivered by the Company pursuant to this Agreement.

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    5.5.        Title to Acquired Assets. Except as set forth in the Company’s Disclosure Schedule, the Company is the sole and exclusive legal and equitable owner and holder of all rights and interests in the Acquired Assets, including, without limitation, the proprietary, possession and usage rights therein and thereto, and the Company has good, clear, and marketable title to, all of the Acquired Assets, free and clear of all Liens.

    5.6.        Assigned Contracts. Except as set forth in the Company Disclosure Schedule (i) to the best of the Company’s knowledge, other than the Assigned Contracts, there are no other Contracts required for or related to the conduct the Business, and (ii) all Assigned Contracts are valid, enforceable and in full force and effect.

    5.7.        Tangible Property. To the best of the Company’s knowledge, the Tangible Property, as listed in Schedule 2.1(b), includes all of the Tangible Property required for or related to the operation and activation of the System and the performance of services relating to the Business, and there is no other Tangible Property required for the conduct the Business.

    5.8.        Assigned Approvals. Except as set forth in the Company Disclosure Schedule, to the best of the Company’s knowledge, the Assigned Approvals are all of the Approvals required for the conduct of the Business. To the best of the Company’s knowledge, except as set forth in the Company Disclosure Schedule, (i) each of the Assigned Approval is valid and in full force and effect, (ii) the Company has complied with all such Assigned Approvals to a material extent, and (iii) there is no event that has occurred or circumstances that exist, that may constitute or result in a violation of, or in the revocation, withdrawal or suspension or modification of, any such Assigned Approvals. To the best of the Company’s knowledge, there is no Action pending or threatened, that could result in the termination, revocation, limitation, suspension, restriction or impairment of any Assigned Approval that is required for the conduct the Business, or the imposition of any fine, penalty or other sanctions for violation of any legal or regulatory requirements relating to any such Assigned Approval.

    5.9.        Absence of Certain Events. Except as set forth in the Company Disclosure Schedule, since September 5, 2005, the Company has conducted the Business in the ordinary and usual course and has used commercially reasonable efforts to preserve intact the business organization and properties of the Company, to keep available the services of the present officers, employees, consultants and independent contractors of the Company, and to preserve the present relationships of the Company with suppliers, customers, and other Persons with which the Company has business relations. Without derogating from the generality of the preceding sentence, since September 5, 2005:

    5.9.1.        the Company has not authorized or consummated any merger, consolidation, sale or other disposition of any or all of the Acquired Assets, or any other disposition relating to and/or that may affect any of the Acquired Assets, except in the ordinary and usual course of business;

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    5.9.2.        the Company has not acted to collect any advance payments, or any accounts receivable, prior to their due date of payment, from any clients or customers of the Business;

    5.9.3.        except as set forth in the Company Disclosure Schedule, the Company has not, without the prior written consent of Purchaser, entered into any Material Contract in relation to or which may affect the Acquired Assets; and

    5.9.4.        there has not been any other event or circumstance which has had or could reasonably be expected to have, a Material Adverse Effect on the Business.

    5.10.        Customer Contracts.

    5.10.1.        The Company Disclosure Schedule sets out a true and complete list of all clients or customers of the Business, together with all Customer Contracts between the Company and such clients or customers. The Company has delivered to Purchaser true and complete copies of all Customer Contracts, including any amendments or revisions thereto.

    5.10.2.        To the Company’s best knowledge, the Customer Contracts are in full force and effect, are valid and enforceable, and constitute the only Contracts between the Company and such clients or customers with respect to the sale, lease, grant of indefeasible right of use, or other rights (to use or otherwise), and the provision of related services, by the Company, in, to, or on the System.

    5.10.3.        The Company has not received any notice from any client or customer of the Business, of the termination or threatened termination of any Customer Contract, or of any Claim with respect thereto, nor, to the knowledge of the Company, is there any basis therefor.

    5.11.        Accounts Receivable; Cash Payments. The Company Disclosure Schedule accurately sets forth (i) the aggregated payments actually received and accounts receivable arising from the Customer Contracts for the period commencing on January 1, 2005 (the “Revenues Table”), and (ii) a true and complete description and calculation of all payments the Company has received from any clients or customers of the Business, between September 5^th, 2005 and the date hereof, and which are attributed to the conduct of the Business from and after the Closing Date. The Company Disclosure Schedule shall be updated by the Company on the Closing Date with respect to all payments the Company shall have received from any clients or customers of the Business, from the date hereof until the Closing Date, and which are attributed to the conduct of the Business from and after the Closing Date. All accounts receivable set forth in the Company Disclosure Schedule represent valid obligations arising from Customer Contracts. From and after September 5, 2005, no discount or allowance from any receivable has been made or agreed to and no such accounts receivable represents billing prior to actual sale of goods or provision of services. To the Company’s best knowledge, no client or customer of the Business has refused or threatened to refuse to pay any outstanding or future obligations owed to the Company.

    5.12.        Compliance with Laws. To the best of the Company’s knowledge, except as set forth in the Company Disclosure Schedule, the Company has not violated any Law applicable to the Business or any of the Acquired Assets, and has not received any notice to the effect that, or otherwise been advised that, it is not in compliance with any such Laws.

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    5.13.        Legal Proceedings. Except as set forth in the Company Disclosure Schedule, there is no Action pending or, to the best of the Company’s knowledge, threatened by or against the Company, relating to, or which could reasonably be expected to affect, the Acquired Assets or the transactions contemplated by this Agreement and by any Transaction Document required to be executed hereunder.

    5.14.        Employees. Schedule 7.7.1 sets forth a list of all of the employees of the Company engaged in the conduct of the Business. The Company has furnished Purchaser with true and complete copies of all Contracts relating to the employment of such employees. Except as set forth in such Contracts, there are no other arrangements, understandings, or commitments for the payment of any pensions, allowances, lump sums or other benefits to any such employees, whether on retirement, death, termination, or otherwise. To the best of the Company’s knowledge, there are no collective agreements or extension orders that apply to any employees of the Company, except for collective agreements and extension orders of common application to all employees in Israel.

    5.15.        Insurance. The Company Disclosure Schedule lists, by type, carrier, policy number, limits, premium and expiration date, all insurance coverage carried by the Company with respect to the Business or any of the Acquired Assets, together with a history of all claims made by the Company thereunder during the past three (3) years. The Company Disclosure Schedule also states whether each such policy is carried on a “claims made” or “occurrence” basis. Except as sets out in the Company Disclosure Schedule, all such insurance policies are owned by and payable solely to the Company and all premiums with respect thereto are currently paid and will be paid through the Closing Date. To the Company’s knowledge, all such insurance policies are in full force and effect, and are valid and enforceable. The Company has not received notice of cancellation or non-renewal of any such policies and is not aware of any threatened or proposed cancellation or non-renewal of any such policies.

    5.16.        Condition of System and Tangible Property. The System and every substantial tangible asset forming part of the Acquired Assets are of good quality. At the date of this Agreement, the System is in proper and orderly working and repair condition, with the exception of: (i) normal wear and tear, (ii) minor defects which do not substantially interfere with the continuous use thereof, and (iii) such parts of the submerged portion of the System between Tel Aviv and Ashkelon which are being currently repaired, which repairs shall be completed by the Company and at Company’s expense, in accordance with the Repair Plan, by February 28, 2006. The System is suitable and fit for immediate and continuous deployment in the provision of the services for which it was designed.

    5.17.        No Brokers. The Company has not employed or engaged, either directly or indirectly, or incurred or will incur any Liability to, any broker, finder, investment banker or other agent in connection with the transactions contemplated by this Agreement.

    5.18.        Intellectual Property. The Company Disclosure Schedule sets out a complete and accurate list of all license agreements granting any right to use the Licensed Software (“License Agreements”), indicating, for each License Agreement, the title, the parties, date executed, the term, whether or not it is exclusive, and the Licensed Software covered thereby. To the Company’s knowledge, all License Agreements are in full force and effect, and are valid and enforceable. The Company has not received notice of cancellation or non-renewal of any such License Agreements and is not aware of any threatened or proposed cancellation or non-renewal of any such policies. Except as set forth in any License Agreements, no royalties, honoraria or other fees are payable to any third parties for the use of or right to use any Licensed Software.

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    5.19.        Disclosure. Neither this Agreement (including the exhibits and schedules hereto) nor any other Transaction Document required to be executed by the Company hereunder, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made or necessary to provide a prospective purchaser of the Company with all information material thereto.

6. REPRESENTATIONS AND WARRANTIES OF PURCHASER.

        Except as disclosed by Purchaser in the disclosure schedule attached hereto as Schedule 6 (the “Purchaser Disclosure Schedule”), Purchaser hereby represents and warrants to the Company that the statements contained in this Section 6 are complete and accurate as of the date of this Agreement.

    6.1.        Organization and Qualification of Purchaser. Purchaser is a corporation duly organized and validly existing under the Laws of the State of Israel. Purchaser has all requisite power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted.

    6.2.        Authorization; Binding Obligation. Subject to the fulfillment of all of the conditions precedent contained in Section 8.1, Purchaser has all necessary power and authority to execute and deliver this Agreement, and each Transaction Document required to be executed and delivered by it pursuant to this Agreement, and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Purchaser of this Agreement and each Transaction Document required to be executed and delivered by it pursuant to this Agreement, the performance of its obligations hereunder and thereunder, and the consummation by Purchaser of the transactions contemplated hereby and thereby, have been duly and validly authorized by all required corporate action on the part of Purchaser, and no other corporate proceedings on the part of Purchaser are necessary to authorize this Agreement or any such Transaction Document or to consummate the transactions so contemplated herein and therein. This Agreement has been, and each of the Transaction Documents required to be executed and delivered by Purchaser pursuant to this Agreement, when executed and delivered, will be, duly and validly executed and delivered by Purchaser, and this Agreement constitutes, and each such Transaction Document, when executed and delivered, will constitute, a legal, valid and binding obligation of Purchaser, enforceable against it in accordance with its terms.

    6.3.        Consents and Approvals. Subject to the fulfillment of all of the conditions precedent contained in Section 8.1 and in Section 8.2 (b), the execution and delivery by Purchaser of this Agreement, and of each Transaction Document required to be executed and delivered by it pursuant to this Agreement, do not, and the performance of the foregoing shall not, require Purchaser to obtain the Approval of any Person or Governmental Authority, or make any filing with or notification to, any Governmental Authority.

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    6.4.        No Violation. To the best knowledge of Purchaser, except as set forth in the Purchaser Disclosure Schedule, the execution and delivery by Purchaser of this Agreement and of each Transaction Document required to be executed and delivered by it pursuant to this Agreement, do not, and the performance of this Agreement, and each Transaction Document required to be executed and delivered by it pursuant to this Agreement, will not, (a) conflict with or violate the Organizational Documents of Purchaser, (b) conflict with or violate any Law applicable to Purchaser, or by which its properties are bound or affected, or (c) result in any breach or violation of, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, any Contract to which Purchaser is a party or by which it is bound; which conflict, violation, breach or default is likely to affect the transactions contemplated hereby or Purchaser’s ability to fulfill its obligations under this Agreement or any Transaction Document required to be executed and delivered by it pursuant to this Agreement.

    6.5.        Legal Proceedings. Except as set forth in the Purchaser Disclosure Schedule, there is no Action pending or, to the best of the Purchaser’s knowledge, threatened by or against Purchaser, relating to, or which could reasonably be expected to affect, the transactions contemplated by this Agreement and by any Transaction Document required to be executed hereunder.

    6.6.        Financing and Capital Resources. Purchaser has adequate cash to pay the Purchase Price as contemplated by this Agreement, together with all fees and expenses of Purchaser associated with the transactions contemplated hereby, and to make any other payments necessary to consummate the transactions contemplated hereby.

    6.7.        No Brokers. Purchaser has not employed or engaged, either directly or indirectly, or incurred or will incur any Liability to, any broker, finder, investment banker or other agent in connection with the transactions contemplated by this Agreement.

    6.8.        Disclosure of Information; No Further Representations. Without prejudice to the representations and warranties contained in Section 5, Purchaser acknowledges and agrees that it has received, to its satisfaction, all information requested from the Company (except for certain information which the Company has stated not to be in possession of), and has had an opportunity to ask questions and receive answers from the Company regarding the information delivered to it, including but not limited to, the condition of the Business, the Acquired Assets and the Assumed Liabilities. Except for the representations and warranties expressly set forth in Section 5, the Company has not made any further representations or warranties with respect to any subject matter of this Agreement, and the Acquired Assets shall be sold, transferred and assigned to, and the Assumed Liabilities shall be assumed by, Purchaser, without any further representation, warranty or guarantee (including, without limitation, any implied representation, warranty or guarantee) on the part of the Company or any representatives thereof. Purchaser has examined the Business, the Acquired Assets and the Assumed Liabilities to its satisfaction, and except for the representations and warranties expressly included in Section 5, is relying solely on its own discretion, judgment and investigations with respect to all such matters and the transactions contemplated herein.

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7. COVENANTS.

    7.1.        Conduct of Business by the Company Pending Closing. The Company covenants and agrees that, between the date hereof and the Closing Date, the Company shall conduct the Business in the ordinary and usual course and shall use commercially reasonable efforts to preserve intact the business organization and assets of the Company, to keep available the services of the present officers, employees, consultants and independent contractors of the Company (except as otherwise required pursuant to this Agreement), and to preserve the present relationships of the Company with suppliers, customers, and other Persons with which the Company has business relations. Without derogating from the generality of the preceding sentence, between the date hereof and the Closing Date:

    7.1.1.        the Company shall not authorize or consummate any merger, consolidation, sale or other disposition of any or all of the Acquired Assets or any other disposition relating to and/or that may affect any of the Acquired Asset, except in the ordinary and usual course of business;

    7.1.2.        the Company shall not act to collect any advance payments, or any accounts receivable, prior to their due date of payment, from any clients or customers of the Business;

    7.1.3.        the Company shall not, without the prior written consent of Purchaser, enter into any Material Contracts in relation to or which may affect the Acquired Assets;

    7.1.4.        the Company shall not take any action that could reasonably be expected to result in the representations and warranties set forth in Section 5 becoming untrue or inaccurate, that could result in a Material Adverse Effect on the Business, or that could materially impair the ability of the Company to consummate the transactions contemplated hereby in accordance with the terms hereof; and

    7.1.5.        the Company shall use its best reasonable efforts to exercise the Approved Investments in a cost-effective manner and to minimize the amounts expended in relation to such Approved Investments without compromising the quality thereof including, where practically possible, by exchanging and/or sharing ducts and/or by otherwise cooperating with third party transmission providers.

    7.2.        Cooperation; Approvals, Filings and Consents.

    7.2.1.        Upon the terms and subject to the conditions set forth in this Agreement, each party shall use commercially reasonable efforts to take, or cause to be taken, all actions, and do, or cause to be done, and to assist and cooperate with the other party in doing, all things necessary, proper or advisable to consummate the transactions contemplated hereby and to satisfy or cause to be satisfied all of the conditions precedent that are set forth in Section 8, as applicable to each of them. Each party, at the reasonable request of the other party, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby.

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    7.2.2.        Each party shall, as promptly as practicable, use commercially reasonable efforts to obtain all necessary Approvals from Governmental Authorities and make all other necessary registrations and filings under applicable Law required to be obtained or made by it in connection with the authorization, execution and delivery of this Agreement and the Transaction Documents required to be executed by such party hereunder or thereunder, and the consummation of the transactions contemplated hereby and thereby, including, without limitation, those set forth in Schedule 7.2.2. The Company and Purchaser shall act in good faith and reasonably cooperate with each other in connection therewith and in connection with resolving any investigation or other inquiry with respect thereto. To the extent not prohibited by Law, each party to this Agreement shall use commercially reasonable efforts to furnish to each other all information required for any application or other filing to be made pursuant to any Law in connection with the transactions contemplated by this Agreement. Each party shall give the other party reasonable prior notice of any communication with, and any proposed understanding, undertaking, or agreement with, any Governmental Authority regarding any such Approval.

    7.2.3.        Notwithstanding anything in this Agreement to the contrary, nothing contained in this Agreement (including under this Section 7.2 or under Section 8.1(a)) shall require any party, or any shareholder thereof, (i) to take or agree to take any action with respect to, or agree to any prohibition or limitation on, or other requirement which would prohibit, impair or otherwise materially adversely affect the ownership or operations of all or any portion of the business or properties of such party or any of its shareholders (including, without limitation, the Business).

    7.2.4.        The parties shall use their commercially reasonable efforts to obtain all Approvals from third parties that are necessary for the consummation of the transactions contemplated by this Agreement (including, without limitation, those Approvals set forth in Schedule 7.2.4 and any Approval required for the assignment and transfer to Purchaser of any Assigned Contract, other than an Assigned Approval). To the extent permitted at Law, if any such Approval has not been obtained as of the Closing Date and Purchaser nevertheless determines to proceed with the Closing, the Company shall use commercially reasonable efforts to obtain such Approval after the Closing.

    7.3        Access to Information. Prior to the Closing Date and subject to the execution of a confidentiality agreement in form and substance satisfactory to the Company, the Company shall afford to the officers, employees, accountants, counsel and other representatives of Purchaser, upon reasonable notice, full access during normal working hours to all of its properties, Contracts, Business Data and Records and other documents of the Company that are pertaining to the transactions contemplated hereby, and shall cause its officers, employees, accountants, counsel and other representatives to make themselves available to the officers, employees, accountants, counsel and other representatives of Purchaser for discussion of the transactions contemplated hereby. No information disclosed pursuant to this Section 7.3 shall affect any representations, warranties, covenants or agreements of the parties herein.

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    7.4.        Public Announcements. The parties hereto agree to keep confidential the terms of this Agreement and any Transaction Document required to be executed hereby. Subject to applicable Laws, all announcements to third parties pertaining to this Agreement or the transactions contemplated hereby will be subject to review and approval of both parties before public disclosure. Notwithstanding the preceding sentence, the parties understand that Purchaser is a publicly traded company and therefore, immediately following the date hereof and the Closing Date, Purchaser intends to publish a press release and/or a mandatory report to the relevant Governmental Authorities regarding the execution of this Agreement and the consummation of the transactions contemplated hereby, as the case may be. Purchaser shall procure that Purchaser will coordinate the content of any such press release or mandatory report with the Company.

    7.5.        No Solicitation of Other Proposals. From the date hereof until the earlier of the Closing Date or the termination of this Agreement in accordance with its terms, the Company shall not, nor shall it permit any of its officers, directors, employees, representatives or agents (collectively, the “Company Representatives”), directly or indirectly, to (i) solicit, facilitate, initiate, entertain, encourage or take any action to solicit, facilitate, initiate, entertain or encourage, any inquiries or communications or the making of any proposal or offer that constitutes or may constitute an Acquisition Proposal, or (ii) participate or engage in any discussions or negotiations with, or provide any information to or take any other action with the intent to facilitate the efforts of, any Person concerning any possible Acquisition Proposal or any inquiry or communication which might reasonably be expected to result in an Acquisition Proposal. For purposes of this Agreement, the term “Acquisition Proposal” shall mean any inquiry, proposal or offer from any Person (other than Purchaser or any of its affiliated companies) relating to any merger, consolidation, liquidation or other direct or indirect business combination or reorganization, involving the sale, lease, exchange, or other disposition of any significant portion of the Business, or any other transaction, the consummation of which could reasonably be expected to impede, interfere with, prevent or materially delay the consummation of the transactions contemplated hereby or which would reasonably be expected to diminish significantly the benefits to Purchaser of the transactions contemplated hereby.

    7.6.        Notice of Certain Events; Updates to Disclosure Schedules.

    7.6.1.        Without limiting the provisions of Section 8.2, between the date hereof and the Closing Date, the Company shall promptly notify Purchaser, in writing, of: (i) the discovery by the Company of any event, condition, fact or circumstance that occurred or existed on or prior to the date of this Agreement and that caused or constitutes a material inaccuracy in or a material breach of any representation or warranty made by the Company in this Agreement; (ii) any event, condition, fact or circumstance that occurs, arises or exists after the date of this Agreement and that would cause or constitute a material inaccuracy in or a material breach of any representation or warranty made by the Company in this Agreement, if (A) such representation or warranty had been made as of the time of the occurrence, existence or discovery of such event, condition, fact or circumstance or (B) such event, condition, fact or circumstance had occurred, arisen or existed on or prior to the date of this Agreement; and (iii) any material breach of any covenant or obligation of the Company. If any event, condition, fact or circumstance that is required to be disclosed pursuant to this Section 7.6.1 requires any change in the Company Disclosure Schedule, or if any such event, condition, fact or circumstance would require such a change assuming the Company Disclosure Schedule were dated as of the date of the occurrence, existence or discovery of such event, condition, fact or circumstance, then the Company shall promptly deliver to Purchaser an update to the Company Disclosure Schedule specifying such change; provided that, no such update shall be deemed to supplement or amend the Company Disclosure Schedule for the purpose of determining whether the conditions set forth in Section 8.2 have been satisfied.

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    7.6.2.        Without limiting the provisions of Sections 2.3.2 or 7.2, or, with respect to the Company, of Section 7.6.1, prior to the Closing Date, each party shall give the other prompt written notice of (i) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the consummation of the transactions contemplated by this Agreement, (ii) any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement, (iii) any Action or threatened Action relating to or involving or otherwise affecting the transactions contemplated by this Agreement, (iv) the occurrence of a breach or default or event that, with notice or lapse of time or both, could become a breach or default under this Agreement, and (v) any change, event or circumstance which is likely to delay or impede the ability of the parties to consummate the transactions contemplated by this Agreement or to fulfill their respective obligations set forth herein or that could reasonably be expected to have a Material Adverse Effect on the Business.

    7.7.        Employment Matters.

    7.7.1.        Promptly after the date hereof, Purchaser shall be entitled, at its sole discretion, to offer employment, effective as of the Closing, to each employee of the Company listed in Schedule 7.7.1, provided, that Purchaser shall have notified the Company, at least thirty five (35) days prior to the Closing Date, of the identity of those employees who have been offered employment with Purchaser and who have accepted such employment offers and provided, further, that, each such employee shall have executed and delivered to the Company and Purchaser, prior to the Closing Date, an Employee Waiver. Any such employee of the Company accepting employment with Purchaser offered pursuant to the preceding sentence and executing an Employee Waiver shall become an employee of Purchaser from and after the Closing, and shall be referred to as an “Affected Employee”.

    7.7.2.        Between the date hereof and the Closing Date, the Company shall terminate the Affected Employees’ employment agreements, and shall pay the Affected Employees any and all rights, payments, and benefits to which they are entitled in connection with their employment with the Company, the termination of such employment, and anything related to such employment or termination of employment (whether by Contract or applicable Law), including, without limitations, all severance and prior notice payments.

    7.7.3.        Upon the terms and subject to the conditions of Sections 9.4.1 and 9.5, the Company shall indemnify the Purchaser against any or all liabilities, costs, expenses, damages and actions arising out or in connection with the employment of the Affected Employees by the Company, prior to the Closing Date.

    7.8.        Tax Matters.

    7.8.1.        To the extent relevant to the Acquired Assets or the transactions contemplated hereby, each party shall (i) provide the other with such assistance as may reasonably be required in connection with the preparation of any filings, reports or returns to the Israel Tax Authority (“Tax Returns”) and the conduct of any audit or other examination by the Israel Tax Authority or in connection with judicial or administrative proceedings relating to any Liability for Taxes and (ii) retain for the period of time required at Law and provide the other with all records or other information that may be relevant to the preparation of any Tax Returns, or the conduct of any audit or examination, or other proceeding relating to Taxes.

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    7.8.2.        Except as expressly set forth in Sections 3.4 above, each party shall bear its own Taxes in connection with the transactions contemplated hereby; except that any stamp duty payable, at law, jointly and severally by the parties, in connection with, as a result of, or as a consequence of this Agreement, shall be borne and paid by the parties in equal parts such that each party shall be responsible to pay 50% of such stamp duty.

    7.9.        Litigation Cooperation. Purchaser acknowledges and agrees that the Company shall be entitled to control any Action that constitutes or relates to any Retained Claim; [*]. Purchaser shall cooperate with the Company and its counsel in connection with any such Action, including, without limitation, by making available to the Company or its counsel, without any charge (except for reimbursement of Purchaser’s own out of pocket expenses incurred in connection with such cooperation), all relevant records, and by using its commercially reasonable efforts to make available the current and former employees, officers, directors, agents and representatives of Purchaser who are reasonably expected to be helpful with respect to such Action, whether for the purpose of preparing judiciary documents, affidavits, or expert testimony, for providing testimony, or as may otherwise be reasonably required by the Company or its counsel.

    7.10.        Completion of Repair Plan. The Company shall carry out the Repair Plan, and shall complete the repairs described therein by February 28, 2006. As soon as practicable following the completion of the works to be performed under the Repair Plan, the Company shall provide Purchaser with “As Made” plans reflecting the works so performed.

    7.11.        Completion of the Cooperation Agreement. Between the date hereof and the Closing Date, the parties shall negotiate in good faith the Cooperation Agreement, which shall address and include, inter alia, the following material terms:

     (i)        the Company shall offer the Purchaser’s Business related services to prospective clients or customers of the Company’s data center, hosting, collocation, DRP business and other services provided by the Company in connection with its hosting and backup facilities (collectively, the “Hosting Services”), and to current clients and customers of the Hosting Services who may seek proposals for additional Hosting Services.

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

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     (ii)        the Purchaser shall offer the Hosting Services provided by the Company to prospective clients or customers of the Business, and to current clients and customers of the Business who may seek proposals for additional Business related services.

     (iii)        the arrangements set out in (i) and (ii) above (together, the “Cooperation Obligations”) shall be carried out on a non-exclusive basis.

     (iv)        the mutual payments and commissions each party shall be entitled in consideration of its Cooperation Obligations, and the terms of payment thereof, shall be discussed and agreed upon in the Cooperation Agreement.

     (v)        the initial term of the Cooperation Agreement shall be for five (5) years; provided that both the Company and the Purchaser shall have the right to terminate the Cooperation Agreement prior the expiration of the said initial term (or of any extension thereof) in the event that the Company shall sell, transfer, outsource, or otherwise dispose of its Hosting Services related business.

    7.12.        Continuity of Insurance. Between the date hereof and the Closing Date, the parties shall cooperate in good faith to enable Purchaser to maintain, as from the Closing Date, by having issued a new insurance policy or by way of inclusion thereof in Purchaser’s then existing insurance coverage, such insurance coverage carried by the Company as at the date hereof with respect to the Business or any of the Acquired Assets.

8. CONDITIONS PRECEDENT TO CLOSING.

    8.1.        Conditions to Obligations of Each Party. The respective obligations of each party to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing Date, of the following conditions:

     (a)        Governmental Approvals. All Approvals of, or declarations or filings, with any Governmental Authority necessary for the consummation of the transactions contemplated hereby, if any, shall have been obtained or made, including, without limitation, the Approvals described in Schedule 7.2.2, provided that such Approvals shall not include conditions or limitations that may materially adversely affect the activities of Purchaser, the Company, or the Business.

     (b)        No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction, or other Order (whether temporary, preliminary or permanent) issued by any Court, or other legal restraint or prohibition shall be in effect, which prevents the consummation of the transactions contemplated hereby on the terms, and conferring upon Purchaser all of the rights and benefits, as contemplated herein, nor shall any Action brought by any Governmental Authority seeking any of the foregoing be pending, and there shall not be any Action taken, any Law enacted, or any breach of the representations and warranties contained in Section 5, which makes the consummation of such transactions on the terms, and conferring upon Purchaser all of the rights and benefits, as contemplated herein, illegal.

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    8.2.        Additional Conditions of Purchaser. The obligation of Purchaser to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing Date of the following additional conditions, unless waived in writing by Purchaser:

     (a)        Representations and Warranties. Each of the representations and warranties set forth in Section 5 shall have been true and correct in all respects when made, and each of such representations and warranties shall be true and correct in all material respects as of the Closing Date as though made on and as of the Closing Date, in each case except where the untruthfulness or incorrectness of such representations and warranties has not had, is not having, and is not reasonably expected to have a Material Adverse Effect on the Business (provided, that such exception shall not apply in the event that, as a result of such untruthfulness or incorrectness, Purchaser shall be in violation of any applicable Laws).

     (b)        Obtainment of Transmission License. Purchaser shall have obtained a license from the Ministry of Communications for the provision of transmission services on terms substantially similar to the Special License for Domestic Provision of Transmission Services currently held by the Company (the “Company’s MOC License”), which license shall authorize Purchaser to operate the Business and to provide services using the Acquired Assets, as provided by the Company immediately prior to the Closing Date, on terms not less favorable and beneficial than those set forth in the Company’s MOC License.

     (c)        Obtainment of Permit Pursuant to Chapter 6, Section 4(6) of The Communication Law (Telecommunications and Broadcasting), 1982. Purchaser shall have obtained a Permit from the Ministry of Communications Pursuant to Section 4(6) of The Communication Law authorizing the Purchaser to perform the activities specified under Chapter 6 of The Communication Law. This Section 8.2(c) shall only be condition to Closing if Purchaser applied for such Permit together with or within seven (7) days of its application for the transmission license described in Subsection (b) above and in reference thereto.

     (d)        Assignment of Assigned Contracts and Assigned Approvals. The Company shall have made all notifications, obtained all Approvals, and taken all other actions necessary under the terms of each Assigned Contract and Assigned Approval, as required to facilitate the due assignment and transfer thereof to Purchaser as of the Closing Date; provided, however, that the failure to duly assign and transfer any Customer Contract shall not be deemed a failure to meet the condition set forth in the preceding sentence but shall be treated in accordance with the provisions of Section 2.3 and Section 3.3.3.

     (e)        Employment Relationship with Affected Employees. The Company shall have terminated its employment relationship with each Affected Employee and shall have performed or complied with its obligations and covenants set forth in Section 7.7.2.

     (f)        Agreements and Covenants. The Company shall have performed or complied with in all material respects each obligation, agreement and covenant to be performed or complied with by it under this Agreement at or prior to the Closing Date, other than as set forth in Section 7.7.2.

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     (g)        No Material Adverse Effect. From and including the date hereof, there shall not have occurred any event which has had, is having, or would reasonably be expected to have a Material Adverse Effect on the Acquired Assets (it being agreed, however, that the refusal of any of the employees listed in Schedule 7.7.1 to accept employment with Purchaser shall not be deemed a Material Adverse Effect on the Business).

     (h)        Removal or Exclusion of Existing Pledge. The Existing Pledge shall have been removed or excluded, to the satisfaction of Purchaser and its counsel, in respect of the Acquired Assets and the sale, transfer and conveyance thereof pursuant to the transactions contemplated by this Agreement.

     (i)        Completion of Repair Plan. Prior to the Closing Date, the Company shall have completed the works to be performed under the Repair Plan, and shall have delivered to Purchaser a report confirming the completion of such works.

    8.3.        Additional Conditions of Company. The obligation of the Company to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing Date of the following additional conditions, unless waived in writing by the Company:

     (a)        Representations and Warranties. Each of the representations and warranties set forth in Section 6 shall have been true and correct in all respects when made, and each of such representations and warranties shall be true and correct in all material respects as of the Closing Date as though made on and as of the Closing Date.

     (b)        Obtainment of Transfer Approval. The Company shall have obtained the approval of the Ministry of Communications to the sale, transfer and assignment of the Acquired Assets, as required pursuant to the terms of the Company’s MOC License.

     (c)        Agreements and Covenants. Purchaser shall have performed or complied with in all material respects each obligation, agreement and covenant to be performed or complied with by it under this Agreement at or prior to the Closing Date.

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9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION; REIMBURSEMENT.

    9.1.        Survival of Representations and Warranties. All representations and warranties contained in Sections 5 and 6, or in any other Transaction Document delivered by or on behalf of or the Company in connection with this Agreement or the consummation of the transactions contemplated hereby, shall survive the Closing for a period of two (2) years after the Closing Date. For convenience of reference, the date upon which any representation or warranty shall terminate is referred to herein as the “Survival Date.”

    9.2.        Indemnification by the Company. From and after the Closing, the Company shall indemnify, defend and hold harmless Purchaser, its successors and assigns (the “Purchaser Indemnified Persons”) from and against any and all direct Losses arising out of or resulting from any of the following:

     (a)        Any material breach of any representation or warranty made by the Company in this Agreement (including the exhibits and schedules hereto) or in any Transaction Document;

     (b)        Any failure by the Company to perform, comply with or observe any covenant, agreement or obligation contained in this Agreement; or

     (c)        The employment by the Company of the Affected Employees during the period ending on the Closing Date, or the termination of employment thereof.

    9.3.        Indemnification by Purchaser. From and after the Closing, Purchaser shall indemnify, defend and hold harmless the Company, its successors and assigns (the “Company Indemnified Persons”) from and against any and all direct Losses arising out of or resulting from any of the following:

     (a)        Any material breach of any representation or warranty made by Purchaser in this Agreement (including the exhibits and schedules hereto) or in any Transaction Document; or

     (b)        Any failure by Purchaser to perform, comply with or observe any covenant, agreement or obligation contained in this Agreement.

    9.4.        Limitations on Indemnification.

    9.4.1.        To the extent that any circumstance giving rise to indemnification under this Section 9 is reasonably capable of being remedied by the Indemnifying Person (as defined below), the Indemnified Person (as defined below) shall afford the Indemnifying Person such opportunity as is reasonable to remedy such circumstance.

    9.4.2.        No indemnification shall be payable to any Purchaser Indemnified Person under Section 9.2 or to any Company Indemnified Person under Section 9.3, until the aggregate amount of all direct Losses incurred by all Purchaser Indemnified Persons or all Company Indemnified Persons, as the case may be, exceeds $100,000, whereupon the Purchaser Indemnified Persons or the Company Indemnified Persons, as the case may be, shall be entitled to receive the full amount of all direct Losses (i.e., including the first $100,000 of such Losses);

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    9.4.3.        The maximum aggregate liability of either party pursuant to this Section 9 shall be equal to the Purchase Price actually received by the Company (the “Maximum Indemnification Amount”);

    9.4.4.        No party shall be entitled to recover any indirect, consequential, special, exemplary, punitive or similar damages, except to the extent that such damages are awarded to a third party in a Third Party Claim (as defined below);

    9.4.5.        No claims for indemnification against any Indemnifying Person (as such term is defined below) under this Section 9 may be made following the Survival Date. The foregoing sentence notwithstanding, in the event any Indemnified Person (as such term is defined below) delivers an Indemnifying Person (as such term is defined below) a Notice of Claim (as such term is defined below) within sixty (60) days prior to the Survival Date, then such Indemnified Person may file a statement of claim with the proper judiciary tribunal within sixty (60) days after the date of the Notice of Claim, provided such statement of claim is based on the said Notice of Claim, and does not exceed the scope detailed therein.

    9.4.6.        With the exception of Section 9.4.1, the limitations set forth in this Section 9.4 above shall not apply to any indemnification payable under Section 9.2(c) and Section 7.7.3, or in connection with any of the Assumed Liabilities or Excluded Liabilities.

    9.5.        Indemnification Process.

    9.5.1.        Any Purchaser Indemnified Person or Company Indemnified Person seeking indemnification under this Section 9 (an “Indemnified Person”) shall give each party from whom indemnification is being sought (each, an “Indemnifying Person”) prompt notice of any matter (a “Notice of Claim”) which such Indemnified Person has determined has given rise to or could give rise to a right of indemnification under this Agreement, stating the amount of the Losses, if known, and method of computation thereof, and containing a reference to the provisions of this Agreement in respect of which such right of indemnification is claimed or arises as promptly as practicable after becoming aware of such matter; provided, however, that the failure to so provide such Notice of Claim will not relieve the Indemnifying Person(s) from any Liability which they may have under this Agreement or otherwise (unless and only to the extent that such failure results in the loss or compromise in any material respect of any material rights or defenses of the Indemnifying Person(s) and the Indemnifying Person(s) was not otherwise aware of such action or claim).

    9.5.2.        The Liabilities of an Indemnifying Person under this Section 9 with respect to Losses arising from Claims of any third party which are subject to the indemnification provided for in this Section 9 (“Third Party Claims”) shall be governed by the following additional terms and conditions:

    (a)        Upon delivery of a Notice of Claim that relates to a Third Party Claim, the Indemnified Person shall also deliver to the Indemnifying Person copies of all relevant documentation with respect to such Third Party Claim under the possession or control of the Indemnified Person, including, without limitation, any summons, complaint or other pleading that may have been served, any written demand or any other document or instrument.

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    (b)        The Indemnifying Person shall have the right to defend against the Third Party Claim on its own, with counsel reasonably satisfactory to the Indemnified Persons, subject to (i) the right of the Indemnified Persons to participate (at its own expense and with counsel of its own choice) in the defense of such Third Party Claim, and subject to (ii) the Indemnifying Person’s written acknowledgement that it is obligated to provide indemnification to the Indemnified Persons with respect to such Third Party Claim. The Indemnifying Person, on the one hand, and the Indemnified Persons, on the other hand, shall make available to each other and their counsel and accountants all books and records and information relating to any Third Party Claims, keep each other apprised as to the details and progress of all proceedings relating thereto, and render to each other such assistance as may be reasonably required to ensure the proper and adequate defense of any and all Third Party Claims.

    (c)        No Third Party Claim shall be settled or compromised by the Indemnified Persons, and no Indemnified Person shall admit any Liability under any Third Party Claim, without the written consent of the Indemnifying Person. Any settlement or compromise made in violation of the foregoing sentence shall relieve the Indemnifying Person from its indemnification obligations in respect of such Third Party Claim.

    9.6.        Reimbursement for Non-Completion of The Repair Plan. In the event that, the Company shall not complete the repairs in accordance with the Repair Plan as set forth in Section 7.10, the Company shall promptly reimburse the Purchaser for any direct cost or expense incurred or borne by Purchaser toward the completion of the Repair Plan and duly documented by invoices. For the sake for clarity, reimbursement pursuant to this Section is not subject to the terms and conditions of Section 9 and shall not be limited or restricted by the provisions of Section 9.4.

    9.7.        Characterization of Payments. The parties agree that any payment to Purchaser pursuant to an indemnification obligation under this Section 9 shall be treated for Tax purposes as an adjustment to the Purchase Price.

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10. TERMINATION.

    10.1.        Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing Date:

     (a)        By mutual written consent duly authorized by the Boards of Directors of Purchaser and the Company;

     (b)        By either Purchaser or the Company, by means of written notice to the other, if:

     (i)        the Closing shall not have occurred within ninety (90) days from the date hereof (the “Drop-Dead Date”); provided, however, that the right to terminate this Agreement under this Section 10.1(b) shall not be available to any party whose failure to fulfill any material obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date;

     (ii)        a competent Court or Governmental Authority shall have issued an Order or taken any other action, in each case, which has become final and non-appealable and which restrains, enjoins or otherwise prohibits the Closing;

     (iii)        such party (the “Non-Breaching Party”) is not in breach of any its obligations under this Agreement, and if the other party (the “Breaching Party”) shall have breached in any material respect any of its representations or warranties or failed to perform in any material respect any of its covenants or other agreements contained in this Agreement, which breach or failure to perform would render unsatisfied any condition contained in Section 8, and (A) is incapable of being cured or (B) if capable of being cured, is not cured prior to the earlier of (x) the Business Day prior to the Drop-Dead Date, or (y) the date that is thirty (30) days from the date that the Breaching Party is notified of such breach; or

     (c)        By Purchaser, if after the date hereof there shall have occurred any event which has had, is having or would reasonably be expected to have a Material Adverse Effect on the Acquired Assets.

        The parties agree that, except as otherwise set forth in this Section 10.1, this Agreement may not be otherwise terminated.

    10.2.        Effect of Termination. In the event of the termination of this Agreement pursuant to Section 10.1, this Agreement (other than those Sections which, by their nature, are intended to survive such termination, including this Section 10.2) will forthwith become void, and there will be no Liability on the part of Purchaser or the Company or any of their respective officers or directors to the other and all rights and obligations of any party hereto will cease, except that nothing herein will relieve any party from any Losses arising out of, resulting from or relating to any breach, prior to termination of this Agreement in accordance with its terms, of any representation, warranty, covenant or agreement contained in this Agreement.

36

        Notwithstanding anything to the contrary in this Agreement, in the event that the Closing does not occur or the transactions contemplated by this Agreement are not consummated, and as a result thereof this Agreement is terminated pursuant to Section 10.1(i), or in the event this Agreement is terminated pursuant to: (a) Section 10.1(ii), or (b) Section 10.1(iii) under circumstances where the Company was the Breaching Party, then Purchaser shall not be responsible for nor assume any liabilities or incur any costs or expenses in relation to any of the Approved Investments and shall not be liable for the consequences of its decision to grant or withhold its consent to any action where such consent is requested under this Agreement.

11. MISCELLANEOUS.

    11.1.        Expenses. All fees, costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby including, without limitation, legal and accounting fees and any, fees, costs and expenses borne by Purchaser in connection with any due diligence investigations carried out with respect to the transactions contemplated hereby (“Transaction Expenses”), shall be paid by the party incurring such Transaction Expenses, whether or not the Closing occurs.

    11.2.        Amendment and Waiver. This Agreement may be amended only by an instrument in writing signed by duly authorized representatives of Purchaser and the Company. At any time prior to the Closing Date, any party hereto may extend the time for the performance of any of the obligations or other acts required hereunder, waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby.

    11.3.        Entire Agreement. This Agreement, together with its Schedules, Exhibits, the Transaction Documents, the Real Property Transfer Agreement, and all other ancillary agreements, documents and instruments to be delivered in connection herewith, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements, either oral or written, including, without limitation, that certain Memorandum of Understanding entered into by and between Purchaser and the Company on September 5, 2005, which is hereby cancelled and revoked. Without limiting the generality of foregoing and notwithstanding anything in this Agreement to the contrary, no party is making any representation or warranty whatsoever, oral or written, express or implied, in connection with the transactions contemplated by this Agreement and the Transaction Documents other than those set forth in this Agreement or in the Transaction Documents and no party is relying on any statement, representation or warranty, oral or written, express or implied, made by any other party except for the representations and warranties set forth in this Agreement or in the Transaction Documents.

    11.4.        Third Party Beneficiaries. Nothing express or implied in this Agreement is intended to confer, nor shall anything herein confer, upon any Person other than the parties and the respective successors or assigns of the parties, any rights, remedies, or Liabilities whatsoever, except to the extent that such third person is an Indemnified Person in respect of the indemnification provided in accordance with Section 9 of this Agreement.

37

    11.5.        Company Disclosure Schedule. Nothing in the Company Disclosure Schedule constitutes an admission of any liability or obligation of the Company to any third party, nor an admission against the Company’s interest to any third party. The Company Disclosure Schedule contains information, descriptions and disclosures regarding the Company only, all of which constitutes confidential information of the Company. The Company Disclosure Schedule is not intended to expand the scope and effect of any representations, warranties or covenants of the Company provided in this Agreement.

    11.6.        Assignment. No party hereto shall assign or otherwise transfer this Agreement or any of its rights hereunder, or delegate any of its obligations hereunder, without the prior written consent of the other parties hereto; provided, however, that Purchaser shall be permitted, by written notice to the Company, to assign or otherwise transfer this Agreement, in whole but not in part, to any wholly owned subsidiary thereof, provided such assignment and transfer is made prior to the Closing Date. Subject to the preceding sentence, this Agreement and the rights and obligations set forth herein shall inure to the benefit of, and be binding upon the parties hereto, and each of their respective successors, heirs and assigns.

    11.7.        Governing Law; Jurisdiction. This Agreement shall be governed by the laws of the State Israel without giving effect to any choice of law or conflict of law provision or rule that would cause application of the laws of any jurisdiction other than the State of Israel. The parties hereby stipulate that any action or other legal proceeding arising under or in connection with this Agreement shall be commenced and prosecuted in its entirety exclusively in the competent courts located in Tel-Aviv, Israel, each party hereby submitting to the exclusive jurisdiction thereof.

    11.8.        Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.

    11.9.        Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered personally or sent by registered mail, return receipt requested, or by facsimile, with confirmation as provided above addressed as follows:

If to Purchaser:	Partner Communications Co. Ltd.
	8 Amal St., Afeq Industrial Park
	Rosh Ha'ayin
	Attention: Legal Counsel
	Facsimile: 03 - 9122028
With copies to:	Gross, Kleinhendler, Hodak,
	Halevy, Greenberg & Co.
	One Azrieli Center, Tel Aviv
	Attention: Ofer Hanoh, Adv.
	Facsimile: 03-6074422
	Email: ofer@gkh-law.com

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If to the Company:	Med-1 I.C.1 (1999) Ltd.
	6, HaNechoshet St., Tel-Aviv
	Facsimile: 03-7666011
	Attention: Chief Executive Officer
With copies to:	Melcer & Co., Law Offices
	2, Kaplan St., Tel-Aviv
	Facsimile: 03-6951104
	Attention: Rona Orlicki, Adv.
	Email: rona@melceradv.co.il
	and
	Sharon Raviv, Law Offices
	31, HaLechi St., Suite 402, Bnei
	Brak I.Z.
	Attention: Sharon Raviv, Adv.
	Facsimile: 03-6164499
	Email: Sharon@ravivlaw.com

        or to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith. All such notices or communications shall be deemed to be received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of facsimile transmission, upon confirmed receipt, and (c) in the case of registered mailing, on the fifth working day following the date on which the piece of mail containing such communication was posted.

    11.10.        Representation by Counsel. Each party hereto acknowledges that it has been advised by legal and any other counsel retained by such party in its sole discretion. Each party acknowledges that such party has had a full opportunity to review this Agreement and all related exhibits, schedules and ancillary agreements and to negotiate any and all such documents in its sole discretion, without any undue influence by any other party hereto or any third party.

     11.11.        Construction. The parties have participated jointly in the negotiations and drafting of this Agreement and in the event of any ambiguity or question of intent or interpretation, no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

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     11.12.        Waivers. No waiver by any party, whether express or implied, of its rights under any provision of this Agreement shall constitute a waiver of the party’s rights under such provisions at any other time or a waiver of the party’s rights under any other provision of this Agreement. No failure by any party to take any action against any breach of this Agreement or default by another party shall constitute a waiver of the former party’s right to enforce any provision of this Agreement or to take action against such breach or default or any subsequent breach or default by the other party. To be effective any waiver must be in writing and signed by the waiving party.

     11.13.        Counterparts. This Agreement may be executed in two or more counterparts, any one of which need not contain the signatures of all parties, but all of which counterparts when taken together will constitute one and the same agreement.

[Remainder of Page Intentionally Left Blank]

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[Signature Page to an Asset Purchase Agreement dated January 22, 2006]

        NOW THEREFORE, the parties hereto have executed, or caused this Asset Purchase Agreement to be executed by their duly authorized representatives, as of the date first written above.

PARTNER COMMUNICATIONS
COMPANY LTD.


/s/ Dan Eldar, /s/ Alan Gelman
———————————————
By: Dan Eldar, Alan Gelman
———————————————
Title: VP, CFO
———————————————

MED 1 IC-1 (1999) LTD.


/s/ Ilan Faldon, /s/ Ofer Weiss
———————————————
By: Ilan Faldon, Ofer Weiss
———————————————
Title: Authorized Signatory, Director
———————————————

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EXHIBIT A-1

ADJUSTMENT ESCROW AGREEMENT

        This Adjustment Escrow Agreement (“Adjustment Escrow Agreement”) dated as of _______, 2006, is entered into by and among MED-1 I.C.1 (1999) Ltd. (the “Company”), and Partner Communications Company Ltd. (the “Purchaser”) (the “Parties” and each a “Party”) and Gross, Kleinhendler, Hodak, Halevy, Greenberg, Trustees Ltd (“Escrow Agent”).

        WHEREAS, the Parties entered into an Asset Purchase Agreement dated January ______, 2006 (the “Asset Purchase Agreement”) whereby the Purchaser has agreed to purchase certain rights and other assets of the Company and to assume some of the Company’s Liabilities;

        [*];

        [*];

        WHEREAS, Section 3.3 of the Asset Purchase Agreement further provides that in the event that the Parties disagree as to the amounts of the Withheld Amounts or the Deducted Amounts, as defined in the Asset Purchase Agreement, then the amounts of the Withheld Amounts or Deducted Amounts that are in dispute (“Disputed Withheld Amounts” or “Disputed Deducted Amounts”, respectively and collectively, “Disputed Adjustments”), shall be deposited with the Escrow Agent until such dispute is resolved; and

        WHEREAS, it is a condition to the closing of the transactions contemplated in the Asset Purchase Agreement that the Company, the Purchaser, and the Escrow Agent shall have entered into this Adjustment Escrow Agreement.

        NOW THEREFORE, the Parties and the Escrow Agent hereby agree as follows:

1.     Appointment of Escrow Agent. Upon the terms of this Adjustment Escrow Agreement, the Parties hereby appoint Escrow Agent to serve as escrow agent hereunder and Escrow Agent hereby accepts such appointment.

2.     Escrow Agent Obligations. The Escrow Agent shall hold, invest and release the Withheld Amounts and the Disputed Adjustments solely in accordance with the terms, conditions and provisions of this Adjustment Escrow Agreement.

3.     Treatment of Withheld Amounts and Disputed Amounts.

A.     Withheld Amounts:

    (a)        Acceptance of Withheld Amounts. The Escrow Agent hereby acknowledges the receipt from the Purchaser of the Withheld Amounts in the amount of US $_______.

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

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    (b)        Release of Withheld Amounts.

     (i)        [*].

     (ii)        [*].

     (iii)        [*].

     (iv)        (1)        The Escrow Agent shall, prior to the release of any Withheld Amounts pursuant to this Section 3-A (b), provide the parties a written certificate containing a calculation of any amount the Escrow Agent proposes to so release (the “Escrow Agent Statement”). Unless the Escrow Agent receives, within seven (7) days of the date of delivery of the Escrow Agent Statement (the “Objection Period”), a written statement by any of the Parties objecting to the calculations set out in the Escrow Agent Statement and containing an explanation of such objection (an “Objection Statement”), the Escrow Agent shall release the amounts stated in the Escrow Agent Statement to the intended recipient thereof, in accordance with such statement, promptly after the lapse of the Objection Period.

     (2)        In the event that, within the Objection Period the Escrow Agent shall have received any Objection Statement, then, promptly after the lapse of the Objection Period the Escrow Agent shall release any Withheld Amount(s) which are not the subject matter of any Objection Statement(s), to the intended recipient(s) thereof pursuant to the Escrow Agent Statement. Any remaining Withheld Amounts shall be retained by the Escrow Agent and shall be treated, for all intents and purposes, as Disputed Adjustments in accordance with Section 3-B below. The Parties hereby agree that the provisions of Section 3.3.3(f) of the Asset Purchase Agreement shall apply to such Disputed Adjustments, if any, mutatis mutandis.

B.     Disputed Adjustments

    (a)        Acceptance of Disputed Adjustments. The Escrow Agent hereby acknowledges the receipt from the Purchaser of the Disputed Adjustments in the amount of US $_______.

    (b)       Release of Disputed Adjustments

     (i)        The Escrow Agent shall hold the Disputed Adjustments under this Escrow Adjustment Agreement until (a) the Escrow Agent receives a letter of instructions, signed by the Parties, irrevocably instructing the Escrow Agent to release the Disputed Adjustments (“Release Instructions”) or (b) the Escrow Agent receives a letter from any of the Parties attaching an Audited Adjustment Statement deemed to be executed by the Independent Auditor and setting forth the Independent Auditor’s determination of the Final Withheld Amount and/or Final Deducted Amount, if any.

     (ii)        Unless stated otherwise in any Release Instructions, upon receiving an Audited Adjustment Statement pursuant to subsection (b)(i) above, the Escrow Agent shall, as the case may be:

     1)        retain any Disputed Withheld Amounts determined in the Audited Adjustment Statement as constituting part of the Final Withheld Amounts; all such retained amounts shall be considered additional Withheld Amounts, and shall be held and released by the Escrow Agent in accordance with Section 3-A of this Adjustment Escrow Agreement; and

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

- 2 -

     2)        promptly release to the Company all other Disputed Withheld Amounts, if any;

     and:        

     3)        release to Purchaser any Disputed Deducted Amounts determined in the Audited Adjustment Statement as constituting part of the Final Deducted Amounts; and release all other Disputed Deducted Amounts, if any, to the Company.

C.     Release of Interest and other Proceeds

        Notwithstanding any provision of this Agreement to the contrary, any release of Escrow Amounts (as defined below), by the Escrow Agent, under this Adjustment Escrow Agreement, shall include the release of any interest or other investment proceeds accruing on such Escrow Amounts, after deduction of any fees and commissions payable to the Depositing Bank (as defined below) in respect of the maintenance and investment of the Escrow Amounts pursuant to the provisions of this Adjustment Escrow Agreement.

4.     Investment of Proceeds

        The Escrow Agent shall deposit the Withheld Amounts and Disputed Adjustments (collectively, “Escrow Amounts”), if any, in an appropriate, segregated escrow account at Bank Hapoalim BM or in any other bank to be approved by the Parties (the “Depositing Bank”), shall notify the Parties of the details of the said account. All such deposited Escrow Amounts shall be invested in NIS based, short term interest bearing deposits, at the sole discretion of the Escrow Agent.

5.     Escrow Fees.

        The Escrow Agent shall be entitled to receive reasonable compensation for its services hereunder pursuant to the schedule of fees attached hereto as Schedule 1 and made a part hereof and, in addition thereto, shall be reimbursed for all out of pocket expenses, including reasonable attorneys’ fees, actually and reasonably incurred by it in connection with the performance of its duties and obligations under this Adjustment Escrow Agreement. All such fees and expenses shall be paid equally by the Parties.

        The Escrow Agent does not have any interest in the Escrow Amounts, but is acting hereunder as escrow agent only for the benefit of the Parties. Therefore, the Escrow Agent shall not have any right to appropriate, seize, confiscate and/or apply the Escrow Amounts to satisfy payment of any or all obligations due hereunder to the Escrow Agent.

6.     Miscellaneous

     6.1        With respect to the rights of the Purchaser and the Company, any inconsistency between the terms hereof and the terms of the Asset Purchase Agreement shall be interpreted in favor of the Asset Purchase Agreement. In addition, nothing is this Adjustment Escrow Agreement or any action preformed in accordance with therewith shall limit or prejudice the rights or remedies of the Parties under the Assets Purchase Agreement and under applicable law.

- 3 -

     6.2        The Escrow Agent shall undertake to fulfill its duties under this Adjustment Escrow Agreement in good faith and with reasonable care. The Escrow Agent shall not be liable for any damage or loss incurred by the Parties as a result of any action or omission on its part in connection with this Adjustment Escrow Agreement, on condition that the Escrow Agent acted within the scope of this Adjustment Escrow Agreement and provided that it acted in a reasonable manner and in good faith.

     6.3        The Parties release the Escrow Agent from any obligation or duty as custodian for hire pursuant to the Custodians Law (“Hok Hashomrim”) with respect to the Escrow Amount.

    6.4.        The Parties shall immediately indemnify the Escrow Agent upon its request, against any loss, damage or expense of any kind (including reasonable and documented lawyer’s fees and other expert’s fees) that it shall incur as a result of or in connection with the performance of its duties pursuant to the terms and provisions of this Adjustment Escrow Agreement or the performance of a its duties required by law, unless such loss, damage or expense results from the Escrow Agent’s gross negligence, bad faith or willful misconduct or from a breach of this agreement. The Parties shall indemnify the Escrow Agent for any payment its shall have to make as a result of a court sentence or a compromise that the Parties have agreed to, filed in connection with (directly or indirectly) this Adjustment Escrow Agreement, unless the lawsuit was filed as a result of the Escrow Agent’s gross negligence, bad faith or willful misconduct or from its action resulting from a breach of this agreement. The Escrow Agent shall notify the Parties promptly upon the receipt of notice or threat of such lawsuit.

    6.5.        The Escrow Agent shall be entitled to consider as true and correct any document it receives from the Parties, including but not limited to – Instruction Letters, Audited Adjustment Statements, requests, agreements or confirmations, that appear to be signed by the appropriate entity and/or person and that the Escrow Agent believes in good faith to be true.

     6.6        Capitalized terms appearing herein which are not otherwise defined shall have the meanings ascribed to such terms in the Asset Purchase Agreement.

PARTNER COMMUNICATIONS COMPANY LTD.

By:


MED-1 IC-1 (1999) LTD.

By: ___________________________

- 4 -

The undersigned agrees to serve as Escrow Agent in accordance with the terms of this Adjustment Escrow Agreement.

Gross, Kleinhendler, Hodak, Halevy, Greenberg, Trustees Ltd

By: ________________________

- 5 -

Schedule 1

[to be completed by the Parties and the Escrow Agent prior to the Closing]

- 6 -

ANNEX 2

ESCROW AGENT’S FEES

[to be completed by the Parties and the Escrow Agent prior to the Closing]

- 7 -

EXHIBIT A-2

INDEMNITY ESCROW AGREEMENT

        This Indemnity Escrow Agreement (“Indemnity Escrow Agreement”) dated as of ________, 2006, is entered into by and among MED-1 I.C.1 (1999) Ltd. (the “Company”), and Partner Communications Company Ltd. (the “Purchaser”) (the “Parties” and each a “Party”) and Gross, Kleinhendler, Hodak, Halevy, Greenberg, Trustees Ltd (“Escrow Agent”).

        WHEREAS, the Parties entered into an Asset Purchase Agreement dated January ___, 2006 (the “Asset Purchase Agreement”) whereby the Purchaser has agreed to purchase certain rights and other assets of the Company and to assume some of the Company’s Liabilities;

        WHEREAS, in connection with the Asset Purchase Agreement, the parties have further entered into the Real Estate Transfer Agreement;

        WHEREAS, pursuant to Section 9.2 of the Asset Purchase Agreement, the Company has undertaken to indemnify the Purchaser for losses arising out of certain events;

        WHEREAS, pursuant to Section 4.2.2 of the Asset Purchase Agreement, the Company has deposited with the Escrow Agent an autonomous bank guarantee issued by [enter name of issuing bank], in favor of the Escrow Agent, in the amount of US$ 2,000,000, valid until the lapse of eighteen (18) months from the date hereof⁽¹⁾ and exercisable in whole or in parts, a copy of which is attached hereto as Annex 1 (the “Indemnity Bank Guarantee”), to secure the Company’s indemnification obligations under Section 9.2 of the Asset Purchase Agreement and to further secure payment by the Company of its obligation to pay (i) ongoing municipal taxes (e.g., “arnona”) pursuant to Section 8.1.1 of the Real Property Transfer Agreement, (ii) Amelioration Charges (“heitel hashbacha”) pursuant to Section 9.1 of the Real Property Transfer Agreement, and (iii) Sales Tax (“mas mechira”) and Betterment Tax (“mas shevach”) pursuant to Section 8.1.2 of the Real Property Transfer Agreement (such taxes, together, the “Real Estate Taxes”); and

        WHEREAS, it is a condition to the closing of the transactions contemplated in the Asset Purchase Agreement that the Company, the Purchaser, and the Escrow Agent shall have entered into this Indemnity Escrow Agreement.

        NOW THEREFORE, the Parties and the Escrow Agent hereby agree as follows:

1.     Appointment of Escrow Agent. Upon the terms of this Indemnity Escrow Agreement, the Parties hereby appoint Escrow Agent to serve as escrow agent hereunder and Escrow Agent hereby accepts such appointment.

⁽¹⁾ i.e., from the Closing Date.

- 1 -

2.     Escrow Agent Obligations. The Escrow Agent shall hold, invest and release the Indemnity Bank Guaranty and any proceeds which may result from the exercise thereof (collectively, the “Escrow Amounts”) solely in accordance with this Indemnity Escrow Agreement.

3.     Exercise of Indemnity Bank Guaranty and Release of Proceeds of the Indemnity Bank Guaranty.

A.     Exercise of Claim Amount

     3.1        In the event that the Escrow Agent receives a notice from the Purchaser stating that the Purchaser is entitled to receive all or part of the Escrow Amount under Section 9.2 of the Asset Purchase Agreement, specifying a specific sum (the “Claim Amount”) and containing a calculation of the Claim Amount and relevant supporting documentation pertaining to the Claim Amount (together, the “Notice of Claim”), then the Escrow Agent shall promptly notify the Company of the receipt of the Notice of Claim and request a response from the Company within thirty (30) days (the “Escrow Agent’s Notice”).

     3.2        If the Company either (a) does not respond to the Escrow Agent’s Notice within thirty (30) days from the date of receipt of Escrow Agent’s Notice (the “Response Period”), or (b) does not notify the Escrow Agent, within the Response Period, that it objects to the payment of the Escrow Amount as set forth in the Notice of Claim, then the Escrow Agent shall promptly exercise the Indemnity Bank Guaranty in the amount of the Claim Amount and shall release the Claim Amount to the Purchaser.

     3.3        If the Company notifies the Escrow Agent, within the Response Period, that it does not consent to the payment of all or part of the Claim Amount (such amount being a “Disputed Claim”), then the Escrow Agent shall promptly exercise the Indemnity Bank Guarantee in respect of any undisputed portion of the Claim Amount, release such undisputed portion to Purchaser, and continue to hold the Indemnity Bank Guarantee in escrow pursuant to the provisions hereof.

     3.4        The Parties hereby agree that the Purchaser’s receipt of the Claim Amount (or any undisputed portion thereof) shall exhaust all of Purchaser’s rights of claim and causes of action with respect to the matters set forth in the Notice of Claim, up to the Claim Amount or any undisputed portion thereof received by the Purchaser. For the sake of clarity, if the Purchaser’s Claims set forth in the Notice of Claim exceed the Claim Amount (or any undisputed portion thereof) received by the Purchaser under Sections 3.2 and/or 3.3 above, then the Purchaser’s receipt of the Claim Amount (or any such portion thereof) shall not exhaust the Purchaser’s rights of claim and causes of action with respect to the matters set forth in the Notice of Claim that relate to the amounts exceeding the Claim Amount (or any such portion thereof) received by the Purchaser.

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     3.5        In the event that on the Exercise Date, as defined below, there shall be outstanding any Filed Dispute Proceedings, as defined below, then the Escrow Agent shall exercise the Indemnity Bank Guarantee in the amount of the Disputed Claim(s) directly and specifically underlying the said Filed Dispute Proceedings (the “Exercised Amount”) and, subject to Section 3.6 below, shall thereafter return the Indemnity Bank Guarantee, in respect of any remaining Escrow Amounts, to the Company, provided, however, that the Escrow Agent provides the Parties with at least seven (7) days prior written notice of its intention to so exercise the Indemnity Bank Guarantee, and providedfurther that the Escrow Agent shall not have received, by the Exercise Date, either: (a) an extension of the Indemnity Bank Guarantee, or (b) an alternative autonomous bank guarantee issued by the same bank, in the amount of the Exercised Amount (each, an “Alternative Guarantee”). The Escrow Agent shall hold the proceeds resulting from the exercise of the Indemnity Bank Guarantee or the Alternative Guarantee held pursuant to this subsection above, in accordance with the terms hereof, until the Escrow Agent receives (i) a verified copy of a judgment or other decision issued by a competent Israeli court of law, resolving the Filed Dispute Proceedings and specifying the amount, if any, to be paid to the Purchaser under Section 9.2 of the Asset Purchase Agreement, or (ii) a verified copy of a decree or other court order, issued by a competent Israeli court of law, ordering the release or extension of the Indemnity Bank Guarantee ((i) and (ii), each a “Court Decree”), or (iii) other joint written instructions of the Parties as to release thereof.

        As used in this Indemnity Escrow Agreement:

     (i)        the term “Filed Dispute Proceedings” shall mean a statement of claim submitted in a competent court of law, based on substantially the same claims as set forth in any outstanding Disputed Claim(s), as evidenced by a stamped copy of such statement of claim, indicating the same to have been duly filed and opened;

     (ii)        the term “Guarantee Expiration Date” shall mean the date of expiration of the Indemnity Bank Guarantee or of any Alternative Guarantee held by the Escrow Agent pursuant to this Section 3.5 above; and

     (iii)        the term “Exercise Date” shall mean fourteen (14) days prior to the Guarantee Expiration Date.

     3.6        Notwithstanding Section 3.5 above, if a Notice of Claim is delivered to the Escrow Agent less than sixty (60) days prior to the expiration of the eighteen (18) month period following the date hereof (a “Last Minute Claim”), then, upon the Exercise Date, the Escrow Agent shall, in addition to any exercise permitted pursuant to Section 3.5 above, also exercise the Indemnity Bank Guarantee in respect of the amount of the Last Minute Claim, provided, however, that the Escrow Agent provides the Parties with at least seven (7) days prior written notice of its intention to so exercise the Indemnity Bank Guarantee. Subject to Sections 3.2 and 3.3, which shall apply to the Last Minute Claim, mutatis mutandis, the Escrow Agent shall continue to hold the proceeds resulting from such exercise until the lapse of sixty (60) days from the date of the Last Minute Claim (the “Deferred Filing Period”).

        Upon the lapse of the Deferred Filing Period, the Escrow Agent shall return to the Company any Escrow Amounts held pursuant to this Section 3.6, if there shall not have been delivered to the Escrow Agent, prior to the end of the Deferred Filing Period, a copy of any Filed Dispute Proceedings based on substantially the same claims as set forth in the Last Minute Claim. In the event that, at the end of the Deferred Filing Period there shall be outstanding any Filed Dispute Proceedings based on substantially the same claims as set forth in the Last Minute Claim, then the Escrow Agent shall: (a) continue to hold, out of the proceeds resulting from the exercise of the Indemnity Bank Guarantee pursuant to this subsection above, the amount of the Last Minute Claim directly and specifically underlying the said Filed Dispute Proceedings, until the Escrow Agent receives a Court Decree or other joint written instructions of the Parties as to release thereof, and (b) return to the Company all other Escrow Amounts held pursuant to this Section 3.6.

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B.     Exercise of Tax Amount

     3.7        In the event that the Escrow Agent receives a notice from the Purchaser stating that the Company has not paid any or all of the Real Estate Taxes pursuant to the Real Property Transfer Agreement, specifying the unpaid Real Estate Taxes and the amount thereof (the “Real Estate Tax Amount”), and containing a valid payment demand issued on the same amount by the Real Property Betterment Tax Division (“agaf mas shevach mekarke’in”) of the Israel Tax Authority and/or by the applicable municipal authority or zoning commission having jurisdiction over the Transferred Real Property, as the case may be (each such notice and payment demand, a “Tax Payment Demand” and together, the “Tax Payment Demands”), then, the Escrow Agent shall promptly notify the Company of the receipt of the Tax Payment Demand(s) (the “Escrow Agent’s Tax Payment Notice”); provided, however, that:

     (a)        together with the Tax Payment Demand(s), Purchaser has delivered to the Escrow Agent a written statement duly executed by an officer thereof, stating that Purchaser has entered into a binding agreement for an arm’s length sale of the Transferred Real Property to a third party, and has attached to its said statement a copy of such agreement; or otherwise:

     (b)        the Tax Payment Demand(s) were delivered to the Escrow Agent not less than seventeen (17) months after the Closing Date.

     3.8        Unless the Company delivers to the Escrow Agent, within fourteen (14) days of the date of receipt of the Escrow Agent’s Tax Payment Notice, a written statement duly executed by an officer thereof, stating that it has paid up or is exempted from paying the Tax Payment Demand(s) underlying the Escrow Agent’s Tax Payment Notice, and delivers the Escrow Agent, together with such notice, the original copy of confirmation of payment of such Tax Payment Demand(s) or an exemption therefrom (which confirmation, in the case of the Sales Tax (“mas mechira”) and Betterment Tax (“mas shevach”) payable pursuant to Section 8.1.2 of the Real Property Transfer Agreement, shall be in a form as required to enable the transfer of the Transferred Real Property by the Company to Purchaser to be recorded with the Office of the Land Registrar in the State of Israel), then the Escrow Agent shall promptly exercise the Indemnity Bank Guarantee in respect of any unpaid Tax Payment Demand(s) and pay any such unpaid Real Estate Taxes for and on behalf of the Company.

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C.     Release of Interest and Other Proceeds; Irrevocable Instructions

     3.9        Notwithstanding any provision of this Agreement to the contrary, except for any release of Escrow Amounts pursuant to Section 3.8 above, the release of any Escrow Amounts, by the Escrow Agent, under this Indemnity Escrow Agreement, shall include the release of any interest or other investment proceeds accruing on such Escrow Amounts, after deduction of any fees and commissions payable to the Depositing Bank (as defined below) in respect of the maintenance and investment of the Escrow Amounts pursuant to the provisions of this Indemnity Escrow Agreement.

    3.10        The provisions of this Section 3 above constitute the Parties’ irrevocable instructions to the Escrow Agent in respect of the release of the Escrow Amounts.

4.     Investment of Proceeds

        In the event that the Escrow Agent exercises any portion of the Indemnity Bank Guarantee in accordance with this Indemnity Escrow Agreement, the Escrow Agent shall deposit all such proceeds in an appropriate, segregated escrow account at Bank Hapoalim BM or in any other bank to be approved by the Parties (the “Depositing Bank”), shall notify the Parties of the details of the said account, All such deposited Escrow Amounts shall be invest in NIS based, short term interest bearing deposits at the sole discretion of the Escrow Agent.

5.     Escrow Fees.

        The Escrow Agent shall be entitled to receive reasonable compensation for its services hereunder pursuant to the schedule of fees attached hereto as Annex 2 and made a part hereof and, in addition thereto, shall be reimbursed for all out of pocket expenses, including reasonable attorneys’ fees, actually and reasonably incurred by it in connection with the performance of its duties and obligations under this Indemnity Escrow Agreement. All such fees and expenses shall be paid equally by the Parties.

        The Escrow Agent does not have any interest in the Escrow Amounts, but is acting hereunder as escrow agent only for the benefit of the Parties. Therefore, the Escrow Agent shall not have any right to appropriate, seize, confiscate and/or apply the Escrow Amounts to satisfy payment of any or all obligations due hereunder to the Escrow Agent.

6.     Miscellaneous

        6.1 With respect to the rights of the Purchaser and the Company, any inconsistency between the terms hereof and the terms of the Asset Purchase Agreement shall be interpreted in favor of the Asset Purchase Agreement. In addition, nothing is this Indemnity Escrow Agreement or any action preformed in accordance with therewith shall limit or prejudice the rights or remedies of the Parties under the Assets Purchase Agreement and under applicable law.

     6.2        The Escrow Agent shall undertake to fulfill its duties under this Indemnity Escrow Agreement in good faith and with reasonable care. The Escrow Agent shall not be liable for any damage or loss incurred by the Parties as a result of any action or omission on its part in connection with this Indemnity Escrow Agreement, on condition that the Escrow Agent acted within the scope of this Indemnity Escrow Agreement and provided that it acted in a reasonable manner and in good faith.

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     6.3        The Parties release the Escrow Agent from any obligation or duty as custodian for hire pursuant to the Custodians Law (“Hok HaShomrim”) with respect to the Escrow Amount.

    6.4.        The Parties shall immediately indemnify the Escrow Agent upon its request, against any loss, damage or expense of any kind (including reasonable and documented lawyer’s fees and other expert’s fees) that it shall incur as a result of or in connection with the performance of its duties pursuant to the terms and provisions of this Indemnity Escrow Agreement or the performance of a its duties required by law, unless such loss, damage or expense results from the Escrow Agent’s gross negligence, bad faith or willful misconduct or from a breach of this Indemnity Escrow Agreement. The Parties shall indemnify the Escrow Agent for any payment its shall have to make as a result of any Court Decree or compromise that the Parties have agreed to, and which shall be filed in connection with (directly or indirectly) this Indemnity Escrow Agreement, unless the lawsuit was filed as a result of the Escrow Agent’s gross negligence, bad faith or willful misconduct or in connection with its breach of this Indemnity Escrow Agreement. The Escrow Agent shall notify the Parties promptly upon the receipt of notice or threat of such lawsuit.

    6.5.        The Escrow Agent shall be entitled to consider as true and correct any document it receives from the Parties, including but not limited to – letters of instructions, Notices of Claim, requests, agreements or confirmations, that appear to be signed by the appropriate entity and/or person and that the Escrow Agent believes in good faith to be true.

    6.6.        Capitalized terms appearing herein which are not otherwise defined shall have the meanings ascribed to such terms in the Asset Purchase Agreement.

     6.7        This Indemnity Escrow Agreement constitutes the entire agreement between the Parties and the Escrow Agent with respect to the subject matter hereof and supersedes all prior understandings, if any, with respect thereto. This Indemnity Escrow Agreement contains irrevocable instructions to the Escrow Agent and may not be modified, changed, supplemented or terminated, nor may any obligations be waived, except by written instrument signed by the Parties. The parties do not intend to confer any benefit hereunder on any person, firm or corporation other than the Parties and, as the case may be, the Escrow Agent.

[this space left intentionally blank]

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[Signature page to an Indemnity Escrow Agreement]

PARTNER COMMUNICATIONS COMPANY LTD.

By: ___________________________

MED-1 IC-1 (1999) LTD.

By: ___________________________

The undersigned agrees to serve as Escrow Agent in accordance with the terms of this Indemnity Escrow Agreement.

Gross, Kleinhendler, Hodak, Halevy, Greenberg, Trustees Ltd.

By: __________________________________________________

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ANNEX 1

INDEMNITY BANK GUARANTEE

(see Exhibit B attached hereto)

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ANNEX 2

ESCROW AGENT’S FEES

(to be completed)

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EXHIBIT B

[LETTERHEAD OF GUARANTEEING BANK]

Date: ____________, 2006

To:
Gross, Kleinhendler, Hodak, Halevy, Greenberg, Trustees Ltd.
One Azrieli Center (Round Building)
Tel Aviv

Dear Sirs,

Re: Guarantee No. _____________ on the amount of US$2,000,000
In force until [enter expiration date].

At the request of Med-1 IC-1 (1999) Ltd. (hereinafter: the “Applicant”) we hereby guarantee to you to pay any amount payable or which will become payable to you up to an aggregate amount of US$2,000,000 (two million US dollars) (hereinafter, the “Guarantee Amount”) in connection with an Asset Purchase Agreement dated January __, 2006.

We shall pay any amount out of the Guarantee Amount together with linkage differences as set out above within 7 days from the date of receipt of your first demand in writing, without imposing on you any duty to base or detail your demand.

Any demand made pursuant to this Guarantee should be delivered to our branch in [state address of issuing bank branch] not later than [state the date occurring at the end of 18 months after the Closing Date].

This guarantee shall remain in force until and including [state the date occurring at the end of 18 months after the Closing Date]. After this date this Guarantee shall become null and void.

This Guarantee is not assignable or transferable in any manner.

Please return this Guarantee to us upon its expiration or after its payment in full, according to the earlier thereof.

Any demand received by our branch by facsimile shall not be deemed a demand in accordance with the terms of this Guarantee, and shall not be complied with.

Respectfully yours,

[enter name of guaranteeing bank and branch]

Exhibit C

Employee Waiver

TO: Partner Communications Company Ltd. (“Partner” or “the New Employer”)
8 Ha’amal St., Afek Industrial Park,
Rosh Ha’ayin 48103

Dear Sir/Madam,

RE: Undertaking and declaration regarding the absence of claims against New Employer

I, the undersigned, I.D. no. _________________, hereby declare and acknowledge as follows:

1. On _________________ 2006 the working relationship between me and Med-1 I.C. 1(1999) Ltd., (hereinafter: “Med-1” and/or “the Former Employer”) will cease, following the sale of the transmission business activity, including the assets of the Company relevant for such activity, by Med-1.

2. Subject to the drawing up of a full and final account in respect of the term of my employment with Med-1, and receiving all my rights and all the monies due to me by law and/or agreement, including, without derogating from the generality of the foregoing, severance pay, compensation for overtime, compensation for work during weekly rest time, annual vacation monies, vacation encashment, vacation allowance, sick leave, traveling costs, compensation for delayed salary if due to me, and compensation for delayed payment of severance pay if due to me, in respect of the entire term of my employment, I undertake to sign notice of discharge in favor of the Former Employer in the form attached as an annexure hereto (hereinafter: “Notice of discharge in favor of the Former Employer”).

3. I hereby further undertake and declare that:

(1) I neither have nor will have, nor will any person on my behalf have any claims, demands or actions against Partner on any matter pertaining to the term of my employment with the Former Employer, including, without derogating from the generality of the foregoing, in respect of: severance pay, compensation for overtime, compensation for work during weekly rest time, annual vacation monies, vacation encashment, vacation allowance, sick leave, traveling costs, compensation for delayed salary (if due to me), and compensation for delayed payment of severance pay, if due to me, in respect of the entire period of my employment.

(2) In addition I am aware and agree that no period of employment prior to the date of my employment by Partner will be brought into account for the period of my employment with Partner, and will not be deemed as work seniority for purposes of calculating severance pay or for any other purpose.

4. It has been explained to me and I understand and acknowledge that I have been hired for work at Partner as a new employee in all respects, and that my being hired by Partner has been done in reliance on and is predicated on everything stated by me in this letter above.

In witness whereof I have set my hand:

Date: _________________ Signature: _________________
Witness to signature: ____________

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TO: Med-1 I.C. 1(1999) Ltd., (“the Company”)

Dear Sir/Madam,

RE: Finalization of Account and Notice of Discharge

1. I, the undersigned, _________________ I.D. no. _________________, hereby acknowledge and declare that I received from you on _________________ the sum of NIS ______ by bank transfer / check no. _________________ and a copy of your letter to the _________________ continuing education fund and the insurance company / pension fund by letters of release to regulate my rights therein, as more particularly set out in the finalization account documents attached hereto.

2. By signing this document I acknowledge that the amount paid to me as stated above constitutes full, final and absolute consideration for everything due to me from the Company in respect of any cause whatsoever, whether in respect of my employment at the Company or in respect of the termination of my employment at the Company and in respect of any other cause, and without derogating from the generality of that stated, salary, severance pay, compensation for overtime, compensation for work during weekly rest time, annual vacation monies, vacation encashment, compensation for delayed salary (if due to me), compensation for delayed payment of severance pay , if due to me, sick leave, pension and/or insurance policy and/or monies that have accumulated in a pension fund for my benefit in respect of the period of my employment.

3. I also acknowledge by signing this document that except for what has been paid to me as stated above, I do not have nor will I have against the Company and/or its employees and/or its authorized persons and/or those acting on its behalf or by virtue thereof, all of them jointly and/or each of them severally, directly or indirectly, any claims and/or demands and/or actions of any kind whatsoever or in relation to or resulting from my employment at the Company or from the termination of my employment with the Company and that I waive and give instructions of discharge also with respect to any sum that is due to me, if at all, as severance pay in accordance with Section 29 of the Severance Pay Law.

4. I hereby undertake that if I breach any of my undertakings under this document and raise at any time in the future, without limitation in time, any action, claim or demand of any kind whatsoever on any matter relating to or resulting from my employment with the Company or from the termination of my employment with the Company, against the Company and/or against any one of the parties enumerated in paragraph 3 above and/or against Partner Communications Ltd., jointly and/or severally – I will repay to the Company immediately, all the sums that have been paid to me within the scope of the finalization of the account attached hereto (except for sums due to me by law), – with the addition of interest and linkage differentials as required by law from the date of payment – until the date of the repayment.

5. I acknowledge having read this document carefully, and have received all the clarifications and explanations that I requested and I have taken advice in connection with the document, well understood the content and significance of my undertakings under the document and assume without reservation all my undertakings set out above.

In witness whereof I have set my hand:

Date: _________________ Signature: _________________
Witness to signature: ____________

Encl: Form 161
Final Account Document
Copy of letter to the relevant funds

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EXHIBIT D-1

NOTICE OF ASSUMPTION – ASSIGNED CONTRACTS

[to be completed prior to the Closing]

EXHIBIT D-2

NOTICE OF ASSUMPTION – DUAL CONTRACTS

[to be completed prior to the Closing]

Exhibit E
[unofficial translation from Hebrew original]
Hosting Agreement

Made and executed in Tel Aviv this ____ day of _____________, 2006

BETWEEN: Med-1 I.C. 1(1999) Ltd.

private company no. 512776394
of 6 Hanechoshet St., Tel Aviv
(hereinafter: "the Host")

of the one part

AND: Partner Communications Company Ltd.

public corporation no. 520044314
of 8 Amal St., Afek Industrial Park, Rosh
Ha'ayin (hereinafter: “the Customer”)

of the other part

WHEREAS Pursuant to an agreement dated January 22, 2006, the Customer acquired from the Host, inter alia, a fiber-optic based cable transmission network deployed throughout the country (hereinafter: "the Cable Transmission Network"); and

WHEREAS The Host leases a basement floor (minus 3) in a building known as the Merkavim Building in the Kiriat Arieh Industrial Zone in Petach Tikva (hereinafter: “the PT Site”); and holds a long-term lease in a 3-storey building, with a basement and ground floor on 1 Hacarmelim Street in Tirat HaCarmel (hereinafter: “the Haifa Site”); and is the owner of a 2-storey building, basement at 116 Hayarkon Street, Tel Aviv (hereinafter: “the TA Site”) (the PT Site, the Haifa Site and the TA Site being hereinafter collectively called – “the Sites ”; each of the Sites being referred to on occasions, separately as – a “Site”); and

WHEREAS The Cable Transmission Network reaches each of the Sites, at each Site – up to the end-point of the Network situated in the Communications Cabinet (as hereinafter defined) at such Site; and

WHEREAS The Host has offered to maintain for the Customer at the Sites the Communications Facilities (as hereinafter defined) and received from the Host a right of use and access in relation thereto and to the Manholer (as hereinafter defined) and also various services related to all of the foregoing, on the conditions, for the period and against the consideration hereinafter set forth, and the Customer – after having examined the Sites and the vicinity, installations and systems thereof (including the air conditioning systems, the electrical systems and electrical back up systems, security systems, fire fighting systems and drainage systems) from the physical, planning, technical, legal standpoints and from every other relevant standpoint, and after having been afforded an opportunity to raise questions in relation thereto, and having examined the Host’s offer, and found all of the foregoing to be suitable for its needs and requirements, and after having been informed and is aware that the Host is entitled to provide the Site Services, Additional Services – if provided – or part of such services by means of sub-suppliers and/or sub-contractors – requests to maintain at the Sites the Communications Facilities and receive a right of use and access in relation thereto and to the Manholes, all on the conditions, for the term and against the consideration hereinafter set forth, and received from the Host the Site Services (as hereinafter defined).

It is therefore stipulated, agreed and declared between the parties to this Agreement as
follows:

1. Preamble, Schedules and Headings

1.1 The preamble to this Agreement and the declarations of the parties therein, constitute an integral part hereof.

1.2 This Agreement and the Schedules thereto constitute jointly the complete contract. In the event of any divergence or inconsistency between that stated in this Agreement and the contents of the Schedules or any of them, the contents of this Agreement will control.

1.3 The headings to the clauses or sections in this Agreement are set out for ease of reference only and are not to be applied in interpreting the Agreement.

2. Interpretation and Definitions

2.1 Unless the context otherwise directs, the terms as set out below will have in this Agreement the meanings set out opposite them:

“The Host” – Med-1 I.C. 1(1999) Ltd.

“The Customer” - Partner Communications Company Ltd.

“Site”/ “the Sites” as defined in the preamble hereto.

“Communications Cabinet” – means the cabinet in which the switching boards (the ODF/DDF optic or digital) switching boards are installed, used in connecting the end-point of the Cable Transmission Network at the relevant Site and the internal communication network owned by the Host at such Site, including any future addition or extension of the cabinet and/or the switching systems so installed therein.

“Manhole” – means the manhole situated in the area of the Site and which enables direct access to the Cable Transmission Network.

“Customer Cage” – the floor area fenced off by a metal cage having a designated entrance, in which the various equipment required to operate the Cable Transmission network or other equipment, at the Customer’s discretion are or will be installed, including any extension or addition to such area or manhole.

“Communications Facilities” – the installations that will be made available for the Customer’s use under this Agreement, and which comprise:

(a) At the PT Site – Customer Cage the features and location of which on the date of the execution of this Agreement are set out in Schedule 1 hereto;

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(b) At the Haifa Site – Customer cage the features and location of which on the date of the execution of this Agreement are set out in Schedule 1 hereto, and a Communications Cabinet common to the Company and a third party, as described in clause 3.3.1 hereof, and

(c) At the TA Site – columns designed for the installation of computer and of communications equipment and which are located in the area of the TA Site, as described and delineated in Schedule 1 hereto.

“Cable Transmission Network” – as defined in the preamble hereto.

“Site Services” – the services pertaining to the general physical and/or technical conditions existing in each of the Sites, i.e.: air conditioning, water, security, lighting, firefighting system, water pumping system, floating floor and building maintenance and cleaning.

“Additional Services” – additional services beyond the content of the Site Services, expected to be supplied by the Host to the Customer from time to time according to the Host’s custom and/or by separate agreement with the Customer, all against the additional consideration that will be fixed in accordance with its price list from time to time as determined or as determined by the parties by mutual agreement, and according to a written order from the Customer, including also the installation of jumpers and connections, the provision of interconnectability services in the area of the Site/s (cross-connect services), equipment ordering services, equipment installation, the Host’s representative accompanying the Customer during visits in the area of the Site/s and other services involved in connecting to the Host’s installation infrastructures.

“Customer’s Works and Installations” – services, works and installations within the Customer Cage that will be effected by the Customer, provided that these will not include services involved in connecting to the Host’s installation infrastructures (beyond the existing connection under this Agreement).

2.2 The Schedules hereto and set forth below, constitute an integral part of this Contract between the parties:

Schedule 1 - Specification of the communications installations and the Pits and ancillary drawings.

Schedule 2 - Consideration.

Schedule 3 - Rules of conduct and security at the Site and undertaking to maintain confidentiality.

Schedules 4-1/2 - Insurance Schedules.

Schedule 5 - Service and maintenance level (SLA).

3. Rights of Use and Access; Site Services

3.1 Pursuant to the terms of this Agreement, and subject to the conditions described in this Agreement and against the consideration specified in Schedule 2, the Host undertakes to supply to the Customer and the Customer hereby undertakes to acquire and take from the Host, during the term of this Agreement:

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3.1.1 A right to use the Communications Facilities and a non-exclusive right of access to the Communications Facilities and the Manhole/s all for the purposes of operating and/or repairing and/or maintaining and/or upgrading the Customer’s communication equipment installed therein and/or the Cable Transmission Network;

3.1.2 The Site Services.

3.2 The Host will allow the Customer to have free access at all times to the Communications Facilities and the Manhole/s Site/s at each and every Site, pursuant and subject to the terms of this Agreement and the Rules of safety as set out in Schedule 3.

3.3 Notwithstanding clause 3.2 above, the Customer hereby acknowledges that it is aware of and agrees that:

3.3.1 The Communications Cabinet installed at the Haifa Site is, in addition to being the end-point of the Cable Transmission Network, used also for the end-point of the international cable transmission network that is owned or operated by Mediterranean Nautilus Israel Ltd., (hereinafter respectively called – “Med Nautilus Network” and “Med – Nautilus) and is installed in the area leased to Med Nautilus. Accordingly, as long as the Communications Cabinet at the Haifa Site will be common to the Cable Transmission Network and the Med Nautilus Network mentioned, the Customer’s access to the Communications Cabinet is conditional on prior notice to the Host, in addition to that stated in Schedule 3.

3.3.2 Access to the Communications Facilities and/or the Manhole/s at any given site may be denied to the Customer at times of general emergency at such Site, by reason of which such free access will not be enabled or granted. In this clause, “general emergency” means: fire, flood, act of sabotage or terrorist act, the giving of instructions by the Defence Forces (police, army, firefighting or rescue agencies etc.) or taking control of the building by the Defence Forces or urgent action within the framework of the handling of any one of such events, and, following the occurrence of which or at the time of or following the occurrence thereof, no entry to the building will be permitted.

“The Customer” in this clause includes the Customer’s managers, employees, visitors, contractors representing it and any persons found on its behalf at the Site, provided that such parties have been approved by the Customer in advance for such purpose and/or have been approved pursuant to Schedule 3. The Host will not unreasonably refuse to authorise any such entity.

3.4 Subject to the physical possibility of expanding the areas of the Communications Facilities and/or of acquiring rights of use and access in relation to additional areas in the Sites or any of them (hereinafter – “Physical Possibility of Expansion”), the Host will enable the Customer to have the Physical Possibility of Expansion for purposes of operating and/or maintaining and/or repairing and/or updating the Cable Transmission Network and the Customer’s remaining communications equipment installed at the Site/s, on the conditions provided by this Agreement and in consideration of a price that will, at each and every Site, be computed according to the per – sq. meter price on the basis of which the consideration at such site is computed pursuant to Schedule 2. In the event of such Physical Possibility of Expansion, the right will be granted to the Customer to choose, at its sole discretion, the location of the additional areas at the Sites or in any of them, based on free space (for this purpose, “free space” excepts unoccupied areas in respect of which future rights (”an option”) have been granted) to third parties).

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3.5 It is expressly agreed that nothing contained above in this Agreement shall permit the Customer (as hereinbefore defined) to have the use of and/or entry to any other part of any of the Sites beyond the Communications Facilities and/or the Manhole/s in each and every Site, except for the access corridors from the entry point to the Site up to the Communications Facilities and the Manhole/s in such Site, as instructed by the Host from time to time, and subject to the provisions of Schedule 3 to this Agreement, and the Customer will not be entitled to enter upon, pass through or visit any of the parts of the Site mentioned, including, but without derogating from the generality of the foregoing, the control room of the Site, the central communications room at the Site (“Meet Me Room”) areas that are or will be leased to other customers of the Host, battery rooms, pumping rooms, generator rooms, transformer rooms and the like. This clause is fundamental to this Agreement.

3.6 It is expressly agreed that nothing contained in this Agreement shall confer upon the Customer any right in the land relating to the Sites or any part of them, including any right of lease and/or easements whatsoever, beyond the rights of use and access conferred expressly by this Agreement and for the duration of the term of this Agreement only, and that the grant of such rights and/or any other right according to this Agreement will not be construed as granting to or creating in favor of the Customer any right in the land or undertaking to grant any right whatsoever in the land. It is further expressly agreed that the Lending and Borrowing Law, 5731 – 1971 and/or any other enactment defining or creating a leasing relationship, including a protected tenancy, will not apply to the provisions of this Agreement and the Agreement will be construed as negating all the provisions of those enactments. Accordingly it is hereby agreed that no liability of an owner of land and/or of the occupier of land will apply to the Customer or to any person on its behalf towards the Host and/or towards any other party that is found at the Sites.

3.7 The Customer will be responsible for its representatives strictly complying with the instructions of the Host’s representative at each and every Site, including in all matters relating to the manner of conduct at the Site, the access roads at the Site and the safety rules at the Site.

3.8 The Host warrants that the level of maintenance and level of services that will be provided to the Customer will be appropriate and not be less than or deviate from the provisions contained in Schedule 5 to this Agreement.

3.9 Additional Services (if and to the extent they will be supplied to the Customer) will, unless otherwise expressly agreed in writing between the parties, be subject to the provisions of this Agreement.

3.10 The Customer’s Works and Installations (as hereinbefore defined) will be carried out at the sole discretion of the Customer, without any further consideration to the Host, but will, nonetheless be subject to prior arrangement with and under the supervision of, the Host, provided also that such supervision costs will be fully borne by the Host.

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4. Term of the Agreement

This Agreement will enter into immediate effect upon the execution thereof by the parties and remain in force until May 31, 2015 (hereinafter: “the Agreement Term”).

5. Consideration

5.1 The Customer will, in consideration of the right of access and the Services mentioned in clause 3 above, pay the Host the financial consideration mentioned in Schedule 2 hereto (hereinafter: “the Consideration”). The Consideration will be paid to the Host once every calendar quarter in advance in respect of that calendar quarter, not later than the fifth of such quarter. It is hereby clarified that the Customer will be bound to pay the Consideration in respect of the entire Agreement Term, whether or not it will have exercised its rights under this Agreement.

5.2 The Customer will, in addition to that stated in Clause 5.1 above, and together with the Consideration, pay the Host a further payment in respect of the Additional Services that have been ordered (if at all) by the Customer, in writing, during the period of the preceding calendar quarter, according to the prices to be agreed upon between the parties and against a detailed invoice to be submitted by the Host to the Customer and which will contain an itemisation of the Addition of Services that have been provided to the Customer and the dates on which those Services were provided during such calendar quarter.

5.3 Value Added Tax will be added to the Consideration and the payment for the Additional Services at the lawful rate applicable by law from time to time. The Host, will, in respect of the Consideration and any additional payment that will be so added thereto, provide the Customer, subject to the actual making of the payment, with a lawfully-drawn tax invoice.

5.4 It is agreed that the payments according to this clause include all taxes, levies and fees, including customs duties and import fees, if applicable, in respect of the management and operation of the Site, and the Customer will not be separately charged for these payments in addition to the Consideration. That stated does not apply to Value Added Tax that will be added to the payments mentioned in clause 5.3 above, or to taxes, levies, fees and/or other compulsory payments that apply to the Customer in connection with its operations or in relation to the Services that will be received by it under this Agreement or generally. Where the Host has been charged, borne or paid any payment which by this Agreement or law applies to the Customer, the Customer will reimburse the Host for such amount immediately upon the Host’s first demand.

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5.5 Annual default interest in respect of each day of delay in making payment up to 30 days of the delay in making any of the payments prescribed by this Agreement will be added to the amount in arrears at the rate of 1% above the prime interest rate customary in Bank Hapoalim BM (i.e. prime plus 1%). In respect of each day of delay in making any payment beyond such 30 day period, penal interest on the amount in arrears will be added and once every 30 days, the penal interest will be added to the amount in arrears so that penal interest will similarly be imposed thereon (compound interest). “Penal interest” in this Agreement means the annual interest charged for the time being by Bank Hapoalim BM on unlawful overdrawings from an approved credit facility in overdraft accounts.

5.6 All prices in this Agreement and/or in the Schedules are US Dollar denominated and, as stated above – are exclusive of VAT. Payment will be made in New Shekels pursuant to the representative rate of exchange of the US Dollar on the date of issue of the invoice.

5.7 The Customer will be entitled to offset the payments under this Agreement only against charges or liquidated sums that are, in its opinion, due to it from the Host.

5.8 The full and punctual payment according to this Agreement constitutes a fundamental condition hereof and the breach thereof will constitute a fundamental breach of this Agreement.

6. Intellectual Property

6.1 It is hereby agreed and stated that nothing contained in this Agreement shall confer upon any of the parties the right to exploit or use, directly or indirectly, in any manner, the know-how of the other party, including in relation generally to the provision of hosting services.

6.2 Nothing contained in this Agreement constitutes any permit or consent to the use by any party of any brand name, trade mark or like property belonging to or held by or used by the other party, without the prior written and special consent of such party.

7. Breach and Termination

7.1 Each party will be entitled to rescind this Agreement by thirty days’ prior notice, upon the occurrence of any of the following:

7.1.1 Any temporary or permanent receiver, special manager, liquidator, temporary or permanent, being appointed for the other party, or a winding up petition having been filed against it, provided that such appointment or petition will not have been vacated within forty five (45) days.

7.1.2 The other party has filed a petition for voluntary winding up, or a stay of proceedings and/or the making of an arrangement with its creditors.

7.1.3 The other party has committed a breach of any of the confidential duties imposed upon it under this Agreement.

7.1.4 The other party has committed a fundamental breach of this Agreement (not being a delay in the making of any of the payments applicable under this Agreement). It is agreed that any breach other than a fundamental breach will be regarded as fundamental after fifteen (15) days will have elapsed from the date on which either of the parties sends the other notice of breach and the other party will have failed to cure such breach to the full satisfaction of the party sending such notice.

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7.1.5 The other party having delayed in the making of any of the payments imposed upon it for a period exceeding ninety (90) days.

7.1.6 If the Customer has, during any period of twelve (12) consecutive months, at the discretion of the Host, offset any sum exceeding the Consideration in respect of three (3) months, as set out in Schedule 2 hereto. Such termination shall not operate to affect the parties’ rights under this Agreement.

7.2 Upon such termination of the Agreement, the Customer will, as quickly as possible, remove the communications equipment and any other equipment owned by it at any of the Sites (excepting the Cable Transmission Network), unless, in a case where the Host is the party who has terminated this Agreement following the breach thereof by the Customer – the Host has, at its sole discretion, elected to effect the removal itself, in which case it will be entitled so to do and also give the Customer reasonable prior notice regarding the time and place at which it must attend in order to take possession of the equipment so removed from the Sites.

If the Customer has failed to remove the equipment or failed to attend in order to take the same on the date prescribed for that purpose by the Host, as appropriate, the Host will be entitled to store that equipment at the Customer’s expense, and the Customer will pay the Host the expenses involved in storing the equipment, and if the Host has stored the equipment in a building occupied by the Host, the Customer will pay the Host payment in respect of the storage of the equipment as fixed according to the maximum price per sq. meter that will be charged by the Host from its customers at the Site in respect of granting the right of use of a similar area.

8. Confidentiality

8.1 Subject to any law, the Customer will keep secret and not disclose to any person without the prior written authorisation of the Host, any information, particular or data relating to this Agreement, the grant of the right of access and/or the services thereunder, the Site, the rights of access to the Site, the security procedures at the Site, the types of activity carried on at the Site, other customers of the Host and any other particular or data relating to the Host. Notwithstanding the foregoing, the Customer will be entitled to disclose the very existence of the engagement with the Host for providing hosting services as provided by this Agreement.

8.2 The Host will keep secret and not disclose to any person without the express authorisation of the Customer, any information relating to the Customer and/or the activity of the Customer at the Site and/or in connection with the technical or financial situation of the Customer. Notwithstanding the foregoing, the Host will be entitled to disclose the very existence of the engagement with the Customer for providing hosting services as provided in this Agreement.

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8.3 The parties’ undertaking to maintain secrecy mentioned above will not apply to the information that is in the public domain and/or which has reached the knowledge of the other party from any third party, provided that such third party was not bound to maintain secrecy regarding such information and/or, in the event of a demand to disclose such information on the part of any authority that has demanded to receive such information by virtue of its power by law, or on the part of any competent court, subject to such a demand having been received by any party to this Agreement in relation to confidential information of the other party, the party receiving such demand will, prior to disclosing the confidential information, give notice of the demand to the other party a reasonable time in advance and enable it to take proceedings to prevent the disclosure of the information.

8.4 This clause will apply among the parties independently of the validity of the Agreement between them and will continue to apply also after the termination of the Agreement Term, regardless of the reason for the termination.

8.5 Without derogating from the foregoing, the Customer and all persons on its behalf attending at the Site will sign the Rules of Conduct and Security at the Site and a written undertaking to maintain secrecy in the form attached hereto as Schedule 3. The Host will be entitled to prevent access to the Site by any person attending at the Site on the Customer’s behalf if he has failed prior to entering the Site, to sign the Rules of Conduct and Security at the Site and such written undertaking to maintain confidentiality.

9. Insurance

9.1 The Customer and the Host will, during the entire term of this Agreement, by means of reputable insurance companies in Israel, maintain the insurances set out in Schedules 4-1 and 4-2 (hereinafter respectively: “the Customer’s Insurance Certificate” and “the Host’s Insurance Certificate”) and remit to one another, from time to time, upon request such Certificates signed by their insurers.

9.2 Notwithstanding that stated in clause 9.1 above, it is agreed that the Customer will be entitled not to affect the property insurance mentioned in sub-paragraph (2) of the Customer’s Insurance Certificate, in whole or in part, save that the provisions contained in clause 9.4 below will apply, as if the insurance had been made in full.

9.3 The Host exempts the Customer and/or any of its successors from liability in respect of damage for which it is entitled to indemnity under the insurance effected according to section (2) of the Host’s Insurance Certificate (or for which it would have been entitled to indemnity had it not been for the deductible specified in the policy), save that such exemption from liability will not apply in favor of any person who has caused wilful damage.

9.4 The Customer exempts the Host and/or its successors as well as the owners of the buildings in which the Sites are housed and the proprietors of other rights in the Sites and/or in such buildings, including other hosted parties (the other proprietors of rights being hereinafter called: “the Other Proprietors”), under whose agreements the Other Proprietors are vested with rights in such Sites and/or buildings and an exemption from liability is included and/or responsibility to include a waiver of the right of subrogation in their property insurance, from liability in respect of loss and/or damage for which the Customer is entitled under the insurance effected by it pursuant to section (2) of the Customer’s Insurance Certificate (or for which it would have been entitled to indemnity had it not been for the deductible specified in the policy), save that such exemption will not apply in favor of any person who has caused malicious damage.

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The Host declares that pursuant to the agreements between it and/or the Other Proprietors and between it and the proprietors of the buildings in which the Sites are housed (not being in the ownership of the Host) the Other Proprietors and the proprietors of such buildings have undertaken to insure the property in their ownership and which is under their responsibility against loss or damage following the usual risks covered by extended fire insurance, such insurances including a waiver of the right of subrogation against the Host and its successors as well as against Other Proprietors (including the Customer) where the property insurance of such Other Proprietors contains a parallel clause regarding the waiver of the right of subrogation, save that the waiver of such right of subrogation will not apply in favor of any person who has caused malicious damage.

10. Prevention of disturbances to the Host and third parties

10.1 The Customer hereby declares, acknowledges and undertakes that it has been explained to it and it understands that areas and/or rooms and/or installations exist at the Sites which are operated by the Host and/or by its customers, in which are installed Communications Equipment and/or computer servers and/or electricity and/or switching and/or other similar equipment. The Customer undertakes that the Communications Equipment that is in its ownership at the Sites will not cause any disturbances, inductions, or nuisances to the Host and/or the equipment that is operated by it, or to third parties and/or to the equipment that is operated by them. Without derogating from the Host’s rights under this Agreement and/or at law, the Customer undertakes, immediately upon the Host’s first demand, to effect any act and/or repair that will be required in order to prevent and/or terminate such disturbances. The Host declares that agreements with its other customers contain and will contain in the future a provision similar to this clause.

10.2 The Customer undertakes that it and all of its successors for each of the Sites will keep the Sites and the surroundings thereof clean, and particularly will keep clean and intact the public areas at the sites and the access ways thereto, including stairwells, entry rooms, elevators, corridors and any other public area.

10.3 The Customer is aware of the fact that the Host may effect during the term of this Agreement, various works at the Sites or any of them, including adjacent to or contiguous with the Communications Facilities and/or the Manhole/s, that are located in each and every Site, and also that it is the Host’s intention to construct, independently or by means of others, additional storeys in the building in some of the Sites. The Customer will neither disrupt nor oppose any act that will be effected in connection with the foregoing, provided that the Customer’s rights under the Agreement will not be affected. Without derogating from that stated above, it is agreed that the Host will be entitled to run through any part of the Site, in each Site, including adjacent to the Communications Facilities and/or to the Manhole/s and/or contiguous thereto, including above or under the floor thereof, communications cables, wiring and conduits, water, gas, air-conditioning conduits, electrical lines, telephone cables, sewage, drainage and the like, and also to put in place such installations, all on condition that such transfer will not cause the ongoing activity of the Cable Transmission Network and/or the Communications Facilities any harm. It is expressly agreed that in the event of the Host intending to effect in any of the Sites works which could lead to harm in the activity of the Cable Transmission Network and/or the Communications Facilities, it will give notice thereof to the Customer a reasonable time in advance and act in co-ordination with it. For the avoidance of any doubt it is clarified that current works at the Site such as the laying of wiring, wire sleeving, the placing of cages and cabinets and the like will not be deemed to be works for which prior notice will be required to be given to the Customer, except where they are likely to lead to harm to the system activity.

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11. Assignment of rights

11.1 Each party will be entitled to assign, endorse, charge or pledge this Agreement and all of its rights and obligations hereunder to third parties, without affecting the other party’s rights under this Agreement.

11.2 Save as stated in clause 11.1 above, the Customer will not be entitled to grant any right of use, possession or access of any kind to any third parties in the Communications Facilities and/or in the Manhole/s situated in the areas of each and every Site, or in any other component of the services. Notwithstanding the foregoing, the Customer will be entitled to grant such rights to third parties solely for the purpose of the current operation and/or repair and/or maintenance and/or upgrading of the Cable Transmission Network. Without derogating from the generality of the foregoing, it is hereby clarified that the Customer is not entitled to make use of the Communications Facilities and/or the rights conferred upon it under this Agreement, in order to supply services similar to those that are supplied to the Customer under this Agreement, to third parties (regardless of whether such services will be supplied by the Customer independently or by means of others). This clause is fundamental to this Agreement.

12. Licenses and authorizations

12.1 The Customer hereby declares and undertakes that on the date of the execution of this Agreement, it holds all the licenses, authorizations and permits required to operate the Cable Transmission Network, and/or receive the Site Services and/or any other activity in connection with which the Customer is contracting with the Host under this Agreement.

12.2 The Host hereby declares and undertakes that on the date of the execution of this Agreement, it holds all the licenses, authorizations and permits required to operate the Sites and/or supply the Site Services and/or any other activity in connection with which the Host is contracting with the Customer under this Agreement.

12.3 The parties will compensate one another in respect of any damage, loss, expense or out of pocket expense that will be incurred by the other party as a result of a party to this Agreement having committed a breach of its undertaking contained in clauses 12.1 and 12.2 above.

13. Liability and indemnity

13.1 The Customer will bear the liability imposed upon it at law in respect of harm and/or damage that may be caused to the person or property of any individual or body whatsoever following the act of the Customer and/or its successors under this Agreement.

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The Customer undertakes to indemnify the Host for the full amount that the Host has been made liable to pay under any judgment, the execution of which has not been stayed following an action filed against the Host in respect of harm or damage for which the Customer is responsible as mentioned in the first section of this clause, and will also indemnify the Host in respect of the reasonable costs that will be borne by the Host for defending such action, provided that the Host undertakes to notify the Customer promptly concerning the receipt of any action or demand in respect of that stated in this clause and enable the Customer to defend the same and will co-operate with the Customer defending such action.

13.2 Notwithstanding that stated in clause 13.1 above, the Host exempts the Customer and all of its successors from any liability in respect of indirect damage and/or loss that may be caused to the Host (including loss which could be caused to the Host following any action on the part of any of the other persons being hosted and/or any of its customers) as a result of loss and/or damage that is caused to the Sites and/or the contents thereof, whether such loss and/or damage have been caused by the Customer’s negligence or by negligence and/or deliberately by any person on its behalf; save that such exemption from liability will not apply in favor of any person who has caused loss and/or damage maliciously.

13.3 The Host will bear the liability imposed upon it at law in respect of harm or damage that may be caused to the person or property of any individual or body following the act of the Host and/or of its successors under this Agreement.

The Host undertakes to indemnify the Customer for the full amount that the Customer has been made liable to pay under any judgment, the execution of which has not been stayed following an action filed against the Customer in respect of harm or damage for which the Host is responsible as mentioned in the first section of this clause, and will further indemnify the Customer in respect of the reasonable costs that will be borne by the Customer for defending such action, provided that the Customer undertakes to notify the Host promptly concerning the receipt of any action or demand in respect of that stated in this clause and enable the Host to defend the same and will co-operate with the Host in defending such action.

13.4 Notwithstanding that stated in clause 13.3 above, the Customer exempts the Host and all of its successors from any liability in respect of indirect damage and/or loss that may be caused to the Customer (including loss which could be caused to the Customer following any action on the part of any of the other persons being hosted and/or any of its customers) as a result of loss and/or damage that is caused to the Sites and/or the contents thereof, whether such loss and/or damage have been caused by the Host’s negligence or by negligence and/or deliberately by any person on its behalf; save that such exemption from liability will not apply in favor of any person who has caused loss and/or damage maliciously.

13.5 The provisions of the Bailees Law, 5727-1967 will not apply to this Agreement.

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14. Law of the Agreement

14.1 The law applicable in the State of Israel as existing from time to time will apply to this Agreement, the interpretation thereof and actions by virtue thereof or by virtue of a breach thereof.

14.2 The parties convey to the competent courts in the Tel Aviv district the territorial, exclusive and special jurisdiction to dispose of any matter resulting from this action or the breach thereof. Nothing stated will affect the right of any party to this Agreement to join the other party to another action which has been filed against him in any other court.

14.3 This Contract will not be deemed to be a contract in favor of any third party and is not intended to confer any rights whatsoever on any third parties, including the Customer’s customers or other customers of the Host.

15. Notices and addresses

15.1 Each notice that will be given according to this Agreement will be delivered to the addresses of the parties as expressed below. Each notice will be deemed to be a notice given to the receiving party upon the fulfillment of at least one of the following conditions:

15.1.1 Where the notice has been given by registered mail, 3 days after the date of posting;

15.1.2 Where the notice has been sent by means of fax, the recipient’s telephonic confirmation of the delivery thereof has been received, and the sender of the notice has made a notation regarding the time of the dispatch, and the name of the recipient of the notice that has approved the receipt thereof by telephone and has attached to the notation the copy of the notice and the printed confirmation of the dispatch by the facsimile machine.

15.1.3 Where the notice has been delivered by hand at the offices of the recipient party, a copy thereof bearing the stamp of the receiving party and the signature of the person receiving it, specifying the date and time of receipt of the notice have been obtained.

15.2 The parties may give notice of change of address by notice that will be given as stated above to the other party.

15.3 The addresses of the parties for the purpose of this Agreement are:

The Host: Med-1 - - I.C.1 (1999) Ltd.
6 Hanechoshet St., Tel Aviv
Fax: 03-7666011; Tel: 03-7666000
Attention the Managing Director

The Customer: Partner Communications Company Ltd.
8 Amal St., Afek Industrial Park, Rosh Ha'ayin
Fax: 03-9122028; Tel: 054-7814181
Attention the Legal Advisor

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16. Miscellaneous

16.1 Subject as provided in clause 16.5 hereof, the provisions contained in this Agreement encompass all the undertakings between the parties in relation to all the subjects which have been regulated thereunder, and any representation, assurance, statement or undertaking, whether made concurrently with or subsequent to the execution of this Agreement, and which have not been expressly included in this Agreement, will be of no effect.

16.2 No modifications or amendments to this Agreement will be of any effect unless made in writing and signed by the parties.

16.3 The Host will be entitled to instruct the Customer to pay the payments under this Agreement in a certain place or to a certain bank account, and the Customer will act in accordance with such instruction within 3 (three) business days from the date of its receiving the instructions.

16.4 No waiver, concession or forebearance from acting on time or the grant of an extension will be deemed to be a waiver by any of the parties of any of their rights under this Contract nor will the same give rise to any estoppel of an action by them, unless such waiver is expressly made in writing.

16.5 The provisions contained in this Agreement shall not derogate from any right, undertaking and/or representation applicable between the parties under any other valid agreement between them, including under the Asset Purchase Agreement dated January 22, 2006 and the Schedules thereto, and nothing contained in this Agreement shall vary the provisions of any other agreement mentioned above.

In witness whereof the parties have set their hands
at the time and place first above written:

——————————————
Med-1 I.C. 1(1999) Ltd.
——————————————————
Partner Communications Company Ltd.

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Schedule 1

Technical Specification of the Communications Facilities

Unless otherwise expressly stated in the body of this Schedule, the terms mentioned in this Schedule will bear the specific meaning ascribed thereto in the Hosting Agreement dated _________________ 2006 (hereinafter: “the Agreement”) between Med-1 I.C. 1(1999) Ltd.(hereinafter: “the Company”) and Partner Communications Company Ltd., (hereinafter: “the Customer”).

I. The Petach Tikvah Site

— Customer Cage:

š The floor area of 20.2 sq.m. fenced off in a metal cage located in Hall 30-16.

š The Customer Cage is designated for hosting communications cabinets and equipment, including equipment transferred for the Customer by virtue of the Asset Purchase Agreement dated January 22, between the Host and the Customer.

The location and configuration of the Customer Cage at the Petach Tikvah site is described in the plan annexed hereto as Schedule 1-1.

— Manholes:

Two (2) manholes are situated in the area of the Petach Tikvah Site.

II. Haifa Site (Tirat Hacarmel)

— Customer Cage:

š The floor area of 13.35 sq.m. fenced off in a metal cage located in Hall 40-15.

š The Customer Cage is designated for hosting communications cabinets and equipment, including equipment transferred for the Customer by virtue of the Asset Purchase Agreement dated January 22, between the Host and the Customer.

The location and configuration of the Customer Cage at the Haifa site is described in the plan annexed hereto as Schedule 1-2.

— Manholes:

Two (2) manholes are situated in the area of the Haifa Site.

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III. The Tel Aviv Site

— Communications equipment:

Communications equipment is installed at the Tel Aviv Site on 3 columns which are located in the central hall.

The precise location of these columns at the Tel Aviv site is described in the plan annexed as Schedule 1-3.

— Manholes:

Two (2) manholes are situated in the area of the Tel Aviv Site.

(*)     Note – the Agreement does not include the supply of the equipment installed on the date of the execution of this Agreement at the Sites, including in the Customer’s Cages; such equipment having been transferred to the Customer’s ownership in accordance with the Asset Purchase Agreement, and the supply, operation and maintenance thereof, are not part of the content of the services under the Hosting Agreement.

Schedule 2

The Consideration

Unless otherwise expressly stated in the body of this Schedule, the terms mentioned in this Schedule will bear the specific meaning ascribed thereto in the Hosting Agreement dated _________________ 2006 (hereinafter: “the Agreement”) between Med-1 I.C. 1(1999) Ltd.(hereinafter: “the Company”) and Partner Communications Company Ltd., (hereinafter: “the Customer”).

I Consideration in respect of the services

Site	Total per month (in US$)	Remarks
Petach Tikvah site	2,323	The area will be delineated in a designated cage including a designated entrance, having a total setup of 20kva (1kva for every sq.m. of net floor).
Haifa (Tirat Hacarmel) Site	1,268	The area will be delineated in a designated cage including a designated entrance, having a total setup of 13kva (1kva for every sq.m. of net floor).
Tel Aviv site	1,200
Total Consideration	4,791

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Notes:
The Consideration includes current expenses in respect of managing the Sites and the support systems installed therein, such as peripheral lighting, air-conditioning, guarding, as well as general expenses in respect of managing the Sites, such as city taxes, etc., and these systems only. Without derogating from the generality of the foregoing, the Consideration does not include the following components, which will be charged for separately:
	—	Communications infrastructures.
	—	Jumpers and connectivity between cabinets in the areas of the Site/s (transition to the jumpers and connectors existing on the date of the execution of this Agreement).
	—	Cross-connect services.
	—	Use of electricity backup services above 1 Kw.per sq.m. net. This additional use will be according to actual use, according to the Electric Corporation price list plus 5% handling fees and will be paid within 14 days of the date of submitting a demand for payment to the Electric Corporation. The electricity meters (AC/DC) will be installed by the Host in the cabinets in Petach Tikvah and Haifa at the Customer's expense (estimated cost of NIS. 7,800 per meter) totaling approximately NIS. 31,200).
	—	Additional services that the Customer may order from the Host (only) over and above that stated above.
The Host will, at the end of each calendar year, be entitled, at its choice, and by at least 30 days' notice to the Customer before the end of that year, to determine that the Consideration in respect of the next ensuing calendar year will be linked to the Consumer Price Index published in the United States (for this purpose the CPI will serve from the date of the execution of this Agreement as the Base Index).

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II Payment terms

Current payments will be made each quarter, on the first day of each quarter, in advance in respect of that quarter. (For example, on April 1, 2006, payment will be made in respect of the month of April through June (inclusive) 2006).

The first payment will be made on the date of the execution of this Agreement in respect of the period commencing on the date of the execution of the Agreement and expiring at the end of the calendar quarter on which a day corresponding to the execution date occurs.

One-time costs will be paid on a current month basis + 30 days.

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Schedule 3

Rules of Conduct and Security at the Sites and Undertaking to Maintain Secrecy

Date: _________________

Med-1 I.C. 1(1999) Ltd.
6 Hanechoshet St.,
Tel Aviv

Dear Sir/Madam,

RE: Personal undertaking to keep rules of conduct and security at the Sites and duty of secrecy

I, the undersigned, _________________ hereby declare and undertake as follows:

Whereas: Partner Communications Company Ltd., (hereinafter: "the Customer") is bound by a Hosting Agreement with you dated _________________ in connection with various sites (hereinafter: "the Sites")

Whereas: We work at the Customer provide services to the Customer/are employed by the Customer; and

Whereas: For the purpose of providing services to the Customer, the undersigned is desirous of entering the Sites or any of them and declares and undertakes that the Customer has authorized his entry into the Sites as mentioned on its behalf.

Therefore I hereby undertake towards you as follows:

1. I undertake to keep absolutely secret and not disclose, show, publicize, distribute, deliver and/or transfer, directly or indirectly, to any person and/or body, any of your information. In this Undertaking “information” means: any document, record, drawing, plan, specification, content of any of the foregoing, know-how, professional secrets, trade secrets, working methods, marketing, costing, technical solutions as well as any information particular, or data relating to the Agreement, the provision of the services thereunder, the Site, access ways to the Site, structure thereof, rules of safety at the Site, the types of activity maintained at the Site, recipients of your other services and any other detail or data in connection therewith, and which does not fall within the public domain.

2. I undertake not to make any use of the information except for purposes of my actions within the scope of the Agreement on the Customer’s behalf, and not to make any other use of the information personally or by means of others. In addition, I undertake not to transfer and/or deliver any information to any third party for any purpose or reason whatsoever.

3. I undertake to operate with the proper diligence in order to ensure that information will be kept in a proper manner and not be disclosed to any third party. I will be responsible towards you for the consequences of any breach of the duty of secrecy by me, including where the breach has been committed by any person on my behalf.

4. My undertaking to maintain secrecy will not apply in the following cases:

a. In the event of the information becoming the public domain otherwise than as a result of a breach of this undertaking;

b. In the event of my having received a demand by law to disclose the information provided that in such a case, I will give you notice immediately of receiving the demand by me and enable you to defend the same prior to my disclosing the information.

c. If you have given your express consent in writing to the disclosure of the information by me.

5. For the avoidance of any doubt it is hereby clarified that my undertaking will remain in force for the period of 7 years from the last occasion on which I will visit the Sites or any of them.

6. In addition to all of the foregoing, I declare that the rules of security and conduct customary at the Sites and set out in Schedule 1 to this Undertaking, have been brought to my attention and I undertake to act in accordance therewith and comply with the directives of the security staff at the Sites as indicated to me, and that to the extent I encounter any breach of these rules, whether committed by me, by any person on my behalf or by others, I will be obliged to report this as quickly as possible to the party in charge of security in your Company or to any person on his behalf.

Yours faithfully,


——————————————

2

Schedule 1

For the personal undertaking to keep rules of conduct and safety at the Sites and duty of secrecy

Rules of Conduct and Security at the Sites:

a. It is prohibited to bring arms of any type into the area of the Site/s.

b. It is prohibited to bring cameras into the area of the Site/s (including telephone cameras) and photograph the Site/s.

c. Only authorized persons will enter the Site/s, whose entry has been arranged in advance with Med-1 I.C.1 (1999) Ltd., (hereinafter: “the Company”). A person whose entry has been authorized whilst accompanied, must be accompanied at all times whilst at the Site/s by one of the Company employees or persons on his behalf.

d. Notwithstanding sub-paragraph (c) above, the entry will be allowed of persons representing the Customer, whose entry has not been previously arranged with the Company, in accordance with the following:

(1) Where the Company has refused the entry of a person claiming to represent the Customer, the Company will promptly contact the Customer’s control department to verify the authorization of such person. If such authorization has been granted by the Customer to allow his entry, his entry will be immediately authorized.

(2) The Company will supply the Customer in advance with an identity code having 8 (eight) digits (hereinafter: “the Customer’s identity code”). The Customer will be entitled at any time to contact the Host’s security center to confirm the entry of a person on its behalf whose entry has not been previously arranged with the Host. Such entry will be authorized provided the Customer identifies itself by means of the Customer identity code.

e. Every person entering the Site/s must bear the identity tag given to him on entry, in a prominent manner. On leaving the Site/s, the tag should be returned. If the tag is lost or stolen, this should be reported immediately to the party in charge of security or persons on his behalf. The Customer will be charged for loss of a tag.

f. No equipment should be brought in or removed from the Site/s without approval or registration.

g. Movement in the area of the Site/s is confined to the public areas only from the entrance to the Customer’s hosted areas only. Entry to the hosted areas is forbidden for persons other than the Customer, including entry to any other area, including the battery rooms, the generator rooms, the guard or control centers and the like.

Schedule 4-1 – Certificate of Customer’s Insurance

Date: _________________

TO: Med-1 I.C. 1(1999) Ltd. (hereinafter: "the Host") and/or the parent and/or subsidiaries and/or other companies and/or affiliates
6 Hanechoshet St.,
Tel Aviv

RE: Certificate of the making of insurance by Partner Communications Company Ltd., (hereinafter: "the Customer”) with regard to Cable Transmission Hosting Services and Ancillary Services (hereinafter: “the Services”) at various Sites (hereinafter: “the Sites”) as stated in the Agreement dated    (hereinafter: “the Agreement”)

We certify that we have effected in the name of the Customer, from _________________ until _________________, (hereinafter: “the Insurance Term”) the insurances set out below, the extent of the cover provided by these insurances to be not less than the cover provided according to the form of the policies known as “BIT 2005" or the form of the “BIT” policy which is parallel thereto on the date of the making of the insurances, including all the extensions, constituting an integral part of the form of that policy:

1. Policy no. _________________

Third party liability insurance insuring the liability of the Customer by law by reason of loss or damage which may be caused to the person or property of any individual or body in relation generally to the Customer’s activity under the Agreement, with a liability limit of $1 million per event and cumulatively for the annual insurance term. This insurance is not subject to any limitation regarding liability resulting from fire, explosion, panic, hoisting instruments, loading and unloading, strike and lockout, poisoning, defective sanitary fittings, animals, any harmful thing in food or drink, liability in respect of and towards contractors, sub-contractors (of any degree) and their employees and also subrogation actions on the part of the National Insurance Institute. The insurance is extended to indemnify the Host in respect of liability which could be imposed upon it following the act or omission of the Customer and/or of persons on its behalf subject to a cross-liability clause whereby the insurance will be deemed to be made separately for each of the individuals comprising the insured.

2. Policy no. _________________

Insurance insuring the Communications Facilities as well as any other property owned by or in the responsibility of the Customer and situated at the Sites, in the full value thereof, against loss or damage following the usual risks in extended fire insurance, including fire, smoke, lightning, explosion, earthquake, riots, strikes, malicious damage, storm, tempest, flooding, damages caused by liquids from bursting, damage by vehicles, damage by aircraft and burglary, (on the basis of primary damage). The insurance includes a condition whereby the insurer waives the right of subrogation against the Host and its successors, and also against the proprietors of the buildings in which the Sites are housed and other proprietors of rights in the Sites and/or in such buildings, including other parties hosted (parties having other rights being hereinafter called: “the Other Proprietors”) whose agreements conferring upon the Other Proprietors rights in the Sites and/or buildings mentioned, include an exemption from liability and/or undertaking to include a waiver of the right of subrogation of the insurance of their property applicable in favor of the Customer, save that the waiver of the right of subrogation mentioned will not apply in favor of any person who has caused willful damage.

3. Policy no. _________________

Employer’s liability insurance insuring the liability of the Customer towards its employees in respect of bodily harm and/or professional sickness which could be caused to any of them during the course of and consequent upon their employment at the Sites and/or in the vicinity thereof, with a liability limit of $5 million per claimant, per event and cumulatively for the annual insurance term. The insurance mentioned does not include any limitation regarding working hours, work at height or at depth, bait and poisons and employment of juveniles. The insurance is extended to indemnify the Host in the event of it being claimed with regard to the occurrence of a work accident and/or professional sickness, that it bears the responsibilities of an employer towards any of the Customer’s employees. Moreover, the insurance includes a waiver of the right of subrogation towards the Host and its successors; save that such waiver will not apply in favor of any person who has caused the damage maliciously.

The above policies contain an express condition whereby they are prior to any insurance which has been made by the Host and we waive any claim and/or demand regarding the sharing of the Host’s insurances. In addition we undertake that the above policies will not be cancelled or adversely changed for the duration of the Insurance Term except by written notice given by registered mail to the Host at least 60 days in advance. For the avoidance of any doubt we confirm that the Customer is solely responsible for payment of the insurance monies for the above policies and bears the deductibles applicable under those policies.

Subject to the conditions and reservations of the original policies to the extent that they have not been expressly varied by this Certificate.

Yours faithfully,

——————————
(Insurer's stamp)
——————————
(Insurer's signature)
——————————
(Name)
——————————
(Signatory's position)

2

Schedule 4-2– Certificate of Host’s Insurance

Date: _________________

TO: Partner Communications Company Ltd. (hereinafter: "the Customer") and/or the parent and/or subsidiaries and/or other companies and/or affiliates 8
Ha’amal St., Afek Industrial Park,
Rosh Ha’ayin

RE: Certificate of the making of insurance by Med-1 I.C. 1(1999) Ltd. (hereinafter: "the Host") with regard to Cable Transmission Hosting Services and Ancillary Services (hereinafter: “the Services”) at various Sites (hereinafter: “the Sites”) as stated in the Agreement dated     (hereinafter: “the Agreement”)

We certify that we have effected in the name of the Customer, from _________________ until _________________, (hereinafter: “the Insurance Term”) the insurances set out below, the extent of the cover provided by these insurances to be not less than the cover provided according to the form of the policies known as “BIT 2005" or the form of the “BIT” policy which is parallel thereto on the date of the making of the insurances, including all the extensions, constituting an integral part of the form of that policy:

1. Policy no. _________________

Third party liability insurance insuring the liability of the Host by law by reason of loss or damage which may be caused to the person or property of any individual or body in relation generally to the Host’s activity under the Agreement, with a liability limit of $1 million per event and cumulatively for the annual insurance term. This insurance is not subject to any limitation regarding liability resulting from fire, explosion, panic, hoisting instruments, loading and unloading, strike and lockout, poisoning, animals, any harmful thing in food or drink, liability in respect of and towards contractors, sub-contractors (of any degree) and their employees and also subrogation actions on the part of the National Insurance Institute. The insurance is extended to indemnify the Customer in respect of liability which could be imposed upon it following the act or omission of the Host and/or of persons on its behalf subject to a cross-liability clause whereby the insurance will be deemed to be made separately for each of the individuals comprising the insured.

2. Policy no. _________________
Insurance insuring the buildings of the Sites and by the Host, plus additions and improvements to the buildings of the Sites that are leased by the Host as well as the contents of the Sites which are owned by and are within the responsibility of the Host (expressly with the exception of contents which persons being hosted have undertaken to insure) in the full value thereof, against loss or damage following the usual risks in extended fire insurance, including fire, smoke, lightning, explosion, earthquake, riots, strikes, malicious damage, storm, tempest, flooding, damages caused by liquids from bursting, damage by vehicles, damage by aircraft and burglary, (on the basis of primary damage). The insurance includes a condition whereby the insurer waives the right of subrogation against the Customer and its successors; save that the waiver of the right of subrogation mentioned will not apply in favor of any person who has caused malicious damage.

3. Policy no. _________________
Employer’s liability insurance insuring the liability of the Host towards its employees in respect of bodily harm and/or professional sickness which could be caused to any of them during the course of and consequent upon their employment at the Sites and/or in the vicinity thereof, with a liability limit of $5 million per claimant, per event and cumulatively for the annual insurance term. The insurance mentioned does not include any limitation regarding working hours, work at height or at depth, bait and poisons and employment of juveniles. The insurance is extended to indemnify the Customer in the event of it being claimed with regard to the occurrence of a work accident and/or professional sickness, that it bears the responsibilities of an employer towards any of the Host’s employees. Moreover, the insurance includes a waiver of the right of subrogation towards the Customer and its successors; save that such waiver will not apply in favor of any person who has caused the damage maliciously.

The above policies contain an express condition whereby they are prior to any insurance which has been made by the Customer and we waive any claim and/or demand regarding the sharing of the Customer’s insurances. In addition we undertake that the above policies will not be cancelled or adversely changed for the duration of the Insurance Term except by written notice given by registered mail to the Customer at least 60 days in advance. For the avoidance of any doubt we confirm that the Host is solely responsible for payment of the insurance monies for the above policies and bears the deductibles applicable under those policies.

Subject to the conditions and reservations of the original policies to the extent that they have not been expressly varied by this Certificate.

Yours faithfully,

——————————
(Insurer's stamp)
——————————
(Insurer's signature)
——————————
(Name)
——————————
(Signatory's position)

2

Schedule 5

SLA

Service Level:

The service level assured is 99.9% of the total time of activity of the installation, measured over a period of time of at least two years, total malfunction time not to exceed 12 hours.

Malfunction repair time:

— Electricity of the Electric Corporation – response time being that of the Electric Corporation and for which the Host is not responsible.

— Generators – response time of 2 hours from the start of handling the crash of a generator, 10 hours for repair – total 12 hours for repair.

— Air-conditioning – response time of 4 hours from the start of the repair of malfunctions, 8 hours for repair – totaling 12 hours for repair.

Agreed compensation mechanism in respect of non-compliance with the Service Level :

In respect of each month in which damage will occur in the level of the Service in any of the Sites – 5% (five per centum) of the total monthly consideration in respect of such Site, for each hour beyond the cumulative number of 12 hours, up to a compensation cap of 100% of the total monthly consideration in respect of such Site, for the month in which such damage occurred in the level of the Service.

The Customer will be entitled to demand such agreed compensation through the end of the calendar quarter following the date of the occurrence of the damage in the level of service only. Payment of the agreed compensation constitutes a full and absolute waiver of the Customer’s claims pertaining to the damage in the level of service in respect of which such agreed compensation has been paid.

The terms mentioned in this Schedule will bear the specific meaning ascribed thereto in the Hosting Agreement dated _________________ 2006 (hereinbefore and hereinafter called: “the Agreement”) between Med-1 I.C.1 (1999) Ltd., and Partner Communications Company Ltd., (hereinbefore and hereinafter called: “the Customer”) save where expressly otherwise stated in the body of the Schedule.

[Diagram of Hosting Servers]

SCHEDULE 1.1.26

LIST OF DUAL CONTRACTS
[*]

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

SCHEDULE 1.1.40

LEASED REAL PROPERTY

	Details of Leased Property	Nature of Agreement	Details of Underlying Assumed Contract
1.	Rooftop of Omega House, 1, Nachum Chet St., Tirat HaCarmel	Permission to deploy a small communication equipment	Permission Agreement (undated) by and between the Company and Toren Development and Properties Company (1989) Ltd.
2.	Warehouse (42 sq. m.) located in the upper basement of the building located in 6, HaNechoshet St., Tel Aviv	Usage rights	Amendment dated January 31, 2005 to Lease Agreement dated September 27, 2000 by and between Med-1 Submarine Cables Ltd. and (1) Edgar Investments and Development Ltd., (2) Pama Building and Entrepreneurship Ltd., and (3) Salmar Development Ltd. (later assigned to Mediterranean Nautilus Israel Ltd. and subsequently to the Company).
3.	Room located on the rooftop of Building 97 located in 5, Kanfei Nesharim St., Jerusalem	Non-exclusive permission to deploy IR facility	Permission Agreement dated June 3, 2002 by and between the Company and the Economic Company of Jerusalem Ltd.
4.	1 sq. m. area located in the yard of the "Alon Mishan" gas station located in Mishan Junction on Road 35	Lease for the purpose of deployment of an amplification facility	Unprotected Lease Agreement dated May 16, 2002 by an between the Company and Alon Gas Co. Ltd.
5.	Unit (20 sq. m.) located in basement floor (-3) of Ackerstein Towers in HaMenofim St., Herzelia Pituach	Lease for deployment of communication equipment	Lease Agreement dated June 1, 2003 by and between the  Company and Ackerstein Towers Ltd.
6.	Unit (178 sq. m.) located on ground floor (-3.15) and an additional area (45 sq. m.) located on 1st floor (-5.95) of a building located in 53, Ezel St., Rishon Le'Zion	Lease	Unprotected Lease Agreement dated July 30, 2002 by and between the Company and B.R.A.P. Projects Entrepreneurship Ltd., as amended pursuant to the letter of B.R.A.P. Projects Entrepreneurship Ltd. dated March 27, 2003.
7.	Area located in a building in HaGalil St. in Airport City	Permit to deploy communications facility	Permit Agreement dated 15.6.2005 by and between the Company and P.K. Generators Ltd. (as contemplated to be amended).
8.	Area and service room located on the rooftop of the Sheraton Hotel in Tel Aviv.	Permit to deploy communications facility	Transmission and Communications Services Agreement dated 24.12.2000 by and between Med-1 Submarine Cables Ltd. and Beeper Communication Israel Ltd., as supplemented and amended on 4.2.2002.

SCHEDULE 1.1.52

REPAIR PLAN
[*]

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

SCHEDULE 1.1.54

CERTAIN RETAINED CLAIMS
[*]

All capitalized terms not expressly defined herein shall have the meanings ascribed to such terms in the Asset Purchase Agreement to which this document is scheduled.

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

SCHEDULE 2.1(a)

MAP OF SYSTEM LOCATION
[*]

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

SCHEDULE 2.1(b)

TANGIBLE PROPETRY
[*]

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

SCHEDULE 2.1(d)

ASSIGNED CONTRACTS

I. AGREEMENTS WITH SUPPLIERS
CONTRACTS RELATING TO THE SUPPLY AND MAINTENANCE OF THE SYSTEM
No.	Parties	Date	Assignment Limitations & Other Comments
1.	MECMA Agreement and Agreement for the Admission of Med 1 IC1 (1999) Ltd. to the Mediterranean Cable Maintenance Agreement 2004	20.4.2004, 17.5.2004	No consent required in the case of an assignment to a successor to all or substantially all of the assigning party's business, but the assigning party needs to give written notice to the other parties to MECMA of such assignment. Admission Agreement is binding on permitted assignees.
2.	MECMA 2004 Submarine Telecommunication Cable Maintenance and Related Services		No consent required in the case of (i) an assignment to a successor to all or substantially all of the assigning party's business or (ii) to an existing party or new party.
3.	Agreement between the Company and Hafarfar 1992 Ltd.	1.10.2002
CONTRACTS FOR THE PROVISION OF PLANNING SERVICES IN CONNECTION WITH THE DIGGING AND LAYING OUT OF CABLE PIPES
No.	Parties	Date	Assignment Limitations & Other Comments
1.	Agreement between the Company and A.A.G. Azut Ltd.	10.11.1999
2.	Agreement between the Company and Sha'ar Kiddum Ltd.	16.2.2000
3.	Agreement between the Company and Marshal Engineering Ltd.	Undated, 2001
4.	Agreement for the Provision of Planning and Consulting Services between the Company and M Gruber	4.4.2004
CONTRACTS FOR THE PERFORMANCE OF DIGGING, LAYING OUT AND FILLING WORKS FOR FIBER OPTICS CABLE INFRASTRUCTURE AND/OR COMMUNICATIONS FIBERS
No.	Parties	Date	Assignment Limitations & Other Comments
1.	Agreement between the Company and Hafarfar 1992 Ltd.	31.1.2001
2.	Agreement between the Company and Derech Afar Ltd.	7.2.2001
3.	Agreement between the Company and L.M. Levi Moshe Constructors Ltd.	6.3.2001
4.	Agreement between the Company and Lunter Shmuel Constructors Ltd.	16.5.2001
5.	Agreement between the Company and Hafarfar 1992 Ltd.	24.06.2001
6.	Agreement between the Company and Yoram Rajouan (Holdings) Ltd.	Undated, August 2001
7.	Agreement between the Company and Hafarfar 1992 Ltd.	Undated, 2003

CONTRACTS FOR THE PERFORMANCE OF INSERTION OF FIBER OPTIC CABLES BY BLOWING AND WELDING OF CABLES IN CONNECTION WITH THE SYSTEM
No.	Parties	Date	Assignment Limitations & Other Comments
1.	Agreement between the Company and Derech Afar Ltd.	1.3.2001
CONTRACTS FOR INFRASTRUCTURAL COOPERATION AND SERVICES IN RELATION TO THE SYSTEM
No.	Parties	Date	Assignment Limitations & Other Comments
1.	Memo relating to Underground Communications Infrastructure Layout between the Company and Cellcom Israel Ltd.	20.7.1999
2.	Meeting Protocol on Underground Infrastructure (relating to replacement of pipes) between the Company and Cellcom Israel Ltd.	10.7.2002
3.	Letter agreement titled "Cooperation Golden Channels - Med-1 IC1 (1999) Ltd." relating to an exchange of pipes, as amended.	19.3.2002; Amended on 17.1.2005
4.	Letter Agreement on Terms of Performance of Infrastructural Works for the Connection of Ma'ayan Soreq IZ between the Company and Salman Wahaba and Sons Ltd.	9.5.2005
5.	Memorandum of Understanding between the Company and the Jerusalem Municipality, on a Framework Agreement for a permit procedure for communication infrastructure layout in public grounds in the jurisdiction of the Jerusalem Municipality.	Undated, 2005.	Assignment of rights and obligations requires the municipality's consent, except if the assignee is an acquirer of the Company's activity and holds a valid MOC license.
6.	Agreement between the Company and Israel Rail Co. Ltd.	Not yet executed.	A framework agreement is being discussed with the Israel Rail for a possible cooperation regarding the mutual exchange of pipes.
7.	Agreement between the Company and Matam Science Industries Center Ltd.	Not yet executed.	A cooperation agreement is being discussed for the connection of Matam Center in Haifa and customers situated therein, to the System.
OTHER SUPPLIER CONTRACTS
No.	Parties	Date	Assignment Limitations & Other Comments
1.	Outsourcing Agreement between the Company and Manpower Information Technology (MIT) Ltd.	8.1.2006	In signing process.
2.	Advanced Services from Netcom Systems Ltd. based on Netcom Systems Ltd.'s Proposal for Advanced Services for Med-1	20.1.2005
3.	[*]	[*]	[*]
II. [*]
No.	Name of Agreement	Date	Assignment Limitations & Other Comments
1.	[*]	[*]	[*]
2.	[*]	[*]	[*]
3.	[*]	[*]	[*]
4.	[*]	[*]	[*]
5.	[*]	[*]	[*]
6.	[*]	[*]	[*]

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

III. LEASE, PERMISSION & PROPERTY MANAGEMENT AGREEMENTS(relating to POPs)
No.	Name of Agreement and Parties	Date	Assignment Limitations & Other Comments
1.	Permission Agreement by and between the Company and Toren Development and Properties Company (1989) Ltd.	Undated, 2002	— This agreement is unsigned — Sub-permission grant of rights permitted subject to Grantor's prior written approval.
2.	Amendment to Lease Agreement dated 27.9.2000, by and between the Med-1 Submarine Cables Ltd. and (1) Edgar Investments and Development Ltd., (2) Pama Building and Entrepreneurship Ltd., and (3) Salmar Development Ltd. (later assigned to Mediterranean Nautilus Israel Ltd. and subsequently to the Company).	31.1.2005	No assignment of rights permitted.
3.	Permission Agreement by and between the Company and the Economic Company of Jerusalem Ltd.	3.6.2002	Grant of sub-permission rights permitted.
4.	Unprotected Lease Agreement by and between the Company and Alon Gas Co. Ltd.	16.5.2002	Sublease and assignment of rights permitted. Assignment of obligations is subject to lessor's prior written consent, not to be unreasonably withheld.
5.	Lease Agreement by and between the Company and Ackerstein Towers Ltd.	1.6.2003
6.	Unprotected Lease Agreement by and between the Company and B.R.A.P. Projects Entrepreneurship Ltd., as amended	30.7.2002, amended on 27.3.2003.	Assignment of lease to an alternative lessee s subject to lessor's prior written consent, not to be unreasonably withheld.
7.	Management Agreement by and between (undefined party) and the Company (annexed to the Unprotected Lease Agreement by and between the Company and B.R.A.P. Projects Entrepreneurship Ltd.)	30.7.2002	Assignment of rights subject to same limitations applicable to the Unprotected Lease Agreement by and between the Company and B.R.A.P. Projects Entrepreneurship Ltd.
8.	Permit Agreement by and between the Company and P.K. Generators Ltd	15.6.2005	As contemplated to be amended.
9.	Transmission and Communications Services Agreement dated 24.12.2000 by and between Med-1 Submarine Cables Ltd. and Beeper Communication Israel Ltd., as supplemented and amended on 4.2.2002.	24.12.2000, supplemented and amended on 4.2.2002	Assignment required to be obtained from Med-1 Submarine Cables Ltd.

IV. CUSTOMER CONTRACTS

[*]

V. CONTRACTS CONTAINING APPROVALS

See Schedule 2.1(f), “Assigned Approvals”.

VI. CONTRACTS RELATING TO “LAST MILE” TRANSMISSION SERVICES

[*]

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

VII. ADDITIONAL OUTSTANDING PURCHASE ORDERS

The Company issues from time to time and in the ordinary course of its business purchase orders for the procurement of equipment, spare parts and services relating to the Acquired Assets, from various vendors.

No mention of or reference to any assignment limitation in respect of any Assigned Contract or Assigned Approval is intended to, nor shall derogate from, the Company’s obligation under the Agreement to make all notifications, obtain all Approvals, and take all other actions necessary under the terms of each such Assigned Contract and Assigned Approval, as required to facilitate and secure the due assignment and transfer thereof to Purchaser as of the Closing Date pursuant to the provisions of the Agreement.

In addition, nothing herein is intended to exempt the Company from obtaining the prior written consent of Purchaser, where such consent is required under the Agreement, to the execution of any Contract mentioned or referenced herein as not yet executed, and that, at the date hereof, is in the process of negotiation.

All capitalized terms not expressly defined herein shall have the meanings ascribed to such terms in the Asset Purchase Agreement to which this document is scheduled.

SCHEDULE 2.1(f)

ASSIGNED APPROVALS

No.	Detail of Approval	Approval Identification	Date	Assignment Limitations & Other Comments
1.	Usage license for one pipe in Raines St. and one additional pipe located elsewhere in the municipality area	Construction Agreement by and between the Tel-Aviv - Jaffa Economic Development Authority Ltd. and the Company (Raines)	1.8.2004	Assignment of rights and obligations is subject to the prior written consent of the Authority, at the sole discretion of the Authority.
2.	Usage license for one pipe and one additional pipe located in Ganei Yehoshua.	Agreement by and between the Company and the Tel-Aviv - Jaffa Economic Development Authority Ltd., as supplemented,	1.8.2004, supplemented on 28.9.2004	Assignment of rights in and to the pipes is not permitted.
3.	Usage license for one pipe and one additional pipe located in Ganei Yehoshua.	Commitment Letter, Terms of Performance of Communication Infrastructure executed by the Company in favor of the Tel-Aviv - - Jaffa Economic Development Authority Ltd. (Ganei Yehoshua), as supplemented.	17.7.2003, supplemented on: 30.10.2003 & 9.10.2003	Assignment of rights is not permitted.
4.	Indefeasible rights of use in pipes located in certain areas in Tel Aviv	Letter Agreement with Leadcom on "Assistance in Obtaining Approval for Digging Permits in Shdema Project"; and	30.3.2004
		Letter Agreement with Leadcom on an "Agreement for Grant of Permit to Use Leadcom's Infrastructures to Med-1"	20.10.2004
5.	Framework Agreement for a permit procedure for communication infrastructure layout in public grounds in the jurisdiction of the Jerusalem Municipality.	Memorandum of Understanding between the Company and the Jerusalem Municipality.	Undated, 2005.	Assignment of rights and obligations requires the municipality's consent, except if the assignee is an acquirer of the Company's activity and holds a valid MOC license.
6.	Irrevocable and exclusive right of use in four pipes located on a 17km strip from Hertezlia to Poleg.	Agreement by and between Eilat Ashkelon Pipe Line Ltd. ("Katzaa") and the Company.	Not yet signed.	Under the contemplated draft, the assignment of the Company's rights and obligations under this agreement to Purchaser is expected to be expressly permitted.
7.	Rights of use in a pipe infrastructure and in manholes located on the Western side of the Cross-Israel Highway.	Agreement by and between the Company and Derech Eretz Telecom Ltd. (under incorporation), and a letter of consent pertaining to such agreement and executed between Derech Eretz Highways (1997) Ltd. and the Company on June 14, 2005.	19.6.2005	Assignment subject to the prior written consent of Derech Eretz Telecom Ltd., which may be subject to the consent of certain third parties. Telecom's consent shall not be unreasonably withheld.

8.	Permission to deploy and maintain cable system in Tel Aviv beach area	Agreements by and between the Company and Atarim in Tel Aviv Beach, the Company for Development of Tourist Sites in Tel Aviv Jaffa Ltd.:                                 - Agreement No. 44/99 - Agreement No. 8/2000	22.12.1999 7.2.2000	Assignment of rights and obligations is subject to notification and provision of pertinent information to Atarim, and to the assignee undertaking the Company's obligations under the agreement.
9.	Approval relating to the deployment and maintenance of fiber optic cables in Ganei Yehoshua Park.	Agreement by and between the Company ad Ganei Yehoshua Company Ltd.	28.4.2002	The Company may not transfer or assign its rights and liabilities under this Agreement.
10.	Approval relating to the passage of subterranean fiber optic cable in an area owned or leased by Kibbutz Shomrat.	License Agreement by and between the Company and Kibbutz Shomrat.	Undated, 2001
11.	Approval relating to the passage of subterranean fiber optic cable in an area owned or leased by Kibbutz Nitzanim.	License Agreement by and between the Compay and Kibbutz Nitzanim.	Undated, 2001
12.	Approval relating to the passage of subterranean fiber optic cable in Kfar Kassem area.	License Agreement by and between the Company and Ahmad Bin-Mustapha.	2.8.2001
13.	Approval relating to the passage of subterranean fiber optic cable in Petach Tiqva.	License Agreement by and between the Company and Shalom Gross.	10.2.2002
14.	Approval relating to the passage of subterranean fiber optic cable in an area owned or leased by Kibbutz Palmach Zova.	License Agreement by and between the Company and Kibbutz Palmach Zova.	2.6.2002	The Company may not transfer or assign its rights and liabilities under this Agreement.
15.	Approval relating to the passage of subterranean fiber optic cable in an area owned or leased by Moshav Givat Ye'arim.	License Agreement by and between the Company and Givat Ye'arim, Workers' Agricultural Community Settlement.	5.8.2002	Transfer of rights subject to the Moshav's prior written consent.
16.	Approval relating to the passage of subterranean fiber optic cable in an area owned or leased by Moshav Eshta'ol.	License Agreement by and between the Company and Eshta'ol, Workers' Agricultural Community Settlement.	Undated, 2002
17.	Approval relating to the passage of subterranean fiber optic cable in an area owned or leased by Na'aman Educational Institution Partnership in Ashrat area.	License Agreement by and between the Company and Na'aman Educational Institution Partnership.	Undated, 2001	The License Agreement is not signed by the other party.
18.	Approval relating to the passage of subterranean fiber optic cable in an area owned or leased by Hassidim Youth Village.	License Agreement by and between the Company and Hassidim Youth Village.	Undated, 2001

19.	Permission to perform infrastructural work in Kibbutz Yaqum jurisdiction, in a joint pipe with HOT, for the purpose of connecting Europe Business Park to the System, and related undertaking to Kibbutz Yaqum.	Permit Letter to the Company issued by Kibbutz Yaqum, and an Undertaking Letter to Kibbutz Yaqum	25.7.05 and 27.7.2005, respectively
20.	Approval relating to the passage of subterranean fiber optic cable in an area owned or leased by Kibutz Sha'ar Ha'Amakim.	License Agreement by and between the Company and Kibutz Sha'ar Ha'Amakim.	Undated, 2002	The License Agreement is not signed by the other party.
21.	Approval relating to the passage of subterranean fiber optic cable in HaKfar HaYarok area.	License Agreement by and between the Company and HaKfar HaYarok named after Levy Eshkol Ltd.	18.7.2002	The License Agreement is not signed by the other party.
22.	Approval relating to the passage of subterranean fiber optic cable in Haifa area.	License Agreement by and between the Company and Nachman Lerner.	Undated, 2002	The License Agreement is not signed by the other party.
23.	Approval relating to the passage of subterranean fiber optic cable in an area possessed by Yakhin Hakal Ltd.	Agreement by and between the Company and Yakhin Hakal Ltd.	Undated, 2001	No assignment permitted. The Company does not have a signed copy of this agreement.
24.	Approval relating to the passage of subterranean fiber optic cable in Kibbutz Usha.	Letter Agreement between the Company and Kibbutz Usha.	7.1.2001
25.	Approval relating to the passage of subterranean fiber optic cable in an area held by Kfar Galim (Haifa Youth Village Agricultural Education Union).	Commitment and Indemnity Undertaking	Undated	The Company does not have a signed copy of this instrument.

The above list does not constitute a comprehensive list of the rights of way and similar Approvals held by the Company. Except as set out in Section 5.8 of the Company Disclosure Schedule, the Company believes it is in possession of all rights of way and similar Approvals relating to the layout and deployment of the System. In addition to the above Contracts, the Company holds rights of way and other Approvals relating to the Acquired Assets which are not detailed herein. Such Approvals include:

— Licenses issued by Ma’atz; either to Globescom Ltd. or to Med-1 Submarine Cables Ltd. Notification was given to Ma’atz of the assignment of said licenses issued to Globescom Ltd., to the Company. While the Company cannot be certain that all formal requirements to the completion of such assignment were met, the Company currently operates without disturbance under the assumption that such licenses have been assigned. In any event, such licenses may be subject to underlying “commitment to comply with conditions” relating to such licenses;

— Licenses issued by Israel Rail Co. Ltd., containing obligations relating to the performance of underlying works; and

— Licenses or similar Approvals issued by Gas Products Line (Kamad)

— Licenses or similar Approvals issued by Mekorot Water Co. Ltd.

No mention of or reference to any assignment limitation in respect of any Assigned Contract or Assigned Approval is intended to, or shall derogate from, the Company’s obligation under the Agreement to make all notifications, obtain all Approvals, and take all other actions necessary under the terms of each such Assigned Contract and Assigned Approval, as required to facilitate and secure the due assignment and transfer thereof to Purchaser as of the Closing Date pursuant to the provisions of the Agreement.

All capitalized terms not expressly defined herein shall have the meanings ascribed to such terms in the Asset Purchase Agreement to which this document is scheduled.

SCHEDULE 2.1(i)

CERTAIN ASSIGNED CLAIMS
[*]

All capitalized terms not expressly defined herein shall have the meanings ascribed to such terms in the Asset Purchase Agreement to which this document is scheduled.

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

SCHEDULE 2.2(d)

EXCLUDED APPROVALS

The following Approvals are to be retained by the Company and shall not constitute Acquired Assets:

— A Special License granted to the Company by the Ministry of Communications in the State of Israel, license no. 5-12010-0-96388, as supplemented;

— The authorities set out in Chapter 6 of the Communications Law (Bezeq and Broadcasting) – 1982, granted to the Company by the Minister of Communications pursuant to a “Notice Regarding Grant of Authorities” dated February 24, 2002, as amended.

— Qualified Supplier Approval issued by the Ministry of Defense.

All capitalized terms not expressly defined herein shall have the meanings ascribed to such terms in the Asset Purchase Agreement to which this document is scheduled.

SCHEDULE 2.5(c)

CERTAIN APPROVED INVESTMENTS

Description of Approved Investment	Length of Route   (in approximate meters)	Actual/Estimated Costs (in denominated currency)	Payment Status/Schedule
Projects in Jerusalem Area
Planning of Jerusalem	--	US$ 75,000	Paid
Connection to Har HaHotzvim	2,600	Intended to be mainly carried out by way of pipe exchange with Cellcom Israe Ltd.
Har HaHotzvim Park, Jerusalem	4,500	NIS 760,000	By the end of 1st Q. 2006
Beit Zait Junction to Givat Sha'ul	7,000	NIS 1,300,000	50% by end of st Q. 2006; 50% after 1st Q. 2006
Connection of Givat Sha'ul to Government Campus	3,700 + 300	NIS 800,000 (subject to municipality requirements on limited work time and police supervision)	Q. 2 2006
Additional Projects
Planning and performance of partial segment between Road No. 4 and the Coast line	1,000	NIS 170,000	January 2006
Hertzelia - Haifa segment		US$ 2,400,000, including purchase of prepared routes from Katza'a	Post Closing
Customer connection (ZIM) at Matam (Haifa)	--	NIS 100,000	03-04/2006
Equipment Purchases
Purchase of submerged cables and connectors	--	Euros 152,000 GBP 70,570	1st Q. 2006 Paid
End equipment for Machba	--	NIS 150,000	By the end of 1st Q. 2006

SCHEDULE 2.5(d)

CERTAIN ADDITIONAL ASSUMED LIABILITIES

The Company is required to pay annual spectrum license fees for 2006, in the total amount of NIS 70,720.

Without derogating from the generality of Section 3.4 of the Asset Purchase Agreement to which this document is scheduled, this amount shall be apportioned as of the Closing Date, such that the Company shall be obligated for the relative portion attributable to the period through and including the Closing Date, and Purchaser shall be obligated for the relative portion attributable to the period following the Closing Date.

All capitalized terms not expressly defined herein shall have the meanings ascribed to such terms in the Asset Purchase Agreement to which this document is scheduled.

SCHEDULE 5

COMPANY DISCLOSURE SCHEDULE

THIS DOCUMENT CONTAINS CERTAIN QUALIFICATIONS AGAINST THE STATEMENTS CONTAINED IN SECTION 5 OF THE AGREEMENT.

All capitalized terms not expressly defined herein shall have the meanings ascribed to such terms in the Asset Purchase Agreement to which this document is attached as Schedule 5 (the “Agreement”).

SECTION 5.5 – THIRD PARTY LIENS ON ACQUIRED ASSETS

— Some of the Tangible Property constituting part of the Acquired Assets is not in the physical possession of the Company but is located in the premises of the Company’s customers.

— At the date hereof, the Acquired Assets are subject to a floating charge imposed in favor of Bank HaPoalim BM. This floating charge is intended to be excluded in respect of the Acquired Assets pursuant to the provisions of the Agreement.

SECTION 5.6 – ASSIGNED CONTRACTS NOT IN EFFECT

— [*].

— The Agreement entered into by and between the Company and Derech Eretz Telecom Ltd. (under incorporation) dated June 19, 2005 is conditioned upon the obtainment of certain third party approvals, as more particularly provided therein and/or in a letter of consent executed by the Company and Derech Eretz Highways (1997) Ltd. on June 14, 2005. To the best of the Company’s knowledge, such consents have not been obtained.

— Some of the Assigned Contracts specified in Schedule 2.1(d) are still being negotiated and have not yet been executed but are, at present, being negotiated. This fact is noted, specifically with regard to each such Assigned Contract, within Schedule 2.1(d). Hence, the arrangements under all such contracts are presently not binding and effective, and such Contracts are not as yet enforceable.

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

— [*]

SECTION 5.8 –REQUIRED APPROVALS

— The Company has laid down pipes in the following routes in cooperation (or pursuant to certain pipe exchange arrangements) with third parties, on the basis of the belief that such third parties possess all necessary digging permits, rights of way, and other Approvals necessary to grant the Company rights of way in such routes:

– Infrastructure deployed by HOT (Golden Channels) in Jerusalem;

– Approximately 11 km of pipes laid by HOT (Golden Channels) in Ramat Gan; these pipes are presently inactive;

– Approximately 1.5 km of pipes laid by HOT (Golden Channels) in Kfar Saba;

– Approximately 1 km of pipes obtained from Cellcom Ltd. pursuant to a pipe exchange transaction in Tirat HaCarmel.

– Approximately 0.5 km of pipes in Carmiel; and

– Approximately 0.5 km of pipes laid by Leadcom Ltd. in Tel Aviv as well as other pipes in which the Company has received an IRU from Leadcom Ltd.

— The rights of way and similar Approvals issued by Ma'atz were issued to Globescom Ltd. or to Med-1 Submarine Cables Ltd. Globescom Ltd. notified Ma'atz(1) of the assignment of such Approvals to the Company but the Company has not received any formal confirmation of the acceptance of such Approvals.

— The Company has performed digging works and has laid down the submerged portion of the System in the territorial waters of the State of Israel in reliance upon the letter of confirmation issued by Adv. Yehuda Zimrat on December 28, 2000, in lieu of applying for a specific construction permit by the Coastline Waters Commissions or any other commission operating the Zoning Law, 1965 in connection with the submerged portions of the System.

— With regard to infrastructural work carried out before the Company obtained a permit pursuant to Section 4(6) of the Communication Law (Telecommunications and Broadcasting), 1982 (the “Communication Law”), the Company has, in most cases, carried out such work in reliance upon its infrastructural coordination with third parties. The Company believes that all such work was carried out in accordance with then current industry practice. After the obtainment of such Section 4(6) permit, the Company has acted in cooperation with the different municipal authorities in which the Company has performed such infrastructural work, in reliance upon the existence of such Section 4(6) permit. Although the Company has not generally followed through the formal notification requirements set out in Chapter 6 of the Communication Law, the Company believes to be in possession of all Approvals necessary for the deployment and usage of the System.

⁽¹⁾ The National Company for Roads and Transportation Infrastructures Ltd.

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

SECTION 5.10 – CUSTOMERS AND CUSTOMER CONTRACTS

[*]

SECTION 5.11 – ACCOUNTS RECEIVABLE AND CASH IN

[*]

Between September 5, 2005 and the date hereof, the Company has not received any payments from any clients or customers of the Business, which are attributable to the conduct of the Business from and after the Closing Date.

SECTION 5.12 – VIOLATIONS OF LAWS

See Section 5.8 above.

SECTION 5.13 – LEGAL PROCEEDINGS

[*]

SECTION 5.15 – INSURANCE

The table attached hereto as Table 5.15-1 lists all insurance coverage carried by the Company with respect to the Acquired Assets and the insurance premiums payable by the Company in connection with such insurance coverage for the year 2006.

The policy underlying such insurance coverage refers both to the Acquired Assets and to the Excluded Assets. The aggregate premium payable for such policy for the year 2006 is US$48,366. The premium attached to the coverage relating to the Acquired Assets as set forth in Table 5-15.1 reflects the Company’s good faith estimation of the pro rated premium expected to be payable for such coverage. It is likely that, should the Company seek to separate the insurance coverage to policies covering separately the Acquired Assets and the Excluded Assets, such separation will result in an increase of premiums. The Company has paid or will pay the premium for such policy for the period ending upon the Closing Date.

Attached hereto as Table 5.15-2 is a statement of all insurance claims filed by the Company during the three (3) year period ending on the date hereof. All of these claims refer to the Excluded Assets. No insurance claims were made during said period in respect of the Acquired Assets.

Building & Transmission Equipment Insurance I.C. 1
[unofficial translation from Hebrew original]

Policy Type	Insurer	Policy No.	Insurance limits		Annual Premium		Expiry date	Date of event/submission	Payment status
Insurance for fire and related risks	Migdal	temp. policy	$	620,000	$	837	31/12/2006	Date of event	being paid
Insurance for fire and related risks + risks posed to clients	Migdal	temp. policy	$	2,200,000	$	2,970	31/12/2006	Date of event	being paid
Insurance for equipment in transit	Migdal	temp. policy	$	200,000	$	2,000	31/12/2006	Date of event	being paid
					$	5,807

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

Insurance coverage for I.C.1 Network for 2006
[unofficial translation from Hebrew original]

Property Insurance - Netanya
Structure & Improvements	$	400,000
Property Insurance - Rishon Letzion
Structure & Improvements	$	115,000
Equipment	$	82,000
Property Insurance - Jerusalem
Structure & Improvements	$	50,000
Equipment	$	50,000
Property Insurance - Herzlia
Structure & Improvements	$	50,000
Equipment	$	10,000
Property Insurance - Bronze
Equipment	$	77,000
Property Insurance for Equipment at POPs & Clients
Equipment SDH	$	700,000
Equipment GIS	$	116,000
Equipment MICRO	$	186,000
Insurance for transmission equipment in stations in Petach Tikva, Haifa, and Yarkon:	$	900,000

[the following is a translation]

[Peltours Insurance Agencies Ltd., subsidiary of Migdal Group Letterhead]

FAX
If this document is not clear, please call (03) 7537111

No. of pages: ___

DOC. 338763

DATE: 17 January 2006
TO: MED 1 I.C. Ltd.
CARE OF: Mr. Erez Tzvi
FROM: Alon Neumark
FAX NUMBER IN OUR OFFICE: 03-6138883

RE: Attempts to file property claims by your company

We hereby certify that except for the damage caused by the fire in the station on Yarkon St. in Tel Aviv that occurred a few months before, no claims were filed by your company in the past three years.

Sincerely,

/s/ Alon Neumark
——————————————
A. Neumark

Aurec Bldg., Derech Abba Hillel 16, Ramat Gan, 520506, Tel. 03-7637111, Facsimile: 972-3-6138883

www.pelins.com

SECTION 5.18 – SOFTWARE LICENSE AGREEMENTS

The Company has acquired the right to use the following off-the-shelf Licensed Software:

n 3 licenses to MapInfo Professional Software (MapInfo, Inc.), Serial Numbers: (i) WP650024941, (ii) WP6500224940, and (iii) WP WP6500224942.

n AutoCAD Autodesk Software, SERIAL Number 700-51125644 (Autodesk, Inc., acquired from Tovana Digital Engineering Ltd.)

n OSPInSight Software (AdvanceFiber Optics, Inc.) purchased for the Company by Corning Cable Systems GmbH & Co.

[*].

* The symbol [*] denotes places where portions of this document have been omitted and filed separately with the Commission. Confidential Treatment is being requested with respect to the omitted portions.

SCHEDULE 6

PURCHASER’S DISCLOSURE SCHEDULE

None.

SCHEDULE 7.2.2

REQUIRED GOVERNMENTAL FILINGS AND APPROVALS

The parties are of the good faith opinion that the following are the only filings required to be made, and the only approvals required to be received, from Governmental Authorities, in connection with the Agreement:

— Filing of a Merger Notice with, and the obtainment of the consent of the Antitrust Commissioner to the “Companies’ Merger” entailed by the transactions contemplated by the Agreement.

— Approval of the Ministry of Communication to the sale by the Company of the Acquired Assets, pursuant to the terms set out in the Company’s MOC License.

— Filing of an application for, and the obtainment of a license from the Ministry of Communications for the provision of transmission services by Purchaser.

— Filing of an application for, and the obtainment of a Permit from the Ministry of Communications Pursuant to Section 4(6) of The Communication Law authorizing Purchaser to perform the activities specified under Chapter 6 of The Communication Law in connection with the Acquired Assets.

All capitalized terms not expressly defined herein shall have the meanings ascribed to such terms in the Asset Purchase Agreement to which this document is scheduled.

SCHEDULE 7.2.4

REQUIRED 3^RD PARTY FILINGS AND APPROVALS

The parties are of the good faith opinion that the conditions precedent set forth in Section 8 of the Agreement, including, without limitation, all Approvals required for the assignment and transfer to Purchaser of any Assigned Contract and any Assigned Approval, satisfy all required filings and approvals to be made with or obtained from, as the case may, third parties who are not Governmental Authorities.

All capitalized terms not expressly defined herein shall have the meanings ascribed to such terms in the Asset Purchase Agreement to which this document is scheduled.

SCHEDULE 7.7.1

LIST OF EMPLOYEES

(translated from the original Hebrew)

FIELD	NAME OF EMPLOYEE	POSITION
Management	Avi Alkalai	CEO
	Carmit Gromer	Secretary to CEO
	Haim ben Hamo	VP Development and Regulation
	Smadar Noy	CFO
	Erez Tzvi	Reporting and Collection Manager
	Orit Weissman	Accounts Manager
Marketing and Sales	Ofer Mualam
Engineering and Operations	Moshe Vengel	VP Engineering
	Tzvi Shacham	Technology Consultant
	Eli Nissim	Marine-network Engineer
	Yigal Sahar	Operations Manager, Passive Network
	Mort Fidler	Engineer Passive Network
	Freddy Shmilovitz	Engineer Optic Network
	Sandy George	Optic Field Manager
	Avishai Ohana	Operations Manager, Active Network
	Yaniv Luzon	Technician - Active Network

EX-4

Exhibit 4.(a).45

The State of Israel
Ministry of Communications

General License for Partner Communications Ltd. for the Provision of
Mobile Radio Telephone (MRT) Services using the Cellular Method

Amendment No. 32

By virtue of the powers of the Minister of Communications under Article 4 (e) of the Communications Law (Telecommunications and Broadcasts), 5742-1982, that have been delegated to us, by all our other powers under any law and after having given Partner Communications Company Ltd. (hereinafter- “Partner”) the opportunity to present their arguments regarding this matter, we hereby amend the General License for the provision of mobile radio telephone services using the cellular method granted to Partner on 7 April 1998, as follows:

Amendment of Article 80.1

1. In Article 80.1 instead of “service contract” shall come “payment notice that was sent to the Subscriber, in accordance with the service contract”.

Replacement of Article 80.4

2. Instead of Article 80.4 shall come:

”  80.4 The Licensee shall be permitted to charge a Subscriber with payment for collection costs for a payment for services provided to the Subscriber that were not paid on the due date (hereinafter- “the amount due”) on condition that at least fourteen (14) days have elapsed from the payment date, except in the case of non-payment due to refusal by a bank or credit card company to pay a charge which the Licensee has authorization to collect; The amount of collection costs that the Licensee will charge, shall be reasonable and relatative in regard to the amount due and the actions that the Licensee must take to collect the said amount. For this matter, “collections costs”-including legal actions that the Licensee or anyone on the Licensee’s behalf takes to collect the amount due before filing an application with the courts.”

1 Iyar 5765
10 May 2005

(sgd)
——————————————
Haim Giron, Adv.
Senior Deputy Director-General,
Engineering and Licensing (sgd)
——————————————
Avi Balashnikov
Director General

EX-4

Exhibit no. 4.(a).46

The State of Israel
Ministry of Communications

General License for Partner Communications Ltd. for the Provision of
Mobile Radio Telephone (MRT) Services using the Cellular Method

Amendment No. 33

By virtue of the powers of the Minister of Communications under Article 4 (e) of the Communications Law (Telecommunications and Broadcasts), 5742-1982, that have been delegated to us, by all our other powers under any law and after having given Partner Communications Company Ltd. (hereinafter- “Partner”) the opportunity to present their arguments regarding this matter, we hereby amend the General License for the provision of mobile radio telephone services using the cellular method granted to Partner on 7 April 1998, as follows:

Amendment of Article 67

1. Instead of Article 67.4 shall come:

”67.4 (a) Without derogating from all other provisions of the License regarding the manner in which the Subscriber’s bill shall be set out and the method of billing, the Licensee shall act in accordance with the Israeli Standard 5262, that concerns the credibility of the charge and full disclosure in phone bills (hereinafter in this article – “the Standard”).

(b) Sub-section (a) constitutes a “service condition”, in regard to Article 37B (a)(1) of the Law.

(c) Despite the aforesaid in sub-section (a)-

(1) With regard to the provisions of section 2.2.2 of the Standard, the rounding of numbers method shall be implemented in accordance with the following:

((a)) An amount in a bill will be rounded to the nearest number that ends with two digits after the decimal point of the Shekel, and an amount that ends with five tenths of an Agora (three digits after the decimal point), shall be rounded up.

((b)) An amount for payment of a single call shall be rounded to the nearest amount that ends with three digits after the decimal point of the Shekel, and an amount that ends with five hundreths of an Agora (four digits after the decimal point), shall be rounded up.

(2) The Licensee may present any amount included in the bill in a more detailed manner than required in accordance with the provisions of section 2.2.2 of the Standard, as long as the rounding of numbers method applies as set forth in subsection (c)(1) above.

(3) The price of a phone call (voice) that includes a Variable Tariff, shall be presented in a bill to a subscriber as the average price per minute, that shall be calculated in accordance with the amount for payment for that call, divided by the total sum of minutes of the call.

In this section, “Variable Tariff”- a tariff that changes during the course of the call based on different parameters, for example, a tariff that is reduced based on the higher the usage or a variable tariff as a result of changing from “peak time”to “off peak time” during the course of the call or vice versa.

(4) In addition to the provisions at the end of section 2.2.4 of the Standard regarding the Basket of Services, the bill shall include a detailed list of the services that are included in the basket as well as the total tariff to be paid for the basket.

In this section, “Basket of Services”-a number of services that are marketed to a subscriber as a package in exchange for an all inclusive tariff (and without detailing the payment for each individual service).

(d) (1) Chapter B of the Standard regarding full disclosure in phone bills shall become effective no later than Friday, 18 Tishrei 5766 (14.10.2005).

(2) Chapter C of the Standard regarding the credibility of the charge shall become effective no later than Sunday, 15 Tevet 5766 (14.1.2006).”

7 Tamuz 5765
14 July 2005

(sgd)
——————————————
Haim Giron, Adv.
Senior Deputy Director-General,
Engineering and Licensing (sgd)
——————————————
Avi Balashnikov
Director General

EX-4

Exhibit no. 4.(a).47

The State of Israel
Ministry of Communications

General License for Partner Communications Ltd. for the Provision of
Mobile Radio Telephone (MRT) Services using the Cellular Method

Amendment No. 34

By virtue of the powers of the Minister of Communications under Article 4 (e) of the Communications Law (Telecommunications and Broadcasts), 5742-1982, that have been delegated to us, by all our other powers under any law and after having given Partner Communications Company Ltd. (hereinafter: “Partner”) the opportunity to present their arguments regarding this matter, we hereby amend the General License for the provision of mobile radio telephone (MRT) services using the cellular method granted to Partner on 7 April 1998, as follows:

Replacement of Annex M

1. Instead of the existing “Annex M” shall come the new “Annex M” attached hereto.

Commencement

2. The new Annex M shall be effective as of 30 March 2006.

(2 March, 2006)

(sgd)
——————————————
Avi Balashnikov
Director-General (sgd)
——————————————
Haim Giron, Adv.
Senior Deputy Director-General,
Engineering and Licensing

Annex M-Adult Voice Services

1. Definitions

1.1 In this Annex:

"Licensee" – A party that has received from the Minister a general license to provide Wireline Domestic Telecommunications Services or to provide MRT Services;

"Telephone Bill" – A statement that the Licensee provides to a Subscriber for services rendered;

"Writing" – Including by means of a facsimile machine or electronic mail;

"Service Number" – A set of numbers that have been allocated by the Licensee to a Service Provider of Adult Voice Services, available by dialing a phone number, subject to the provisions of the Numbering Plan and administrative provisions for this purpose, and which the dialing of such numbers after the Dialing Code will allow the Subscriber access to Adult Voice Services;

"Service Provider" – Whoever provides Adult Voice Services through the Network and the payment for the service is done through the Telephone Bill; for the purpose of Adult Voice Services available by dialing a phone number, the access to the service shall be done by a Service Number,

"Dialing Code" – A domestic dialing code by a plan set by the Ministry for the purpose of Adult Voice Services;

"The Network" – the Public Telecommunications Network of the Licensee;

"Adult Voice Services" – A voice service or display of a voice or contractual message of sexual content, including a recorded message, provided through a public telecommunications installation, either directly or indirectly, including a service for encounters, conversations (chat) or relaying of messages between occasional callers, that are intended or serves as, even partially, for sexual purposes, and including the following:

(1) service available by dialing a telephone number provided by the Service Provider;

(2) access service to a closed database of content, including multimedia files provided by the Licensee or someone else that provides the service with the consent of the Licensee (" the Cellular Portal"); for implementation purposes that are included in the Cellular Portal and that allow access to sites on the internet ("Linked Site"), internet sites that are accessed via the Linked Sites will also be considered as part of the Cellular Portal;

For this matter, "indirectly"-including connecting from terminal equipment of a subscriber as a pre-requisite for providing the service or charging for it;

"Payment Regulations" – Communication Regulations (Telecommunications and Broadcasting) (Payments for Telecommunication Services), 2005

"Special Payment" – A fee set forth in Article 6, and which the Subscriber must pay for Adult Voice Services in addition to the Regular Payment;

"Duration Payment" – A Special Payment set in accordance with the the amount of time that the Subscriber uses the Adult Voice Services;

"Regular Payment" – One of the following:

(a) In a call within the Network-payment that shall not exceed the fixed payment in accordance with the tariff settlement between the Subscriber and the Licensee regarding a call to another subscriber within the same network;

(b) In a call from one MRT network to another MRT network or to a DO Network-payment as set forth in sub-section (a) in addition to a fee that shall not exceed 0.50 NIS per minute (including VAT).

(c) In a call from the Bezek Corporation Network to an MRT network-payment that shall not exceed the fee set forth in section "D" in chart A of the First Supplement to the Payment Amendments, in addition to 0.50 NIS per minute (including VAT).

(d) In a call from a DO Network, excluding the Bezek corporation network, to an MRT network-payment that shall not exceed the payment set forth in the payment schedule between the subscriber of the domestic telecommunications provider and the domestic telecommunications provider, regarding a call to another subscriber on the same network, in addition to 0.50 NIS per minute (including VAT).

(e) In Adult Voice Services that are provided through a Cellular Portal-payment that shall not exceed the set payment in accordance with the payment schedule between the subscriber and the Licensee regarding access service to the Cellular Portal.

2. Access to Adult Voice Services

2.1 Subject to Article 4 below, the access to Adult Voice Services for a Subscriber available by dialing, shall be done through the Dialing Code and the Service Number.

3. Allocation of a Service Number

3.1 For Adult Voice Services available by dialing, the Licensee may allocate a Service Number to a Service Provider; If the Licensee allocates such a Service Number, the Licensee shall allow the Service Provider to offer its services both to the Licensee’s Subscribers as well as to the subscribers of other licensees.

4. Barring Access to Adult Voice Services

4.1 The Licensee shall bar access to the Adult Voice Services from all Terminal Equipment connected to the Network; without derogating from the above, for the purpose of barring access to Adult Voice Services available by the Cellular Portal, the Licensee may use blocking devices, including content filter programs, as long as they effectively prevent the access to such service.

4.2 A Subscriber over 18 years of age may request that the Licensee remove the bar set forth in Article 4.1 from the Terminal Equipment in his possession.

4.3 A Subscriber’s request to remove the bar shall be either in Writing or an oral request, as long as the Licensee has set out procedures for credible identification of the Subscriber making the request.

4.4 If a Subscriber requests to remove the bar, the Licensee shall remove the bar within a reasonable amount of time, so as to allow the Subscriber access to Adult Voice Services through the Terminal Equipment in his possession.

4.5 If the bar to Adult Voice Services has been removed, and the Subscriber requests to bar access from his Terminal Equipment to such services, the Licensee shall bar access as quickly as possible and in any case, no later than two working days from the date of receipt of the Subscriber’s request.

4.6 The first removal of the bar to Adult Voice Services that was done in accordance with the Subscriber’s request as set forth in Articles 4.2 and 4.3 shall be done free of charge; the Licensee shall be allowed to charge the Subscriber a reasonable fee for any additional bars to Adult Voice Services or for any additional removal of bars, that are done in accordance with the Subscriber’s request.

5. Preliminary Registration

Notwithstanding the abovementioned in Article 4, the Licensee may deem necessary preliminary registration of the Subscriber in order to receive a password that will be conditional for receiving Adult Voice Services. The provisions of this Article shall not derogate from the abovementioned in Articles 4.2-4.3

6. Setting Special Payment

If Special Payment is set for Adult Voice Services, the amount shall be set by the Licensee or by an agreement between the Licensee and the Service Provider.

7. Charging the Subscriber for Adult Voice Services

7.1 If Special Payment is set for Adult Voice Services, the Licensee shall display the charge for the service in the Telephone Bill separately from the charges for other services of the Licensee, unless the Subscriber requests otherwise.

7.2 The Licensee shall provide the Subscriber within ten (10) working days with the details of the Special Payment for Adult Voice Services in accordance with the following:

a. The Service Number allocated for the service;

b. The date and time of receipt of the service;

c. The time unit charges-a charge in accordance with the duration- the number of time unit charges that were counted or the total amount of the Special Payment; in case of charging according to data volume (for example-MB, KB)-the number of data volume units of the data that were transmitted;

d. The amount charged for that service.

The Licensee may collect a reasonable payment for providing the details of the Special Payment.

8. Announcement Obligation

8.1 If Special Payment is set for Adult Voice Services provided through the Network, the Licensee shall play, either himself or through the Service Provider at the beginning of the call, a recorded message that includes the following details:

a. The essence of the service;

b. The amount of the Special Payment for the service, either the total amount, by Duration Payment or volume transmission, whichever is relevant;

c. The possibility to disconnect from the service free of charge before the sound of the tone, as set forth in Article 8.4.

8.2 The recorded message shall be in the language that the Adult Voice Services are provided, in clear and fluent language, at a reasonable pace and without any recording distortions.

8.3 At the beginning of the Adult Voice Services that are provided in a language other than Hebrew, a message will be played that details the language the service is provided in and afterwards the recorded message will be played in the language the service is provided, as set forth in Articles 8.1 and 8.2.

8.4 At the end of the recorded message as set forth in Article 8.1, the caller will have 5 seconds after which a tone will be played to indicate the beginning of the receipt of the Adult Voice Services; If the caller disconnects before the tone is played, he shall not be charged the Special Payment. Alternatively, the caller will be required to punch a certain key in his Terminal Equipment in order to confirm his wish to receive the service, and only from that moment will the Subscriber will charged the Special Payment.

8.5 If Special Payment is set for Adult Voice Services available by accessing the Cellular Portal, the Licensee shall notify the subscriber of the service charge in a clear and prominent manner, while allowing the subscriber the ability to disconnect from the service with being charged the Special Payment.

9. The Relationship between the Licensee and the Service Provider

9.1 The Licensee may allow the Service Provider to perform Telecommunication Activities through the Licensee’s installations in order to provide Adult Voice Services; The Service Provider shall be exempt from the duty to receive a license to perform Telecommunication Activities in accordance with the provisions of Article 3 (5) of the Law.

9.2 The Licensee shall include the provisions of this Annex, with the necessary changes, in the agreement between himself and a Service Provider, in such a manner that the Service Provider must comply with these provisions.

9.3 The Licensee shall provide the Director, in accordance with his request, with any agreements between the Licensee and a Service Provider.

10. Interconnection

10.1 The conditions for Interconnection between the Network and the Public Telecommunication Network of another licensee, with respect to the provision of services for charging and collecting by one licensee for another licensee, for the provision of Adult Voice Services through the network for the subscribers of another licensee, shall be set forth in an agreement between the Licensee and the other licensee; should the parties not reach an agreement , the Minister shall decide the matter.

10.2 The Licensee shall pass to the Director, upon his request, a signed copy of any agreement between the Licensee and another licensee regarding the matter of Interconnection.

11. General

11.1 The Licensee shall be responsible for handling complaints of customers of the Adult Voice Services, regarding Subscriber problems in accessing the service, problems of charges and collection regarding the service, and shall create for this purpose a mechanism to handle customer complaints; The Service Provider shall be responsible for handling customer complaints regarding the contents of the service. If the Licensee provides the Adult Voice Service himself, the Licensee shall also be responsible for handling customer complaints regarding the contents of the service.

11.2 The Licensee shall not be allowed to disconnect, stop or impair the basic telephone service of a Subscriber that contests the payment for Adult Voice Services and refuses to pay, however he may disconnect such a Subscriber from the receipt of further Adult Voice Services.

11.3 The Licensee shall not pass the details of the Subscriber to the Service Provider or anyone else without written confirmation of the Subscriber and after verifying the credibility of the confirmation.

11.4 The Licensee shall give any Subscriber who so requests, free of charge, within three (3) working days, details regarding the Service Provider as follows:

a. The name and address of the provider.

b. The phone number by which the provider can be reached.

11.5 This Annex shall also apply with the necessary changes, to the provision of Adult Voice Services that are provided as a network service only to the Subscribers of the Licensee.

11.6 The Licensee may provide the Adult Voice Services himself and the provisions of this Annex will apply with the necessary changes.

EX-12

Exhibit 12.(a).1

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 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 report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

(4) The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

(5) The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal   control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a   significant role in the company’s internal control over financial reporting.

Date: May 18, 2006

/s/ Amikam Cohen
——————————————
Amikam Cohen
Chief Executive Officer

EX-12

Exhibit 12.(a).2

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 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 report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

(4) The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

(5) The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal   control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a   significant role in the company’s internal control over financial reporting.

Date: May 18, 2006

/s/ Alan Gelman
——————————————
Alan Gelman
Chief Financial Officer

EX-13

Exhibit 13.(a).1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Annual Report of Partner Communications Company Ltd. (the “Company”) on Form 20-F for the period ending December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certify that to the best of our knowledge:

    1.        The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

    2.        The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 18, 2006

/s/ Amikam Cohen
——————————————
Amikam Cohen
Chief Executive Officer

Date: May 18, 2006

/s/ Alan Gelman
——————————————
Alan Gelman
Chief Financial Officer

EX-14

Exhibit 14.(a).1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form F-3 (No. 333-14222) of Partner Communications Company Ltd. , of our report dated March 7, 2006, relating to the financial statements, which appears in this Form 20-F.

Tel-Aviv, Israel


Date: May 16, 2006 /s/ Kesselman & Kesselman
——————————————
Kesselman & Kesselman
Certified Public Accountants (Isr.)