Delek Group Ltd 7, Giborei Israel St., P.O.B 8464, Industrial Zone South, Netanya 42504, Israel Tel: 972 9 8638444, 972 9 8638555 Fax: 972 9 8854955 www.delek-group.com ANNUAL REPORT 2010

ANNUAL REPORT 2010

DelekDelek Group Group Ltd Ltd 7,7, Giborei Giborei Israel Israel St., St., P.O.B P.O.B 8464, 8464, Industrial Industrial Zone Zone South, South, Netanya Netanya 42504, 42504, Israel Israel Tel:Tel: 972 972 9 98638444, 8638444, 972 972 9 98638555 8638555 Fax: Fax: 972 972 9 98854955 8854955 www.delek-group.comwww.delek-group.com WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 IMPORTANT

This document is an unofficial translation for convenience only of the Hebrew original of December 31, 2010 financial report of Delek Group Ltd. that was submitted to the Tel-Aviv Stock Exchange and the Israeli Securities Authority on March 31, 2010.

The Hebrew version submitted to the TASE and the Israeli Securities Authority shall be the sole binding legal version.

WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Table of Contents

Chapter A | Corporate Description

Chapter B | Board of Directors Report on the State of the Company’s Affairs

Chapter C | Financial Statements for December 31, 2010

Chapter D | Additional Information on the Corporation

Chapter E | Annual report for 2010 on the Effectiveness of Internal Controls for Financial Reporting and Disclosure WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Chapter A

Corporate Description WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8

Chapter A – Description of the Corporation's Business

Table of Contents

Chapter A – Description of the Corporation's Business ...... 1 Part One – Description of the Corporation's Business ...... 2 1.1 Company operations and business developments ...... 3 1.2 Operating Segments ...... 8 1.3 Equity investments in the Company and transactions in its shares ...... 8 1.4 Distribution of dividends ...... 9 Part Two – Other Information ...... 11 1.5 Financial information related to the Group's operating segments ...... 11 1.6 General environment and impact of external factors ...... 14 Part Three - Description of the Corporation's Business by Operating Segment ...... 19 1.7 Refining and Fuels in the USA ...... 19 1.8 Fuel Product Segment in Israel ...... 49 1.9 Fuel products in Europe ...... 94 1.10 Motorway Service Areas in the UK ...... 123 1.11 The Energy Sector ...... 146 1.12 Insurance and Finance in Israel ...... 259 1.13 The Insurance segment in the U.S...... 305 1.14 The Automotive Segment ...... 326 1.15 Additional operations ...... 348 Part Four – Matters Pertaining to the Group as a Whole ...... 364 1.16 Property, plant and equipment ...... 364 1.17 Human Capital ...... 364 1.18 Financing ...... 365 1.19 Taxation ...... 368 1.20 Company liens, loans and guarantees ...... 368 1.21 Restrictions and Supervision of the Corporation’s Operations ...... 369 1.22 Material Agreements ...... 370 1.23 Legal proceedings and insurance ...... 370 1.24 Business goals and strategy ...... 370 1.25 Financial information concerning geographic regions ...... 372 1.26 Discussion of Risk Factors ...... 372

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Part One – Description of the Corporation's Business

Key:

In this report the following abbreviations have the following meanings: Company or Delek Group - Delek Group Ltd. IDE - IDE Technologies Ltd Excellence - Excellence Investments Ltd. Barak Capital - Barak Capital Ltd. Gadot - Gadot Biochemical Industries Ltd. Delek Ashkelon - I.P.P. Delek Ashkelon Ltd. Delek Europe - Delek Europe Holdings Ltd. Delek Energy - Delek Energy Systems Ltd. Delek Benelux - Delek Benelux B.V. Delek Investments - Delek Investments and Properties Ltd. Delek Refining - Delek Refining Inc. Delek Israel - Delek The Israel Fuel Corporation Ltd. Delek Real Estate - Delek Real Estate Ltd. Delek Petroleum - Delek Petroleum Ltd. Delek Infrastructure - Delek Infrastructure Ltd. Delek Automotive - Delek Automotive Systems Ltd. Delek Capital - Delek Capital Ltd. Delek USA - Delek US Holdings Inc. HOT - HOT Cable Media Systems Ltd. The Phoenix - The Phoenix Holdings Ltd. Roadchef - Roadchef Ltd. Republic - Republic Companies Group Inc. Avner Partnership - Avner Oil and Gas Exploration – Limited Partnership Delek Drilling Partnership - Delek Drilling – Limited Partnership The Partnerships - Avner Partnership and Delek Drilling Partnership

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1.1 Company operations and business developments

1.1.1 Delek Group Ltd. ( "the Company") is a holding company controlling numerous corporations (the Company and the companies it controls are hereinafter referred to, for the sake of convenience as "the Group" or "Delek Group"). 1.1.2 The Company was incorporated on October 26, 1999 as a public company.1 1.1.3 The following chart illustrates the Group's major holdings as of March 28, 2011:

1 The Company was incorporated as part of the Group's reorganization in 1999, in which Group operations were separated and divided into three main subsidiaries, with the Company established as a parent company. Prior to reorganization, Group operations were included under Delek, The Israel Fuel Corporation Ltd., which was incorporated on December 12, 1951 and is currently, following the reorganization, responsible for the fuel products in Israel segment. A-3

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DELEK GROUP LTD.

100% 100%

Delek Investments and Properties Delek Petroleum

54.2% 32.42% 79.67% 63.92% 100% 77.2% 96.7% 100%

Delek Delek Gadot Delek the 3.3% Delek Delek Roadchef Phoenix Automotive Energy Biochemical Israel Fuel Infrastructure 80% Hungary Ltd. Ltd. *** Systems Systems Industries Corporation

20% Delek Europe 99% 73.32% 100% **51% **69% 49.8% 25% 75% 100% 73.4%

Held Delek Drilling IDE Delek Avner Oil Delek companies in Republic Excellence – Limited Technologies 100% 100% Delek USA Motors Exploration Ashkelon fuel segment Partnership Ltd. in Israel Delek Delek France Benelux 100% 34.6%

MAPCO Express ** Holdings in the Delek Drilling Partnership and the Avner Partnership are aggregate holdings for (the Fuel Delek Delek Investments, which holds 80% of Delek Energy's shares, and Delek Energy. For details Product Refinery concerning these holdings, see Section 1.11 below. Segment in the *** Through foreign subsidiaries (100%) USA)

.

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1.1.4 The Delek Group is one of the largest, most dynamic investment companies operating in Israel. The Group is holdings company with a variety of investments in Israel and abroad, with operations including, gas and oil, refining, gas stations, motorway service areas, automotive, finance and insurance, desalination, power generation, and biochemicals. In recent years, inter alia due to natural gas discoveries off the coasts of Israel in which the company is involved, and the Group's acquisition of gas stations in Europe, the Company's operations are more energy-focused - exploration, production and sale of natural gas and oil (Upstream Energy) and refining and gas stations (Downstream Energy). Concurrently, and as part of the Company focusing its operations as aforesaid, the Group disposed of real estate holdings (by way of distributing dividends in kind), and of part of its automotive holdings. Milestones in the Group's operations in the past decade: 1999 - 20000 Discovery of significant quantities of natural gas by the partners in the Yam Tethys project - in the Mari and Noa reserves off the coast of Ashkelon. 2000 The Group's shares are listed for trading on the Tel Aviv Stock Exchange. Acquisition of 50% of the shares in the desalination company IDE. 2001 Establishment of Delek USA and acquisition of 198 gas stations and convenience stores in the US. 2004 Start of gas production and sale by the Yam Tethys project. 2005 Delek USA acquires a refinery in Tyler, Texas. Acquisition of control in The Phoenix Holdings, in a two-step process completed in 2006. Initial public offering of shares in the Gadot subsidiary (biochemical operations). 2006 Initial public offering of shares in Delek USA on the New York Stock Exchange. 2007 Initial public offering of shares in Delek Israel. Delek Israel acquires the Pi Gliloth storage facility. Establishment of Delek Europe and acquisition of gas stations and convenience stores in Benelux. 2009 Distribution of most of the shares in Delek Real Estate as a dividend in kind. Tamar discovery in the Mediterranean Sea. 2010 Delek Europe acquires gas stations and convenience stores in France. The Group sells about 22% of its shares in Delek Automotive. Leviathan discovery in the Mediterranean Sea. 2011 Acquisition of motorway service area operations in the UK (Roadchef) from Delek Real Estate, and increasing the Group's holdings in Roadchef from 25% to 100%.

Material developments in the Group's business in 2009 - 2010 as of near the date of this report: 2009 Energy: In February 2009, drilling at the Tamar-1 site off the coast of Haifa ended with the discovery of commercial gas quantities. Delek Drilling and Avner ( "the Partnership") each have a 15.6% stake in the drilling. The drilling at Tamar-1 was executed at a water depth of about 1,680 m and reached a final depth of about 4,900 m. According to an independent evaluation carried out by NSAI, the average economic potential of the natural gas reserves in the Tamar field is approximately 7.7 TCF (approx. 218 BCM). In April 2009, production tests carried at the Dalit-1 drill site were successfully completed. After drilling, Noble Energy Mediterranean Ltd. ( "the Operator") estimated the average economic potential of the natural gas reserves in the Dalit structure at approximately 500 BCF (approx. 14.2 BCM), and that the discovery is commercially significant. For more information regarding the Tamar-1 and Dalit-1 drill sites, and about negotiations carried out by the partners in the Tamar and Dalit licenses for the supply of gas from Tamar, see Section 1.11.4 of the report.

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Insurance and finance in Israel: On June 14, 2009, The Phoenix signed a settlement agreement with Aharon Biram and Gil and Esther Deutsch (in this section: "the Sellers") concerning the sale of Excellence shares held by the Sellers to The Phoenix. According to the settlement agreement, the Sellers' shares (to a total amount of 40.88%) are to be acquired in five non-equal installments, with a total consideration of between NIS 620 million and a maximum of NIS 730 million, linked to the Israeli CPI. On August 25, 2009, The Phoenix acquired approx. 20.44% of all Excellence shares, constituting the "first installment", for approx. NIS 342.7 million. Following additional acquisitions of Excellence shares carried out in 2009-2010 (including the "second installment"), as of the date of this report The Phoenix holds 73.32% of Excellence's issued and paid-up share capital, and 88.64% including shares not yet acquired but for which The Phoenix holds acceleration rights. For more information about the acquisition of control in Excellence, see Note 14 to the financial statements. Distribution of Delek Real Estate shares as a dividend in kind: On October 29, 2008, the Company's board of directors resolved to distribute all or the majority of Delek Real Estate shares held by the Company to the Company's shareholders. On March 31, 2009, the Delek Group announced the distribution of Delek Real Estate shares as a dividend in kind on May 3, 2009. The distribution was carried out in such a manner that each of the Company's shareholders received 8.8 shares in Delek Real Estate for each share in the Company. Following the distribution, the Company retained a 5% stake in Delek Real Estate's share, and as of that date the Company no longer consolidates Delek Real Estate in its financial statements. For more information regarding exposure to Delek Real Estate's operations through loans and guarantees granted to Delek Real Estate, see Section 1.15.5 to the report. 2010 Energy: In 2010, the Partnerships signed an interim financing agreement for financing the Tamar Project's development costs. Seismic surveys were carried out in the Tamar and Dalit drilling areas, and planning was carried out and equipment purchased for developing the Tamar reserve. For more information, see Section 1.11.4 of the report. In October 2010, work began in the Leviathan-1 drill site, whose budget is estimated at approximately USD 150 million (not including production testing costs). At the end of December 2010, the Partnerships announced the discovery of natural gas (in March 2011, the budget was updated, and may reach USD 190 million). The Operator announced that very high quality reservoir sands were discovered in the target layers, which contain natural gas, with a total (net) thickness of at least 67 meters in a number of different layers. This information confirmed the Operator's previous estimates as to the estimated natural gas resource range, whereby the gross mean natural gas resources in the Leviathan field total approximately 16 TCF (approx. 453 BCM). The Operator estimates the Leviathan field to span a very large area of approximately 325 km2, and so two or more evaluation drillings will need to be carried out in order to continue estimating the scope of the gas reserves in the field. For more information, see Section 1.11.5 of the report. In light of the significant gas reserves discovered in Tamar and Leviathan, and the potential of additional exploration areas, the Partnerships began considering various possibilities for commercializing the gas reserves, including export and sale on the international market. Fuel products in Europe: In October 2010, a transaction was completed for the acquisition of BP France SA's ("BP") fuel marketing operations in France, including approximately 410 BP-branded gas stations, approximately 300 convenience stores with a nation-wide presence, and holdings in 3 fuel supply and storage terminals, and an exclusive usage license to the BP brand in the gas station chain in France. Consideration for the transaction totaled approximately EUR 209 million. For more information, see Section 1.9.1(b) of the report. Sale of Delek Automotive's shares: In October 2010, the Company completed the sale of approximately 22% of Delek Automotive's shares to Mr. Gil Agmon, CEO of Delek Automotive, in consideration for approximately NIS 1 billion. Post-sale, the Delek Group's holdings in Delek Automotive decreased to approximately 32.8% of the shares in Delek Automotive, and the Group has ceased being the controlling shareholder in Delek Automotive. For more information, see Section 1.14.1 of the report. 2011 (as of the reporting date) Energy: As of the date of this report, the Israeli Knesset has approved the Oil Profits Taxation Law, 2011 (which has yet to be published in the Official Gazette), anchoring the recommendations submitted by the Sheshinski Committee ("the Law"). The Law will significantly increase the Group's tax burden and negatively affect its operations in general, and the Tamar project in particular. For more information, see Section 1.11 of the report.

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Motorway service areas in the UK: In January 2011, the Group and Delek Real Estate completed a transaction for the acquisition of a 75% interest in Roadchef, which operates 27 service areas in 19 motorway locations in England, Scotland and Wales. These operations include sales of retail products, and food and refueling services. Consideration for the transaction totals approximately GBP 86.25 million (approx. NIS 497 million as of the transaction completion date). The consideration was paid by offsetting part of Delek Real Estate's debt to the Group, and also included the purchasing of Delek Real Estate's debt to a bank. Following the transaction, the Group (through Delek Petroleum) holds 100% of Roadchef. For more information about Roadchef's operations, see Section 1.10 of the report; for more information about exposure to Delek Real Estate through remaining loans and guarantees after the transaction, see Section 1.15.5 of the report. Refining and fuel products in the US: On March 17, 2011, Delek USA signed an agreement with Ergon Inc. ("the Sellers") for the acquisition of an additional 53.7% of Lion Oil's shares, of which Delek USA holds 34.6%. Consideration for the transaction is to consist of USD 50 million in cash, allocation of shares (valued at USD 45 million), and settlement of Lion Oil's debts to the Sellers. Post-acquisition, Delek USA holds 88.3% of Lion Oil's shares. Completion of the acquisition is subject to certain preconditions and is expected to take place during Q2/2011. For more information, see Section 1.7.1(a) of the report. During the period 2009-2011 (to the report date), the Group raised considerable capital and debt on the capital market. The Group's major capital-raising activities are described in the chapters on the operating segments, and include the following: 2009 • In May 2009, Delek Israel raised approx. NIS 111 million in a public offering of debentures. • In July 2009, Delek Israel raised approx. NIS 814 million in a public offering of debentures. • In July 2009, the Company raised approx. NIS 308 million in a private offering of debentures to institutional investors. • In July 2009, The Phoenix raised approx. NIS 125.5 million in a share offering effected as a rights offering. • In September 2009, The Phoenix Insurance raised approx. NIS 500 million through a special- purpose subsidiary, which held a public offering of promissory notes. • In September 2009, the Company raised approx. NIS 350 million in a public offering of debentures to warrants. • In October 2009, Delek Energy raised approx. NIS 300 million in a public offering of debentures. • In November 2009, the Company raised approx. NIS 818 million in a public offering of debentures. • In November 2009, Delek Energy carried out a barter offer whereby it acquired 247,926,781 participation units in the limited partner's rights in the Avner Oil Exploration limited partnership (which constitutes approx. 7.43% of all participation units), in return for issuing a total of 393,535 ordinary shares in Delek Energy. Following this issuing, the Company recorded profits to the amount of NIS 200 million. 2010 • In January 2010, Delek Energy raised approx. NIS 400 million in a public offering of debentures. • In April 2010, the Company raised approx. NIS 255 million in a public offering of bonds convertible to shares in the Company. • In April 2010, Gadot raised approx. NIS 38.5 million in a share issue effected as a rights offering. • In June 2010, the Company raised approx. NIS 844 million in a public offering of debentures (these debentures were issued by expanding existing series). • In July 2010, Delek Energy raised approx. NIS 414 million in a public offering of debentures (by expansion of existing series). • In September 2010, Gadot raised approx. NIS 63 million in a public offering of debentures (by expansion of an existing series).

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• In September 2010, The Phoenix Insurance issued approx. NIS 375.5 million par value in a public offering of debentures, and in October 2010, The Phoenix Insurance issued approx. NIS 24.5 million par value in a private placement of debentures of the same class. • In November 2010, the Company raised approx. NIS 559 million in a public offering of debentures.

1.2 Operating Segments

1.2.1 The Group operates in the following eight segments: A. Refining and Fuel Products in the US – This segment includes holdings in an oil refinery and crude oil pipeline, as well as the marketing of fuel products and operation of fuelling stations and convenience stores in the US. B. Fuel Products in Israel - This segment includes sales of fuels and oils, the operation of gas stations with on-site convenience stores, and the provision of fuel storage and supply services in Israel. C. Fuel Products in Europe - This segment includes sales of fuels and oils and the operation of gas stations with on-site convenience stores in Benelux and France. D. Motorway service areas in the UK - This segment includes the provision of motorway services, including sales of retail products, restaurants and hotels, and fuel sales, in motorway service areas throughout the UK. E. Energy - This segment includes production and sales of natural gas and oil and natural gas and oil exploration. F. Insurance and Finance in Israel - This segment includes various insurance operations and long-term savings operations in the finance industry in Israel. Operations are carried out through The Phoenix and Excellence. G. Insurance in the US - This segment includes general insurance operations in the US, carried out through the Republic insurance company. H. Automotive - This segment includes a 32.42% interest in Delek Automotive, which imports, distributes and sells private and commercial "Mazda" and "Ford" vehicles in Israel. 1.2.2 In addition, Delek Group engages in various operations that are not covered by the above segments. These include, primarily, Gadot's biochemical operations, in which the Group holds 63.88%; a 49.8% holding in IDE's desalination operations; other investments in infrastructure; a 47.85% holding in Barak Capital's finance operations in Israel; a portfolio of financial investments; an investment portfolio in foreign securities; and holdings in technology companies (see Section 1.15 below).

1.3 Equity investments in the Company and transactions in its shares

1.3.1 To the best of the Company's knowledge, in 2009-2010 until shortly prior to the report date, the following investments were made in the Company's equity:

Equity % of issued investment in Date Type of transaction capital NIS millions* Q1/2009 Purchase of Company shares 2.91% 1 Q2/2009 Purchase of Company shares 0.19% 10 (carried out by Delek Investments and Property Ltd.) Q2/2009 Purchase of Company shares 0.04% 2 (by the Company) Q2/2009 Debentures converted to shares 0.03 1 Q1/2010 Warrants exercised for shares 0 0.1

To the best of the Company's knowledge, in 2009-2010 until shortly prior to the reporting date, the following material transactions were carried out in the Company's shares by its principal shareholders, both on and off the stock exchange:

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Company value derived % of Share Consideration from Principal Type of issued price in in NIS transaction Date shareholder transaction capital NIS millions (NIS millions) Jan. 8, 2009 Yitzchak Purchase 0.02 136.2 0.4 1,591 Sharon (Tshuva) Apr. 19, 2009 Delek Purchase 0.19 429.6 9.65 5,020 Investments and Properties Ltd. Sep. 24, 2009 Yitzchak Sale 1.28 634.45 93.4 7,210 Sharon (Tshuva) Nov. 22, 2010 Yitzchak Transfer for 0.17 - - - Sharon no (Tshuva) consideration * Yitzhak Sharon (Tshuva) through companies under his full ownership and control.

1.4 Distribution of dividends

1.4.1 Distribution of dividends in the past two years and balance of distributable profits Dividends declared by the Company in 2009-2010 until shortly prior to the report date:

Dividend per share Total dividend (NIS Declaration date Payout date (NIS) millions) May 27, 2009 Jul. 2, 2009 6.3472 72 Aug. 30, 2009 Sep. 24, 2009 9.25 105 Nov. 30, 2009 Jan. 5, 2010 2.9 33 Dec. 28, 2009 Jan. 18, 2010 13.223 150 Mar. 24, 2010 Apr. 28, 2010 8.7895 100 May 31, 2010 Jun. 30, 2010 13.1842 150 Jul. 26, 2010 Aug. 23, 2010 10.5474 120 Sep. 21, 2010 Oct. 19, 2010 7.9106 90 Nov. 30, 2010 Dec. 24, 2010 43.947 500

For 2009 and 2010, the Company distributed a total of approx. NIS 460 million and approx. NIS 1,060 million, respectively. As aforesaid, on March 31, 2009 the Company declared the distribution of Delek Real Estate shares as a dividend in kind, which distribution took place on May 3, 2009. Each shareholder in the Company received shares in Delek Real Estate from the Company, in exact proportion to the total shares distributed in Delek Real Estate as the proportion of each shareholder's holdings in the Company's shares on the effective date (8.8 shares in Delek Real Estate for each share in the Company). For more information concerning dividend distributions, see Chapter A(2) and Chapter G of the Board of Directors' Report. As of the report date, the Company's distributable profits, according to Section 302 of the Companies Law, 1999, total NIS 1,486 million. On March 31, 2011, the Company announced the distribution of NIS 200 million in dividends. Following this distribution, the Company's total distributable profits, according to Section 302 of the Companies Law, 1999, total NIS 1,286 million. 1.4.2 Dividend distribution policy On March 30, 2005 the Company's Board of Directors decided on a dividend distribution policy. Accordingly, the Company will strive to distribute approximately 50% of its net annual profit (post- tax) each year. This decision is subject to the following conditions:

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A. The Company's Board of Directors will decide from time to time on the distribution of a dividend, and its decision will be made pursuant to the provisions and limitations set forth by law. B. The Board's decision on the amount of the distribution will depend on the Company's financing requirements, its liabilities, and investment plan, as may be from time to time. C. The Board's decision on the amount of the distribution will be made so that the dividend distribution will not harm the Company's third-party obligations, including its bondholders and the banks. 1.4.3 Limitations on the distribution of dividends Pursuant to the provisions of a borrowing agreement signed with a bank, in which the Group's debt balance to the said bank as of December 31, 2010 was NIS 230 million, the Delek Group is required to obtain prior approval when distributing a dividend that exceeds 60% of its annual net profit. Under the agreement, this limitation applies commencing from the end of 2009. For further information relating to the limitations on distribution of dividend applicable to the Group's companies, see the description of the various areas of operation below. The Company is studying the applicability of Section 309 to the Companies Law as regards the purchase of shares by Excellence's ETF companies. These companies purchase and sell Company shares as part of their prospectus obligations to monitor the share indices in which the Company is included. Similarly, The Phoenix's profit-sharing policies occasionally buy and sell the Company's shares. Section 309 to the Companies Law dictates that a subsidiary or another corporation controlled by the parent company are entitled to purchase shares in the parent company or securities which are convertible or exercisable for shares in the parent company, to the same extent that the parent company is entitled to carry out a distribution, provided that the subsidiary's board of directors or the management of the purchasing corporation has determined that had the purchase of the shares or the securities convertible or exercisable for shares been carried out by the parent company, such action would have constituted permissible distribution. However, in light of the fact that these purchases are made using funds managed on behalf of others, and their limitation (to the extent that such limitation is practical) may adversely affect the ETF companies' obligations towards their investors, it seems that both materially and practically, such share purchases should not be equated with the distribution of dividends nor subject to the distribution tests. In actuality, the subsidiaries do not make decisions on whether such purchases constitute permissible distribution by the Company. From an accounting perspective, in preparation of its quarterly or annual financial statements the Company reviews the net volume of these purchases (i.e. - purchases less of sales in the reporting period) and accounts for them in accordance with Israeli GAAP. Therefore, shares are presented at cost offset from the Company's equity, and gains or losses on sales, purchases, issues or cancellation of treasury shares are recognized directly to equity. Net purchases are detracted from the Company's distributable profits, and as of December 31, 2009 and 2010, the respective amounts of NIS 24 million and NIS 19 million have been detracted from the Company's distributable profits.

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Part Two – Other Information

1.5 Financial information related to the Group's operating segments1

The following tables detail financial information related to the Group's operating segments:

Refining and fuel Insurance 2010 products in Delek and finance Insurance in Consolidation (NIS millions) the US Delek Israel Europe Energy Automotive in Israel the US Other adjustments Consolidated Revenues Revenues from externals 14,019 5,136 13,130 556 3,363 9,717 1,364 693 (3,411) 2 44,567 Revenues from other segments ------Total 14,019 5,136 13,130 556 3,363 9,717 1,364 693 (3,411) 44,567 Total Costs constituting attributed revenues for costs another segment ------Other costs 13,957 4,947 12,940 288 2,883 9,070 1,299 578 (2,620) 3 43,342 Total 13,957 4,947 12,940 288 2,883 9,070 1,299 578 (2,620) 43,342 Fixed costs attributed to segment 1,090 608 566 - - Variable costs attributed to segment 12,867 4,339 12,374 2884 2,883 5 Profit from ongoing operations attributable to owners of the parent 44 146 181 213 277 359 63 125 (588) 819 Profit from ongoing operations attributable to minority interests 18 43 9 55 203 288 2 (10) (203) 406 Total assets attributed to segment 4,052 4,618 5,529 3,134 1,316 62,385 5,334 1,684 3,844 91,896 Total liabilities attributed to segment 1,087 832 2,202 363 - 56,272 3,726 142 22,395 87,019

1 For financial information concerning the motorway service areas segment in the UK, acquired by the Company in January 2011, see Section 1.10.2 below. 2 Mainly adjustments for the automotive segment's revenues in 2010 (until cessation of Delek Automotive's consolidation). 3 Including adjustments for Delek Automotive's costs (until cessation of Delek Automotive's consolidation), costs not attributed to operating segments and the Group's share in the operating profits of associates as included in the segment results. 4 Mostly variable costs connected with gas and oil production output. 5 The vast majority of these costs are variable costs stemming from the purchase of vehicles and spare parts. Therefore, fixed costs have not been stated separately.

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Refining and Insurance and 2009 fuel products Delek finance in Insurance in Consolidation (NIS millions) in the U.S. Delek Israel Europe Energy Automotive Israel the US Others adjustments Consolidated Revenues from externals 10,413 4,286 10,681 449 4,743 10,699 1,668 575 (4,811) 1 38,703 Revenues Revenues from

other segments ------Total 10,413 4,286 10,681 449 4,743 10,699 1,668 575 (4,811) 38,703 Costs constituting Total attributed revenues for costs another segment ------Other costs 10,224 4,056 10,584 184 4,283 10,251 1,591 289 (3,909) 2 37,553 Total 10,224 4,056 10,584 184 4,283 10,251 1,591 289 (3,909) 37,553 Fixed costs attributed to segment 1,172 496 585 ------Variable costs attributed to segment 9,052 3,560 9,999 184 3 4,2834 - - - - - Profit from ongoing operations attributed to owners of the parent 893 140 140 179 93 265 249 77 271 - Share in profit from ongoing operations attributed to minority interests 49 49 51 4 194 199 - 15 (255) 257 Total assets attributed to segment 3,831 4,591 4,407 4,156 2,356 55,175 5,819 2,113 3,298 84,356 Total liabilities attributed to segment 1,029 1,029 833 1,451 1,275 49,823 4,004 311 20,871 79,768

1 Mostly adjustments for Delek Automotive's revenues which were classified as discontinued operations after the sale of 22% of Delek Automotive in 2010. 2 Including adjustments for Delek Automotive's costs, which were not attributed to operating segments, and the Group's share in the operating profits of associates as included in the segment results. 3 Mostly variable costs connected with gas and oil production output. 4 The vast majority of these costs are variable costs stemming from purchases of vehicles and spare parts. Therefore, fixed costs have not been stated separately.

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2008 (NIS millions) -

Refining and Insurance and 2008 fuel products Delek finance in Insurance in Consolidation (NIS Millions) in the US Delek Israel Europe Energy Automotive Israel the US Real estate Others adjustments Consolidated Revenues from 1 externals 17,118 5,813 14,660 447 4,770 1,201 1,490 - 741 (4,770) 41,470 Revenues Revenues from other segments ------Total 17,118 5,813 14,660 447 4,770 1,201 1,490 - 741 (4,770) 41,470 Costs constituting revenues for another segment ------2 Other costs 16,930 5,591 14,531 207 3,898 1,551 1,629 - 615 (3,555) 41,397 Total Total attributed 16,930 5,591 14,531 207 3,898 1,551 1,629 - 615 (3,555) 41,397 costs Fixed costs attributed to segment 988 458 599 ------Variable costs attributed to 3 4 segment 15,942 5,133 13,932 207 3,898 ------Profit from ongoing operations attributed to owners of the parent 138 189 123 240 503 (189) (139) - 111 (846) 130 Share in profit from ongoing operations attributed to minority interests 50 33 6 - 369 (161) - - 15 (369) (57) Total assets attributed to segment 3,801 3,622 3,767 1,899 2,001 28,802 5,300 21,068 3,127 3,242 76,629 Total liabilities attributed to segment 384 596 1,094 228 960 26,536 3,634 1,211 3,469 34,154 72,266

For details about the main developments in the financial data, see the Board of Directors' explanations regarding the state of the Corporation's business.

1 Adjustments for Delek Automotive's revenues which were classified as discontinued operations following the sale of 22% of Delek Automotive in 2010. 2 Including adjustments for Delek Automotive's costs, which were not attributed to operating segments, and the Group's share in the operating profits of associates, as included in the segment results. 3 Mostly variable costs connected to gas and oil production output. 4 The vast majority of these costs are variable costs stemming from purchases of vehicles and spare parts. Therefore, fixed costs have not been stated separately.

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1.6 General environment and impact of external factors

1.6.1 General The Company is a holdings and management company controlling a large number of corporations with diverse investments in Israel and abroad, in energy, gas stations and convenience stores, infrastructure and desalination, finance and insurance, automotive, biochemicals and more. Most of these corporations are controlled by the Company, with holdings of more than 50%. The financial data and results of the Company's operations are influenced by the financial data and results of its investee companies, as well as by the Company's sale or purchase of these holdings. The Company's cash flow is affected, inter alia, by dividends and management fees distributed by its investee companies, by proceeds earned from the sale of the Company's holdings in such companies, by the Company's ability to raise foreign financing that depends, inter alia, on the value of its holdings, and by investments made by the Group and by dividends it distributes to its shareholders. 1.6.2 Market developments and volatility Market developments and volatility may significantly affect the results of the Company's operations and those of its investee companies, their liquidity, the valuation of their assets, their ability to sell such assets, their business, their financial criteria, their credit rating, their ability to distribute dividends, and their ability to raise funds to finance their ongoing operations and their long-term operations, as well as the terms of such financing. Inter alia, the Group's results are materially affected by developments and volatility in the following relevant markets: 1. The natural gas market in Israel - the oil and gas sector in Israel is materially affected by demands and pricing of natural gas in Israel, where, currently, the largest customer is the Israel Electric Corporation. The market is also affected by the supply of natural gas in Israel, and in particularly by competition with EMG, which imports gas from Egypt. Therefore, recent political developments in Egypt may, in the future, affect market structure and competition. The gas and oil sector is also expected to be materially affected by regulation - including taxation policies which may have a materially negative impact on the Group's operations in light of the adoption of the Sheshinski Committee's recommendations and final approval of the Oil Profits Taxation Law by the Israeli Knesset in March 2011. The sector is also expected to be materially affected by regulation related to the development of the Tamar and Leviathan reserves. For more information, see Section 1.11.27 below. 2. Fuel and convenience store products in Israel, Europe, and the US - Fluctuations in demand and in the prices of fuel products in the Group's areas of operation may materially affect the results of the Group's operations. Such fluctuations may be caused by economic conditions in the areas of operation, and by applicable regulation. For more information, see Sections 1.7.1(b), 1.8 and 1.9 below. 3. The US refining market - Refining operations in the US are materially affected by the Tyler refinery's refining margin, the US Gulf Coast 5-3-2 spread, which is affected by the supply and demand of refining products. For more information, see Section 1.7.1(c) below. 4. The Israeli capital market - In addition to the Israeli capital market's affect on those Group companies traded on the Tel Aviv Stock Exchange, including on their ability to raise funding, fluctuations in the Israeli capital market materially affects the results of the Group's insurance and finance operations in Israel. These operations are affected, inter alia, by management fees charged on insurance policies, provident funds and pension funds, and these are tied to yields on investments made in the capital market. The possible negative impact of capital market fluctuations is reflected in The Phoenix's results for 2008, when The Phoenix posted a total loss of approximately NIS 561 million, in light of the global local capital market crises, while the positive results posted in 2009 and 2010, when The Phoenix recorded a total gain of approximately NIS 435 and 432 million, respectively, were, inter alia, due to the Israeli capital market emerging from of this crisis. For more information, see Section 1.12 below. 5. NASDAQ - The Company holds a portfolio of investments in securities which are traded on the US NASDAQ. In light of the above, fluctuations in the US capital markets, and mainly in the NASDAQ, may affect the value of these holdings. 6. The Israeli automotive market - In recent years, the automotive segment has materially contributed to the Group's profitability. Even after the sale of part of the Group's holdings in Delek Automotive in 2010, the segment remains material at the group level. Vehicle import

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operations depend, inter alia, on demand for vehicles in Israel, on the competition among vehicle importers, and on applicable regulation. For more information, see Section 1.14 below. 1.6.3 Exchange rates The Company's functional currency and the presentation currency of the Company's financial statements is the NIS. However, the functional currency for some of the Group companies is the USD (Delek USA, Delek Energy, Republic, and IDE). Delek Europe's functional currency is the EUR, and Roadchef's functional currency is the GBP. Therefore, the Group's results and equity are materially affected by fluctuations in the NIS exchange rates of the aforesaid currencies (as well as additional currencies such as the JPY and the CNY). In 2010, the effects of these exchange rate fluctuations were expressed as a NIS 373 million decrease in the Company's equity under a capital reserve classified as "Adjustments from translation of overseas operations" 1.6.4 Regulation The Company and several of its investee companies are subject to restrictions on their operations imposed by law or by order of various regulatory bodies, such as anti-trust provisions, provisions relating to the obligation to tender, provisions relating to insurance companies, provident funds and retirement funds1, and provisions relating to the supervision of product and service prices. Furthermore, the Group's ability to raise funds is affected, inter alia, by relevant regulation, such as the Proper Conduct of Banking Business provisions (see below) and regulation of off-bank credit, such as the regulation adopted by the Capital Market Commissioner following the Hodek Committee's recommendations. The Company may be affected by developments in anti-trust laws or the application thereof, mainly in those segments where operations are of a significant scope. The Company may further be affected by the adoption of proposals made in the past year to impose restrictions on holding companies in Israel. For more information, see Section 1.26.8 below. The Company and several of its investee companies are affected by the Proper Conduct of Banking Business Regulations issued by the Supervisor of Banks in Israel. These regulations include, among other things, restrictions on the scope of the loans that Israeli banks can grant to "single borrowers", and the six largest borrowers and the largest "borrower group" in the banking corporation (as these terms are defined in the aforesaid regulations). Accordingly, the scope of the loans issued to the Group's companies and the controlling shareholder in the Company may, under certain circumstances, affect the ability of the Group's companies to borrow additional amounts from banks in Israel. The Company and its investee companies are also affected by the Government of Israel's policies in various matters (e.g. – monetary policies), and by the requirements of authorities monitoring environmental quality. Furthermore, significant increases in the minimum wage in Israel, other material changes to the labor laws applicable in Israel or strikes or industrial unrest can affect the financial results of the Company and its investee companies. 1.6.5 Developments in the Israeli economy As a material part of the Group's business takes place in Israel, economic developments in Israel materially affect the results of the Group's operations. These developments stem, inter alia, from economic, political and security conditions in Israel. Below is a brief description of trends, events and developments in the Company’s macroeconomic environment that have, or are expected to have, an impact on the Group.2

1 On December 30, 2010, the Ministry of Finance Commissioner of the Capital Market, Insurance and Savings ("Commissioner") granted Mr. Yitzhak Sharon (Tshuva), the controlling shareholder in the Company, a permit control and hold the means of control in an insurer - The Phoenix Holdings Ltd. and its subsidiaries. This permit includes provisions for maintaining certain holdings in The Phoenix Holdings, as well as limitations on the sale or transfer of control blocks and the issue of means of control, as defined in the Supervision of Insurance Law, in the Company, The Phoenix Holdings, and The Phoenix Holdings subsidiaries. The permit also includes, inter alia, various provisions for reporting to the Commissioner, which pertain to changes in holdings in The Phoenix Holdings and its subsidiaries, provisions concerning the holding in trust of control blocks in The Phoenix Holdings, keeping the control blocks in The Phoenix Holdings and its subsidiaries free of all encumbrances, except for those cases detailed in the permit, and Delek Investment's obligation to supplement the equity of the insurance, pension and provident fund companies controlled by The Phoenix Holdings. 2 The data in this section is based primarily on official publications, including the following: preliminary estimates of the nationa accounts for 2009, Central Bureau of Statistics, December 31, 2009; Q4 2009 Inflation Report, Bank of Israel; Recent Economic Developments, September-December 2009, Bank of Israel.

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General - The Israeli economy, which showed great fortitude in the face of the economic crisis of 2008 as compared to such developed nations as the US and the Eurozone, continued growing in 2010. The Israeli economy recorded notable growth in GDP, an increase in private consumption, recovery from the economic crisis in most industries, a decrease in unemployment, and lower than expected government deficit. Israel Central Bureau of Statistics estimates indicate a 4.5% growth in product in 2010. Economic growth accelerated in the second half of 2010 and the final quarter of the year even saw a sharp increase in the growth rate, which stood at 7.8% in annual terms. This is opposed to the decrease in product per capita recorded in 2009. Among the factors for this sharp increase in the economic growth rate is the increased spending in both the private and public sectors. Private consumption saw a marked increase in consumption of durable goods, with investments in fixed assets showing an increase in investments in roads, public buildings and infrastructures. Another noteworthy component in the unusual growth rate recorded in the fourth quarter was the diamonds export industry, which grew by approximately 10%. Preliminary estimates issued by the Israel Central Bureau of Statistics for the second half of the year indicate a 6.5% increase in public consumption spending, a 4.5% increase in private consumption spending (as compared to 4.1% in the first half of the year), an 18.8% increase in investments in fixed assets (As compared to 11.9% in the first half of the year) and an increase of 3.7% in the export of goods and services (excluding diamonds and start-up companies), following an increase of 13.3% in the first half of the year. Imports of goods and services (excluding defence imports, ships, aircraft, and diamonds) grew by 8.6% in the second half of 2010, following growth of 11.2% in the first six months. The Bank of Israel's inflation reports for the third and fourth quarters of 2010, indicate that in contrast to leading markets around the world, the Israeli economy responded quickly to the expansionary policies implemented by economic policymakers. By the end of the second quarter of 2010, economy and wages were already nearing their pre-crisis levels. Despite the primarily positive data, price increases, caused mainly by increased housing prices, have resulted in an inflation rate that is in the upper range of the Bank of Israel's target inflation rate. The revaluation of the New Israeli Shekel threatens the competitiveness of Israeli exports, and has resulted in massive intervention by the Bank of Israel in the foreign currency market. In additions, concerns have been voiced regarding the development of a real estate price bubble in light of negative real interest rates. Furthermore, doubts concerning the extent of the economic recovery in numerous key countries (mainly the US and the Eurozone), which are still coping with high fiscal deficits, may affect the global economy and the Israeli economy in general, and Israeli exports in particular. The need to increase interest rates in a world of free-flowing monetary and capital transactions, has created heightened sensitivity to interest rate differences between countries. Thus, policy makers have tried to solve the problems that arose in 2010 through various legislative initiatives, such as: increasing the interest rate on mortgages for high-leverage, variable-interest borrowers, imposing restrictions on buyers organized in acquisition groups, increasing the purchasing tax for persons buying a second apartment, imposing limits on foreign investments in bonds, etc. Government deficit (excluding borrowings) in 2010 totaled approximately NIS 30.2 billion, a real increase of 7.5% compared to last year (net of legislative changes and non-recurring income), despite increased tax revenues. Employment and unemployment – The relatively rapid economic growth recorded in Israel from the second half of 2009 has also resulted in expanded employment in the commercial sector, and reduced unemployment rates. This trend continued throughout 2010, with employment rates in most industries rising back to pre-crisis levels or higher. This is in contrast to the US and Eurozone economies, where unemployment rates remained close to 9% and 10%, respectively. As of October 2010, the number of salaried positions in Israel totaled approximately 2.9 million persons, with data indicating a 1.8% increase in annual terms in August-October, following a 2.3% increase in annual terms in May-July 2010. Accordingly, the unemployment rate in Israel in the third and fourth quarters of 2010 was 6.6%, a material improvement as compared to the fourth quarter of 2009, when the unemployment rate was 7.3%. Although unemployment had gone down to 6.4% in the second quarter of 2010, data for the subsequent quarters was not seen as indicating a negative trend as the number of employees continued to grow following an increase in the participation rate. This positive change in the employment market in 2010 contributed to increased demand for salary increases in various public sectors. Accordingly, the average real salary for salaried employees in Israel rose by 1% in annual terms in August-October 2010, following a 2.6% increase in annual terms in May-July 2010. The Bank of Israel estimates that salary agreements recently signed in the

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public sector, and agreements expected to be signed in 2011, may act as an additional factor pushing real salaries in the market up. Exchange rate – In general, the surplus that has existed in the current budget in Israel since 2003 strengthens the New Israel Shekel. At the same time, payment balance data for capital imports to Israel in 2010 showed an increase in foreign investment in short term loans and deposits in local banks. These caused an increase in the effective exchange rate for the NIS. Due to the need to increase the Bank of Israel's interest rate, which broadened the interest rate differences and made the shekel more attractive, the Bank of Israel made large-scale purchases of foreign currencies, aimed at weakening the shekel. These purchases pushed the country's foreign currency balances to record highs. As of December 2010, Israel's foreign currency deposits amounted to USD 70.9 billion, as compared to USD 59 billion in December 2009. In 2010, the USD-NIS exchange rate fluctuated greatly, with the NIS gaining strength versus the USD by 5.7%, and 13.3% versus the EUR, in annual terms. Furthermore, in order to minimize foreign capital inflows, as of January 2011, the Bank of Israel requires Israeli residents to disclose their activities in foreign currency derivatives, while foreign residents must disclose their activities in both foreign and local currency derivatives. The Bank of Israel further requires corporations to maintain liquidity for transactions in foreign currency derivatives carried out with foreign residents. The markets reacted to this development by a rapid weakening of the shekel (by 3.5%), which was mostly reversed following the Bank of Israel's decision of March 2011, to raise its interest rate up to 2.5%. Inflation – 2009 ended with a lower inflation rate than previous years (2.7% in 2010, as compared to 3.9% in 2009 and 3.8% in 2008). However, the reasons behind this low inflation rate indicate future problems: rising housing costs, which in 2010 also manifested themselves in increased rental prices (included in the Israeli CPI), were caused by changes in the ratio between supply and demand for apartments in the country. On the other hand, fruit and vegetable prices were affected by adverse weather conditions which caused a decrease in supply and an increase in prices. Even if this was a localized event, the fact is that adverse weather conditions were recorded in 2010 around the world, which damaged various crops and caused a sharp increase in agricultural products. These price increases are expected to gradually manifest themselves as an increase in food prices both globally and in Israel. As regards transportation prices, similar to the increase in commodity prices, expectations for a global economic recovery resulted in increased oil prices, which subsequently pushed gasoline and diesel prices up for both private and corporate consumers. The second half of 2010 was marked by more moderate inflation and in the fourth quarter of 2010 the Israeli CPI rose by 5% in annual terms, following an increase of 3.1% in the previous quarter. In the final quarter of the year, the Israeli CPI excluding housing rose by 5.5% following an increase of 2.8% in the previous three months, and the CPI excluding housing, fruits and vegetables rose 4.8% in the fourth quarter, following an increase of 1.6% in the previous three months. As of the end of 2010, the Bank of Israel's inflation forecast is 3-3.2% and the Bank of Israel estimates the maximum inflation in 2011 to exceed the upper limit of the target inflation rate, but to return into the target limit towards the end of the year. Interest rate – Starting September 2009, the Bank of Israel began slowly and intermittently raising the interest rate in the market which was at a record low of 0.5%. At the end of 2010, the interest rate rose to 2%, and in February-March 2011 it was again raised by another 0.5% to 2.5%. This interest rate still represents a negative real interest rate, which creases distortions in the allocation of resources in the market in the short-medium term. Looking forward towards 2011, expectations on the capital market are for the interest rate to continue rising, reaching a level of 3-3.5% at the end of 2011. 1.6.6 Global economic developments 2010 was marked by continued global recovery, with developed and developing nations still showing marked differences in their growth rates. The relative weakness in the US and Europe, and the escalation of the European debt crisis have postponed monetary restrictions, which early assessments expected in 2010. This means that these countries continued implementation of expansionary monetary policies, while other countries which weathered the crisis in a more favorable manner (such as Israel, China, India, Australia, etc.), began implementing contractionary monetary policies. This process was aimed at reining in signs of inflation and checking the swelling real estate market, caused by the negative real interest rate along with increased living standards and private consumption. Job markets in developed nations have so far shown no significant signs of recovery, and the unemployment rates in these countries remain high. Furthermore, in the US

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and Eurozone, growth in 2010 is expected to reach 2.8% and 1.8%, respectively. In comparison, emerging markets saw rapid growth in 2010, which reached 7.1% headed by China and India. The US, whose government debt continued growing in 2010, has not yet had to tackle the matter in depth, although concerns have started to surface concerning its ability to service its municipal debts. Due to a certain disappointment from the rate of economic recovery, mainly in the real estate and job markets, in the fourth quarter of 2010 the US Federal Reserve launched another expansionary initiative to purchase USD 600 billion in government bonds (QE2), which will continue into 2011, and an expansionary fiscal program based on tax cuts. In the Eurozone, which recorded relatively modest growth, Germany was a driver of growth thanks to its significant exports, while other countries such as Portugal, Italy, Ireland, Greece and Spain (PIIGS) suffered from expected difficulties in their ability to repay their public debt. The mobilization of the Eurozone and other non-Eurozone countries, has allowed countries experiencing difficulties to recycle their debts. Some of these countries also introduced local reforms focusing on budget cuts aimed at resolving structural flaws which have existed in these countries for years. However, these measures did not reduce risk levels in the markets, and as of the date of this report, the debt crisis still hampers Europe's economic recovery. Concurrently, policymakers in developing nations, which were not at the center of the economic crisis, were required to deal with currency revaluation, and to intervene, directly or indirectly, in the foreign currency market due to pressures which strengthened the local currency in these countries (such as Brazil, Thailand, South Korea, etc.). These pressures were caused by increased foreign capital entering these countries, mostly from developed markets, which suffered from the 2008 crisis and were characterized by low local interest rates. The transfer of money from low interest rate markets to those stronger markets which began raising their interest rates, hurt the competitiveness of exports from those countries, and threatened their continued accelerated growth. The measures employed by the various countries in order to rein in flows of capital included increased taxation on financial capital transactions, the reinstatement of capital gains taxes on foreign investments in government bonds, and imposing restrictions on banks as regards management of futures contracts and the foreign currency market. In this regard, the International Monetary Fund (IMF) warned that measures implemented by various countries to limit the revaluation of their local currency may adversely affect the global economic recovery. The inflation rate in the developed nations remained low due to surplus production capacity and weak job markets (except for the UK, which recorded an annual inflation rate of over 3% due to an increase in the VAT rate and the devaluation of the local currency). On the other hand, developed markets saw high inflation rates in 2010, due to accelerated growth and increased food prices, which is a significant factor in the consumer price index in these countries. Thus, for example, inflation rates in China and Brazil in 2010 were 4.5% and 6%, respectively. Following cutbacks in government budgets in various developed markets, the International Monetary Fund lowered the global growth forecast for the coming year, and expects global product to grow by 4.4% in 2011, as compared to a growth of 5% in 2010, and a decrease of 0.6% in 2009. Developing economies are expected to continue expanding in 2011 and are expected to grow at a rate of 6.5%, as compared to 7.1% in 2010 and 2.6% in 2009. On the other hand, growth rates in developed markets are expected to reach 2.5% in 2011, as compared to 3% in 2010, with the US expected to experience a higher growth rate than the Eurozone. Post-income statement, riots broke out in Egypt, which led to civil uprisings in other Arab countries such as Libya and Yemen. These riots spurred a rise in oil prices, which later stabilized for a certain period and then rose again following assessments that the riots in Libya are not a passing incident, which may damage oil supply to the West or even the global economic recovery. It is noted that on March 11, 2011, Japan experienced a severe earthquake, followed by a tsunami. These disasters caused heavy loss of life, damage to property and damage to utilities. The tsunami which hit Japan's coastal area damaged a nuclear reactor in Fukushima, which lead to concerns for radioactive contamination and escalation into a nuclear disaster. The long-term effects of these events on the Japanese economy is as yet unclear, nor are any possible influences on neighboring countries. As Japan is a strong, industrialized country and a large-scale exporter, these events may also affect the global economy, depending on the speed of Japan's recovery from these disasters and the cost of the recovery operations. For more information concerning the general economic environment and external factors that specifically affected the Delek Group's operating segments, see the description for each operating segment below.

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Part Three - Description of the Corporation's Business by Operating Segment

Below is a separate description of the Group's business in each of its operating segments:

1.7 Refining and Fuels in the USA

Refining and fuel operations in the US are handled by the subsidiary Delek US Holdings, Inc. ("Delek USA"). Delek USA incorporated in Delaware in 2001, and has been registered for trade on the New York Stock Exchange since the issue of its shares in 2006. As of the date of this report, the Group holds (indirectly) approximately 73% of the shares in Delek USA. The activity includes three segments: Refining activity is conducted under Delek Refining, Inc. ("Delek Refining"); marketing activity is conducted under Delek Marketing & Supply, Inc. ("Delek Marketing"); and gas station and convenience store activity is conducted under MAPCO Express, Inc. ("MAPCO"). All said companies are wholly owned by Delek USA. The following is a diagram of the structure of the principal holdings in the Group's US operation:

The following is information on high and low closing price (in USD) of Delek USA shares on the NYSE in 2009 and 2010 and until shortly prior to the reporting date:

Period High Low Date Price (in USD) Date Price (in USD) 2009 9.4.09 12.41 2.1.09 5.27 2010 10.3.10 8.44 21.5.10 6.06 The closing price (in USD) of Delek USA shares on March 16, 2011 was USD 12.73. Delek USA is not restricted in the payment of dividends other than by what is set out in the applicable law. 1.7.1 General Information on Area of Activity A. Structure of activity Refining segment Delek USA holds a refinery in Tyler, Texas ("Refinery"), with a maximum output of about 60,000 barrels per day. Delek Refining purchases most of its raw materials from suppliers in East and West Texas and sells its fuel products to a variety of clients, chiefly local. Additionally, Delek USA holds 34.6% of the shares in Lion Oil Company ("Lion Oil"), which were purchased in 2007. A private company, Lion Oil operates an oil refinery in El Dorado, Arkansas with maximum production of close to 80,000 barrels. It also owns three crude oil pipelines and two refined petroleum marketing terminals in Nashville and Memphis, Tennessee, through which it supplies petroleum to third parties, including Delek USA, which operates 180 gas stations and convenience stores in these areas. On March 17, 2011, Delek USA entered into an agreement with Ergon Inc. “Sellers”) for the purchase of an additional 53.7% of the shares in Lion Oil, for cash payment of USD 50 million, allocation of shares and Delek USA will extinguish all debt currently owed by Lion Oil to the Sellers, such that after the

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purchase Delek USA will hold 88.3% of Lion Oil's shares. Completion of the transaction is subject to performance of conditions precedent, and it is expected in the second quarter of 2011. For additional information regarding the purchase agreement, see the Immediate Report dated March 21, 2011 (Reference No. 2011-01-085755), the details of which are included by way of reference. For further information about Lion Oil, see section 1.7.14 below. Unless explicitly stated otherwise in the report, the disclosure in the various sections does not relate to the transaction for purchase of Lion Oil. What is refining? Oil refining is a process whereby the various components of crude oil are separated and then converted into products such as gasoline, diesel oil, and the like. The refining process has a number of principal stages, including separation processes in which the crude oil is separated into groups of products; fractionalization processes which change the chemical composition of the separated materials to obtain products with a higher added value; refining processes whose purpose is to purify and cleanse the products created during the separation process; and finishing processes whose purpose is to make the products compatible with the standards and specifications demanded by law or pursuant to agreements with specific customers (for example: adding fuel additives). It should be noted that the crude oil market and the refined fuel products market are commodities markets, that is to say, markets where there is standardization of commodities and their trading. Marketing activity Complementary to the refining activity, the Company is engaged in marketing, in other words, the purchase of fuel products (gasoline and diesel) and marketing them to end users through a petroleum pipeline and petroleum refining terminals. To this end, Delek Marketing markets the fuel products in the following ways: (1) transportation of fuel products through seven pipelines and from the petroleum refining terminals to trucks owned by Delek USA in Abilene and San Angelo, Texas; (2) direct sales of fuel products to third parties through sales terminal to trucks in San Angelo, Abilene, Aledo, Odessa and Big Springs, Texas and through other terminals located along the Magellan pipeline (see below); (3) supply of fuel products in swap transactions at terminals in Abilene, San Angelo and Aledo, Texas; (4) marketing services to Delek USA’s petroleum refinery in Tyler for wholesale sales and sales under sale agreements; (5) the supply of ethanol to MAPCO for blending with gasoline through a new 30,000-barrel storage facility set up by Delek USA at a terminal owned by a third party in Nashville, Tennessee; (6) an arrangement with Delek USA’s refinery in Tyler, whereby Delek Marketing receives 50% of the wholesale margin over a level agreed by the parties. Delek Marketing also owns containers for the storage of a total of approximately one million barrels of fuel products. For information about Delek Marketing's assets, see Section 1.7.9A below. All the fuel products are supplied to Delek Marketing in accordance with two main supply agreements: the first with Noble Petro, for the supply of up to 20,350 barrels a day, and the second with Magellan for the supply of up to 7,000 barrels a day. For details of these petroleum purchase agreements, see also Section 1.7.12B below. Fuel Products and Convenience Stores in the USA - MAPCO This activity is performed by MAPCO and covers the marketing and distribution of fuel and oil products, as well as the operation of gas stations and convenience stores (generally both are operated on the same site). As of December 31, 2010, MAPCO operated 412 gas stations and convenience stores in eight states in the southeastern US, and another 57 gas stations are operated by third parties. For additional information, see Section 1.7.9C.1. The gas stations and convenience stores are operated under the brands of MAPCO Express®, MAPCO Mart®, Discount Food MartTM, Fast Food and FuelTM, Delta Express®, East Coast® and Favorite Markets®, with the branded stations selling fuel products of BP, ExxonMobil, Conoco, Shell and Marathon. Over the past three years, MAPCO has reopened, upgraded and improved more than 100 stores in the different states, including introducing premium products, convenience products and opening bars. It plans to continue to do so for additional stores in 2011. B. Economic Environment and Influence of External Factors Delek USA is exposed to trends, events and developments in the fuel market in the areas of its US operation that impact or could impact its activities and the activities of its competitors, including:

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1. Fluctuations in global crude oil prices in general and specifically in Delek USA's area of operations - The crude oil that Delek Refining purchases is the main cost component of the fuel products produced by the Refinery. The price of crude oil is dictated by oil prices on the international markets. An increase in crude oil prices can lead to an increase in the prices of fuel products, resulting in decreased demand for oil and fuel products. Delek Refining cannot necessarily incorporate a rise in crude oil prices in the price of products it manufactures, and this could be detrimental to its refining margin and to Delek USA's results. In 2009 and 2010, approximately 27.3% and 25.8%, respectively, of the crude oil purchased by Delek Refining was supplied by local suppliers in East Texas. Most of the local crude oil is transported by truck or pipeline owned by Delek USA, explaining the advantage in the cost of its purchase. The rest is purchased from suppliers in West Texas and from international sources. 2. Fluctuations in global fuel prices - Prices of the fuels produced, purchased and sold by Delek USA are influenced by various factors, including changes in the global and local economy, demand for Delek fuel products in the USA, the general global political situation and specifically, in the main oil-producing regions (the Middle East, FSU, West Africa and South America), production levels of crude oil and petroleum distillates in the USA and worldwide, development and marketing of fuel substitutes, interruptions in supply lines, local factors including market and weather conditions, output at competing refineries and US regulations. A rise in global fuel prices causes a rise in the prices of products sold by MAPCO, may reduce demand for these products, as well as hurt MAPCO’s profit on every product sold. In 2010, an increase was recorded in revenues from fuels, after a decline in 2009. Among other reasons, this was due to the fluctuation of fuel prices and the return of the Refinery to full work, with the average price per barrel in 2010 being USD 79.50 compared to USD 61.93 in 2009 and USD 99.73 in 2008. 3. The economic situation and downturn - Most Delek Refining products are for the transportation industry (vehicles and airplanes). An economic downturn in the USA could reduce demand for flights as well as traffic on the roads, thus both reducing demand for the Refinery's petroleum products and the refining margin (as defined in Section 1.7.1C below). An economic slowdown may also have a negative impact on MAPCO operations, and in fact, the economic crisis in the United States led to a general decline in demand for fuel products and retail products in the convenience stores. 4. Legislative restrictions, regulatory developments - Delek USA and particularly Delek Refining are subject to the provisions of laws, regulations and standards stipulated by the competent authorities in its segment of operation, at the federal, state and local levels, primarily in terms of environmental protection and standardization. For more information, see Sections 1.7.18 and 1.7.19 below. 5. Refining capacity - The strict environmental protection regulations applicable to fuel products such as gasoline and diesel for transportation could limit the maximum potential and expansion of the existing facilities and harm the refining capacity of Delek Refining. Such standards could compel Delek Refining to upgrade its existing facilities and to add new facilities in order to adapt its product basket to demand. It should be noted that in recent years there has been a significant growth in the demand for oil distillates. The growth in demand was met by increasing exploitation of global refining capacity and adapting it to the level of demand and to the increasingly strict standards governing the production of fuel products. Historically, increases in demand have led to cycles of increased profitability, which in turn have led to investments that have made it possible to increase supply. This then led to periods of surplus production capacity and a decline in the industry’s profitability. C. Changes in volume and profitability of activity Refining segment Oil products such as those produced by Delek Refining are traded on international markets, making the prices of its products prone to extreme daily fluctuations. Delek Refining therefore enters into agreements with its customers on the basis of a price formula that reflects the changes in market prices. Results in the refining industry are influenced and measured by the difference between the prices of petroleum distillates and the prices of crude oil, which is known as the refining margin. The refining margin is the difference between the cost of the crude oil (including costs

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of transportation, insurance, unloading, storage, and transporting to the Refinery), and the consideration from the sale of the refined product mix. The relevant refining margin for Delek Refining is known as the US Gulf Coast 5-3-2 Spread ("5-3-2 Spread"), which measures the difference between the price for 3/5 barrel of US Gulf Pipeline 87 Octane Conventional Gasoline and 2/5 barrel of US Gulf Coast Pipeline No. 2 Heating Oil, and the price of 5/5 barrel of light crude oil as quoted on the New York Mercantile Exchange for supply in the next month. The fluctuations in the energy markets continued in 2010. The average 5-3-2 spread in the US Gulf Coast region in 2009 averaged USD 5.97 a barrel and in 2010 averaged USD 7.93 a barrel. In 2009, the actual refining spread of Delek Refining, plus the marketing fee between the companies, was USD 7.07 a barrel, and in 2010 was USD 7.57 a barrel. The average price of crude oil in the company’s period of operations in 2009 and 2010 was USD 61.93 and USD 79.50 a barrel, respectively. In the first quarter of 2011, through March 16, 2011, the average 5-3-2 spread was USD 17.4 a barrel, and the average price of crude oil was USD 92.26 a barrel. The refining margin is influenced by a number of variables: 1. Crude oil prices. 2. Changes in local and international economic conditions. 3. Volume of local and international demand for fuel products. 4. Global refining capacity. 5. Speculative supply and demand that impact on prices on the commodities market. 6. Changes in the global geo-political situation, particularly in the oil-producing regions such as the Middle East, West Africa, the CIS (the former Soviet Union) and South America. 7. Local and foreign production levels of crude oil and fuel products and the level of crude oil, other raw materials and fuel products imported into the United States. 8. Utilization levels of US refineries. 9. Development and marketing of alternative fuel products. 10. Stoppages or disruptions in supply to the Refinery. 11. Local factors, such as market conditions, climate changes, and activity level of refineries and pipelines in the market. 12. Government legislation. 13. The Refinery’s product basket is influenced by the types of crude oil it purchases and by the Refinery’s facilities which influence the refining technology. The Refinery produces mainly "white" products: in 2009 and 2010 some 95% and 96%, respectively, of the Refinery’s products were white products (i.e. products that are not fuel oil, such as gasoline, diesel oil or jet fuel), and the remainder are heavy products and others. Since only the last factor can be influenced by the Refinery, and it is not central to determining the refining margin, profitability in refining activity depends more on changes in the global market than on Delek Refining. The basket of oil products is refined from crude oil, and the Refinery has a marginal ability to influence this basket through the quality of the processed raw material and the manufacturing processes. Lacking the ability to have a significant influence on the product basket, taking into account the level of demand and product prices, there is no significance from the Refinery’s point of view in relating to the gross profit of a single product, and refineries are judged by the refining margin obtained from sales of the product basket. It should also be noted on this matter that the ability of a refinery to reduce the amount of refined heavy products by increasing the number of "white" products is measured by the Nelson Complexity Index ("Nelson Index"). The higher the Index, the greater the refinery’s ability to produce more "white" products. In addition, the compatibility of the refinery’s production should be examined against demand in its area of activity. The Refinery’s present rating is 9.4 on the Nelson Index. According to data published in the Oil & Gas

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Journal, the Nelson Index range for refineries in the Gulf of Mexico region ranges between 1 and 16.9. For changes in revenues and profitability of Delek USA activities, see section 1.7.3 below. D. Competitive structure See Section 1.7.6 below. E. Critical success factors Delek USA estimates that the following are the key success factors: Delek Refining and Marketing 1. Level of refining margin. 2. Selection of the optimal mix of types of crude oil and identification of supply sources. 3. Availability of capital and operational availability of the refining facilities. 4. Fuel terminal and Refinery location – The refinery in Tyler is the only one in a 100-mile radius that offers a range of petroleum distillates. 5. Optimization of supply chain and production. 6. Ability to comply with product standards and changing regulatory requirements and to adapt the Refinery to these standards. 7. Possibility of using the existing pipeline infrastructure in the areas of operation for transporting fuel products, and the ability to expand the use of this pipeline infrastructure. 8. Synergy between Delek Refining and Delek Marketing. Gas stations 1. Widespread deployment of gas stations and convenience stores in MAPCO’s area of operations. 2. Financial strength enabling the purchase of new gas stations and convenience stores, investments in setting up new stations and refurbishing and expanding existing stations. 3. Integrating convenience stores and retail centers into gas station spaces. 4. Title to the property on which the gas stations are built. 5. Efficient information systems that provide information in real time for management, inventory, pricing, sales and security. 6. Volume of mixing ethanol with the fuels marketed by MAPCO, which increases the retail fuel margin. F. Changes in supplier and raw material chain Delek Refining purchases crude oil from a large number of suppliers in East Texas, West Texas and through imports, and it is not dependent on any single supplier. Delek Marketing purchases fuel products from two main suppliers - the Nobel Group (which was assigned the rights of Northville, which was a supplier in the past) and Magellan. MAPCO has several suppliers, the largest of which in 2010 was Motiva, from which it purchased 20.4% of its fuel products compared with 21% from Valero in 2009. For more information, see Section 1.7.12 below. G. Alternatives and technological changes influences the activity of Delek USA In light of the changes in crude oil prices in recent years and due to issues regarding environmental protection and the range of energy sources, governments throughout the world are examining long-term plans for a partial transition to alternative energy and various companies throughout the world are trying to develop energy alternatives to oil and fuels. As of the date of this report and until such time as efficient and inexpensive energy solutions are found, Delek USA does not anticipate a significant drop in demand in the areas in which it operates due to said alternatives, in the foreseeable future. The information in this section regarding Delek USA’s assessment is forward-looking information. This information is based on general information about the hitherto relatively slow

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rate of development in the transition to alternative energy, as well as on the continuing demand for oil. The information may not materialize if, inter alia, there are significant developments in the development of alternative energy solutions, if greater resources are invested in finding such solutions, or governments decide to enforce or promote incentives for the transition to energy alternatives. H. Entry and exit barriers Key barriers to entry are the following: 1. The capital required and the high costs associated with the acquisition, construction and operation of fuel facilities (refineries, oil pipelines, gas stations) at the required standards. 2. The need for significant credit sources to finance the purchasing of petroleum products and convenience stores. 3. Competition with other gas companies and retail chains in all the areas of their operation, and against small competitors with lower costs of operation. 4. Existing regulatory restrictions in the sector, including legislation and regulations in planning, construction and environmental protection. 5. The limited capacity of the existing pipeline infrastructures, which in many cases are at full output and make it difficult for new competitors from entering the area of activity. The following are the key entry barriers: 1. The value and purpose of the various facilities. 2. Environmental implications for the property on which the facilities are located, which may limit other possible uses. 3. Existence of long-term lease/operation contracts with land owners. 1.7.2 Products and services A. The products marketed by Delek Refining include the following fuel products: − Gasoline – In 2009 and 2010, gasoline accounted for approximately 54.8% and 56.3%, respectively, of all the products produced by the Refinery. The Refinery produces three different types of gasoline (premium – 93 octane and regular - 87 octane), aircraft fuel and E-10 products, which contain 90% regular gasoline and 10% ethanol. − Diesel and jet fuel – In 2009 and 2010, diesel and jet fuel accounted for approximately 36.7% and 36.9%, respectively, of all products produced by the Refinery. Delek Refining produces diesel and jet fuel in accordance with the military standard (JP-8), fuel for civilian jet planes, low sulfur diesel and ultra low sulfur diesel). − Petrochemical products – The Refinery produces small quantities of propane, propylene and butane. − Other products – The Refinery produces small quantities of other products, among them coke, slurry oil, sulfur and other mixtures. It should be noted that the profitability of white products and diesel is relatively higher. B. The products marketed by Delek Refining include the following oil products: − Gasoline – In 2009 and 2010 the various types of gasoline accounted for some 50.6% and 44.7%, respectively, of all the products marketed by Delek Marketing. Delek Marketing markets two different types of gasoline (premium – 93 octane and 87 octane). − Diesel - In 2009 and 2010, the various types of diesel accounted for some 48.9% and 55%, respectively, of all the products marketed by Delek Marketing. Since September 2006, Delek Marketing has been marketing ultra low sulfur diesel. C. Fuel products marketed by MAPCO: − Various types of gasoline – used as fuel in vehicles with gasoline engines and sold mainly at gas stations. − Diesel - used mainly in diesel-powered vehicles as well as for heating and industry.

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− Gasoline blended with ethanol - E10 products. D. Retail products marketed by MAPCO: Various retail products are sold at the convenience stores. The main products are tobacco products (mostly cigarettes), beer, soft drinks, food (including ready-to-eat), candy, snacks and many other products, including MAPCO’s own private label products. Some of the stores sell lottery tickets and money orders, and operate ATMs. Alcohol and tobacco account for approximately 55% of MAPCO sales. 1.7.3 Breakdown of revenues by products and services A. The table below shows the amount and percentage of Delek USA's revenues from the sale of material products or services in each of its areas of operations: Delek Refining

The product Total sales in % of Delek USA % of Group USD millions revenues revenues 2010 Gasoline 979.3 26.1% 8.2% Diesel 651.6 17.4% 5.5% Other 52.4 1.4% 0.4% 2009 Gasoline 521.4 19.6% 5.3% Diesel 330.9 12.4% 3.4% Other 29.8 1.1% 0.3%

Delek Marketing

The product Total sales in % of Delek USA % of Group USD millions revenues revenues 2010 Gasoline 211.3 5.6% 1.8% Diesel 272.5 7.3% 2.3% Other 20.6 0.5% 0.2% 2009 Gasoline 179.8 6.7% 1.8% Diesel 175.8 6.6% 1.8% Other 18.8 0.7% 0.2%

MAPCO

The product Total sales in % of Delek USA % of Group USD millions revenues revenues 2010 MAPCO fuels 1,208.2 32.2% 10.1% Retail Products 384.1 10.2% 3.2% Total 1592.3 42.4% 13.3% 2009 Fuels 1,035.9 38.8% 10.5% Retail Products 385.6 14.5% 3.9% Total 1421.5 53.3% 14.4%

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B. The following table provides the amount and percentage of gross profit from the sales of Delek USA material products or services in each of its areas of operation in 2009 - 2010:

2010 2009 % of % of % of % of Group Delek USD Group Delek USD profit USA profit million. profit USA profit million. Refinery 7.7% 40% 136.4 4.8% 27% 72.5 Marketing 1.6% 8% 27.7 1.7% 9% 24.9 MAPCO fuels 4.0% 20% 69.9 4.1% 23% 61.5 Products 6.6% 34% 117.2 7.9% 43% 119.2 Retail Other -0.5% -2% (8.5) -0.4% -2% (5.5) Total 19.4% 100% 342.7 18.2% 100% 272.6

1.7.4 Customers A. Delek USA As a rule, no single customer accounts for over 10% of Delek USA sales, and Delek USA is not dependent on any single customer. B. Delek Refining Delek Refining markets is fuel products to 100 customers, including large oil companies, independent refineries, fuel distributors, gas station operators, utility and transportation companies and independent retailers, as well as to the US government. Sales to other customers are usually on an occasional basis and at a fuel product price set by Delek Refining ex-works. In 2009 and 2010, sales to Delek Refining's largest customer (ExxonMobil) accounted for 13.9% and 11.9% of Delek Refining's net sales, respectively. The ten largest customers accounted for 62.2% and 63.8% of Delek Refining's sales in 2009 and 2010, respectively. C. Delek Marketing Delek Marketing sells its products to 100 customers, primarily in West Texas, among them large oil companies such as Exxon Mobil, independent refineries such as Murphy Oil, petroleum agents, companies in the service and transportation sectors and others. In 2009 and 2010, sales to Delek Refining's largest customer (Susser) accounted for 16.3% and 15.6% of Delek Refining's net sales, respectively. The ten largest customers accounted for 59.5% and 57.6% of Delek Marketing's sales in 2009 and 2010, respectively. D. MAPCO MAPCO’s principal customer group (approximately 95%) is a group of private consumers who purchase fuel products or retail products at the gas stations and convenience stores. In addition, MAPCO markets fuel products to 57 stores operated by third parties. 1.7.5 Marketing and distribution A. Delek Refining Most of Delek Refining’s sales are done directly from the Refinery, through the Refinery's supply terminal which has nine lanes, enabling the addition of a wide variety of petroleum additives, including special additives which are sold to the main oil companies that purchase fuel from the Refinery and E-10 products. The Refinery sells coke primarily through railway cars or tankers. The Refinery is connected to a pipeline for the sale of propane. Delek Refining distributes its other products through an oil pipeline (owned by a third party). B. Delek Marketing Delek Marketing sells fuel products through three terminals it owns in West Texas (Abilene, Tyler and San Angelo). The Abilene and San Angelo terminals are connected to each other as well as to a nearby air force base and to a system of pipelines owned by Magellan through 7

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different pipelines owned by Delek Marketing. In addition, Delek Marketing sells products through four terminals owned by a third party. Delek Marketing is dependent on the flow infrastructure of Magellan in Texas, since all its products are marketed directly and indirectly (by swap transactions in volumes that are not material) via this pipeline system. Delek Marketing also holds a 65-mile long storage and transport system for oil in East Texas, which is responsible for moving crude oil to the Refinery in Tyler, and its pumping stations and terminals are operated by Delek Marketing. C. MAPCO Marketing in gas stations- MAPCO promotes its products and services in a number of ways: regional campaigns and special offers at specific gas stations, and the use of sales promotions. MAPCO also advertises in the media. Agreements for the purchase of branded fuels - In about 45% of MAPCO-operated gas stations, MAPCO is bound by exclusive agreements with the fuel companies – Marathon, Exxon Mobil, Conoco, Shell and BP for the purchase of fuel products and the use of their brand names. These agreements are for periods of one to 15 years and are at various stages of their lives. On the basis of these agreements, MAPCO can benefit from the marketing efforts and brand strength of the above companies. The agreements to purchase branded fuels were signed as part of the agreements for the purchase of the gas stations. Since the stations can be converted to operate under the MAPCO name, termination of the agreements is not expected to materially influence its operations. MAPCO does not believe it is dependent on any particular supplier. Brands of convenience store products - MAPCO operates the gas stations and convenience stores under various brands, as described in Section 1.7.10. Between 2007-2010, MAPCO reopened, upgraded and improved over 100 stores in different states, including 75 stores under the MAPCO Mart® brand. As of December 31, 2010, Mapco operated 58 fast food restaurants, including 36 under branded chains, including Quiznos®, Subway®, Krispy Krunch Chicken®, and Blimpie®. MAPCO plans on increasing fast food sales in 2011. 1.7.6 Competition A. Refining and marketing activity The fuel refining and marketing segment is highly competitive, and includes national and international fuel companies operating in various oil-related businesses, including oil exploration, production, refining and marketing of fuel products and the operation of convenience stores. Delek Refining’s main competitors include the refineries in the Texas, USA, operators of fuel supply terminals in East Texas, and Calumet Lubricants in Shreveport, Louisiana. Delek Marketing's competitors are mainly owners of other independent terminals and other fuel companies operating in its segment of operation in West Texas. The competition is expressed mainly in location, price and the range of products and services sold. The costs of transporting the products from the fuel terminals to the end-user limit the geographic size of the market of fuel purchasers for whom it is economical to purchase from Delek Marketing's fuel terminals. The two main markets of Delek Marketing are in West Texas, in the Abilene and San Angelo areas. In the Abilene area, there is direct competition from another refinery that markets fuel products through another fuel terminal. In the San Angelo area there is no competition for the fuel terminal of Delek Refining, with the nearest competitor being 90 miles from the terminal. The competition between Delek Refining and Delek Marketing and their competitors is affected by the price paid for raw materials, production margins, refinery efficiency, and the mix of products produced by the refinery, as well as transportation and distribution costs. Some of Delek Refining’s competitors operate larger and more complex refineries in various geographic regions and their production costs per barrel can be lower. Furthermore, some of Delek Refining and Delek Marketing's competitors are large, international corporations, and some are also engaged in oil exploration and production, allowing them to refine crude oil they own and leverage the advantages inherent in economies of scale. Delek Refining and Delek Marketing also compete with other energy industries (wind, sun and water) that provide alternative energies to fuel. Delek Refining and Delek Marketing combined have a negligible share in the sale of fuels in Texas. Delek Refining copes with competition in its segment of

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operation through location (geographical proximity to some of the fuel purchasers that facilitates a reduction in the cost of shipping and competitive prices), selection of product mix in response to demand, and streamlining of the Refinery. Delek Marketing copes with competition in its segment of operation through location (geographical proximity to some of the fuel purchasers), cost-cutting and selection of product mix to suit demand. As stated above, the crude oil and refined fuel product markets are commodities markets, i.e. markets where there is standardization and constant trading, and consequently the main factors influencing the competitiveness of the Refinery and of the fuel terminals include: 1. The location and accessibility of the Refinery (relative distance from the Refinery or other terminals) for local customers give it an advantage vis-à-vis customers located in its area of operation. 2. The location and accessibility of fuel terminals for local customers. 3. The output of the Refinery. 4. Constant monitoring and improvement of product quality so that they comply with the standards, norms and specifications required by law and by customer demand. 5. Selection of the optimal mix of types of crude oil and identifying sources of supply. B. MAPCO activity To the best of MAPCO’s knowledge, it is one of the five companies with the largest number of gas stations in the areas of its operation in Nashville, Chattanooga and Memphis (Tennessee) and in northern Alabama. The two other large companies in Nashville are Daily’s, Exxon and Kroger. The two other large companies in Memphis are Couche Tard and Exxon Tigermarkets. The other two large companies in northern Alabama are Murphy Oil and Pantry. The other large company in eastern Tennessee and northern Georgia is Pantry. MAPCO has many competitors, primarily the large fuel companies, other convenience store chains, drug stores, fast-food chains and large supermarket chains such as Wal-Mart whose market share is large compared to MAPCO, and which also market fuel products and oils. MAPCO's convenience stores operate under several brands, and MAPCO plans to continue branding some of its stores in the coming under the MAPCO Mart brand in the coming years. MAPCO markets its products to customers who happen to visit the gas stations. MAPCO also operates a fuel credit card service through a subsidiary, but this is insignificant in scope. MAPCO does not have accurate data regarding its market share and that of its competitors. Competition in gas stations and convenience stores is mainly local, from rival gas stations, convenience stores and businesses in the region. This competition is expressed mainly by competition for location, ease of access, price, range of products and services offered, customer service, branded fuels, store appearance, cleanliness, safety and regular supply. Below is a description of the main ways MAPCO copes with the competition and factors affecting its competitive status: Expanding its deployment of gas stations and convenience stores in its areas of operation, as well as in adjacent areas. The high concentration of MAPCO gas stations in its areas of operation allows it to be an influential player in the local market and to operate with a relatively small and efficient staff. 1. Expanding its range of products and product quality, in accordance with identified market trends. MAPCO also offers ready-to-eat food products at its convenience stores under brands such as Subway, Quiznos, GrilleMarx (its own brand), and at present 58 stores offer this service. 2. Investing in improving its information technology, including investments in computerization and management software. The use of information systems to manage the supply, inventory and security systems is designed to achieve efficient management, including proper pricing of products on a daily basis, taking into account the data of each station, identifying demand and keeping appropriate levels of inventory. 3. Most of MAPCO’s gas stations are located in relatively central locations in its areas of operation, which increases ease of access to them.

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1.7.7 Seasonality The demand for gasoline products is generally higher in the summer than in the winter, due to the seasonal upswing in vehicle traffic in the summer, although the demand for all types of diesel products is higher in the winter. In addition, historically, the refining margin in the first and fourth quarters of the year is usually lower than in the second and third quarters. Consequently, the operating results of Delek USA are usually lower in the first and fourth quarters. Below is a table showing the average 5:3:2 Spread in the Gulf of Mexico region, in USD, by quarter:

Second First quarter quarter Third quarter Fourth quarter 2010 6.62 9.54 7.45 8.09 2009 9.14 7.78 6.38 4.50

1.7.8 Production capacity A. The Refinery’s maximum production capacity when operating is approximately 60,000 barrels per day, depending on the raw material processed and its sulfur content. In 2010, Delek Refining refined about 19.8 million barrels of oil and other raw materials, averaging approximately 54,286 barrels a day over 365 days. In 2009, Delek Refining refined about 12.3 million barrels of oil and other raw materials, averaging approximately 53,802 barrels a day over 228 days. Below is a table listing the products produced by the Refinery in 2009 – 2010 (in millions of barrels) and the average daily output of barrels in each year:*

2009 2010 Quantity* Daily Output** Quantity* Daily Output** Gasoline 6.5 28,707 11 30,019 Types of diesel 4.4 19,206 7.2 19,669 Other 1 4,414 1.3 3,635 Total 11.9 52,327 19.5 53,323

* The quantity produced is an average of about 2.8% and 1.8% lower than the quantity refined in 2009 and 2010, respectively. ** The information is calculated according to 228 and 365 days during which the Refinery was operational in 2009 and 2010, respectively. B. In 2009 and 2010, Delek Marketing sold some 4.9 million and 5.2 million barrels of oil distillates, respectively, which is an average of 13,378 barrels a day and 14,354 barrels a day, respectively, according to the following breakdown:

2009 2010 Quantity Daily output Quantity Daily output Gasoline 2.5 6,777 2.3 6,419 Types of diesel 2.4 6,552 2.9 7,888 Others - 49 - 47 Total 4.9 13,378 5.2 14,354

It should be clarified that Delek Marketing does not sell fuels produced by Delek Refining, except in cases when it can market the fuels at terminals at which it does not regularly operate. C. Investments - The investments in the refining segment can be divided into three main types: discretionary projects, maintenance and turnaround work, as outlined in Section 1.7.9 below, and regulatory investments (mainly for environmental protection), as set out in Section 1.7.18 below. The investments in MAPCO activity are divided into investments in maintenance and various improvements (rebranding, expansion, etc.), which to date have been in amounts that were immaterial. However, the Company wants to increase total investments in the coming years (see below). The following is a list of the investments (in USD millions) in 2009 - 2010

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and forecast for 2011 (including refurbishment of the units damaged in the explosion at the Refinery):

Capital expenditures 2009 2010 Forecast for 2011 Delek Refining 155.1 42.3 25.1 Delek Marketing 0.5 0 0 MAPCO 14.3 14.4 49.2 Other 0 0.1 0 Total 170 56.8 74.3

The explosion at the Refinery in the last quarter of 2008 caused a shutdown, which continued through May 18, 2009. While the Refinery was closed, several projects were brought forward, in which various areas of the refining facility were upgraded, and which are expected to increase the Refinery’s capability to process sourer and less expensive oil. These projects are expected to reduce the cost of oil processed by Delek USA. Some of these projects were completed in the first half of 2009 and the remaining projects are expected to be completed by the first quarter of 2014. For details of anticipated environmental investments, see section 1.7.18F below. The investments in convenience store activity reached USD 14.4 million in 2010 and are planned to reach USD 49.2 million in 2010. Of the planned investments, USD 5.9 million is for maintenance, USD 11.8 million in respect of increasing and/or improving profitability of the stores, USD 15.1 million in respect of branding and USD 16.4 million in respect of construction or purchase of property. This information regarding the costs of the expected investment is forward-looking information, based on the Company's plans for the coming year, and it may change should there be changes in the investment plan, regulatory delays in receipt of the required permits and approvals and the like. 1.7.9 Property, plant and equipment, and facilities A. Delek Refining property The facilities of Delek Refining in Tyler, Texas are located on land owned by Delek Refining on a contiguous area of 2.428 sq km, of which 405 sq km are built up. Delek Refining’s facilities include refinery units, fractionalization processors, additional production units (coker), a sulfur treatment plant, infrastructure facilities (buildings, storage tanks, pipes, etc.) and service facilities (including tanker trucks). Delek Refining also owns four terminals for crude oil intake and pumping stations. Delek Refining performs regular maintenance work on the Refinery on an average of once every three or five years and in two stages. The division into two stages was designed to enable the Refinery to operate on a partial basis and avoid shutting down for over a month. In 2009, Delek Refining completed multi-year maintenance work, turnaround, at a total cost of USD 52.5 million. Turnaround costs in 2010 were USD 6 million. Each stage requires about three weeks, during which the refinery works at reduced capacity. Below is a breakdown of Delek Refining’s investments in ongoing maintenance (including work in accordance with a multi-annual turnaround2009 plan which includes a regular investment in the refinery’s facilities and equipment) in 2009, 2010 and a forecast for 2011 (in USD millions):

2009 2010 2011 52.5 6 6.4

On November 20, 2008, an explosion rocked the refinery in Tyler, resulting in a fire. Two employees were killed and others injured. The causes of the incident are being investigated concurrently by several organizations, including an internal investigation by Delek USA, the Occupational Safety and Health Administration (OSHA), and the Chemical Safety Board (CSB) and the US Environmental Protection Agency (EPA). In May 2009, OSHA completed its investigation and issued an announcement recommending that Delek USA be fined USD 0.2 million. Delek USA is appealing this and does not believe that the result will have a material impact on its business. Additionally, several private parties claim who claim they were

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adversely affected by the explosion at the Refinery in 2008 have initiated legal proceedings against Delek USA. Although Delek USA cannot with certainty predict the final result of legal action, investigations and other claims against it, including possible fines or other enforcement actions, it does not expect the current proceedings to have a negative impact on its business standing. Said estimate is forward-looking information, based inter alia on Delek USA's estimates and assumptions regarding the enforcement of the relevant agencies, amount of damage caused to employees and third parties, and the labor laws that mandate compensation to employees by the state. Said information may not materialize, if the enforcement agencies, employees or third parties that incurred damage act differently and initiate new legal action, or the results of the existing legal proceedings are different than said assessment. Operations at the Refinery resumed in May 2009, as normal. The Refinery had and also has, as of the date of the report, insurance of USD one billion covering property damage and loss of profit, which covered most of the costs for reconstruction of the damaged units and to indemnify Delek USA against loss of profit. Insurance coverage did not include Delek Refining’s deductible (with respect to property damage) of USD 5 million and loss of profit in respect of the 45 days after the insurance event. As of December 31, 2010, Delek USA had recognized revenues from insurance payments of USD 141.4 million over the past three years. After receipt of the payments in the second quarter of 2010, no further payments are expected.

Total income from insurance payments (in USD millions) Total 2008 2009 2010 Total Property damage - 51.9 4.2 56.1 Loss of profits 8.4 64.1 12.8 85.3 Total 8.4 116 17 141.1

B. Delek Marketing property In 2006, Delek USA acquired a number of assets for the marketing chain and the Refinery from companies in the Pride-L.P Group and its affiliated companies in Abilene, Texas. The assets acquired include two terminals for marketing fuel products located in Abilene and San Angelo, Texas, seven 114-mile pipelines for transporting fuel products, and storage tanks for fuel products with a total capacity of approximately one million barrels. Also included are various refining facilities located near the Abilene terminal, such as an atmospheric facility and a vacuum facility for the refining of crude oil and additional equipment. In addition, Delek Refining has a 10-year option from 2006 to acquire the land on which the Abilene refining facilities are located, for a consideration which is not material. In 2009 Delek Marketing purchased a 65-mile oil pipeline along with oil storage facilities near the Refinery from Delek Refining for USD 29.7 million. C. MAPCO property 1. As of December 31, 2010, MAPCO owned 235 gas stations and convenience stores, and it leased/rented another 177 assets, most through long-term contractions of up to 25 years with an extension option. The company operates 412 gas stations and convenience stores itself, and it leases approximately 14 gas stations and convenience stores to third parties.

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The following table shows the ownership rights of MAPCO in the gas stations as of December 31, 2010:

Number of Number of stations stations Number of with leases with leases Number of stations Number of with less with more MAPCO operated by Number of leased or than -3 than 3 operated third stations rented years to years to State stations parties* owned stations run** run** Tennessee 221 16 126 100 61 39 Alabama 88 37 59 35 16 19 Virginia 9 -- 1 8 3 5 Arkansas 11 -- 8 3 2 1 Kentucky 3 -- 1 2 1 1 Louisiana 1 -- 2 -- -- 1 Mississippi 2 -- -- 1 -- -- Georgia 77 4 44 36 27 9 Total 412 57 241 185 110 75

* Including 43 stations that are not owned or leased by MAPCO. ** Including options to extend the lease/rental term, as of December 31, 2010. Most of the lease agreements stipulate that MAPCO will pay property taxes, insurance and station operating costs. For those lease/rental agreements that will end within three years, MAPCO estimates that it can negotiate to extend the agreements for their operation under acceptable terms, should it wish to do so. There are two types of lease agreements, and in most of them MAPCO is responsible for construction of the station and installation of the filling equipment, which it owns. Under these agreements, MAPCO rents the land and is liable for environmental claims connected with its activities. In some of this type of rental agreement MAPCO is responsible for removing underground filling equipment at the end of the rental term. In other cases, MAPCO rents the land as well as the filling equipment and existing structures. In these agreements MAPCO also bears liability for environmental claims connected with its activities. From an operational standpoint, in the case of an external operator of a station in which MAPCO has the proprietary right (ownership or leasing/rental), either the external operator pays rent or they share the margin created from the fuel sales. In the case of an external operator of a MAPCO station in which it has no proprietary right, MAPCO supplies these operators with fuel products only. Revenues from the stations operated by third parties amounted to close to 4.7% of MAPCO sales. MAPCO owns a fleet of trucks and tankers that transport approximately half of the fuels sold at its stations. In 2007 MAPCO began rebranding some of its convenience stores under the MAPCO Mart brand and continued this in 2009-2010, when it refurbished 22 and 13 stores, respectively. To date, a total of 129 stores have been refurbished and 25 more are expected to be refurbished in 2011. MAPCO believes that this step, alongside the refurbishment and redesign of its stores, will lead to an expansion of its customer base. For additional information regarding the expected costs of investment in 2011, see Section 1.7.8C above. 1.7.10 Intangible assets Delek USA has registered or submitted applications to the US Patent and Trademark Office to register various trademarks, trade names and service marks for use in retail fuel and convenience stores. Delek USA owns the following trademarks registered with the US Patent and Trademark Office: MAPCO®, MAPCO MART®,MAPCO EXPRESS & Design®, EAST COAST®, GRILLE MARX® CAFÉ EXPRESS FINEST COFFEE IN TOWN MAPCO & Design®, GUARANTEED RIGHT! MAPCO EXPRESS & Design®, FAST FOOD AND FUELTM, FLEET ADVANTAGE® DELTA EXPRESS®. Although MAPCO has not registered or applied to register the mark DISCOUNT FOOD MARTTM with the US Patent and Trademark Office, MAPCO believes that the use of this

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mark enjoys the specific legal protection afforded to marks which are not registered. The rights to use the brand name MAPCO are restricted to the fuel products and convenience store activity. Delek USA believes that the use of the MAPCO brand is an important component in the success of its MAPCO activity, and it intends to expand the use of the aforementioned brand. 1.7.11 Human Resources A. The following table outlines the employee headcount of Delek USA in 2009 and 2010:

USD Dec. 31, 2009 Dec. 31, 2010 Delek USA - HQ 62 61 Management 6 5 Manufacturing 126 124

Maintenance 39 37 Finance and fuel purchasing 8 8

Support 23 20

Environmental protection 11 9

Marketing and distribution 43 44 Engineering 9 7 Total Delek Refining 265 254 Oil pipeline 9 8 Total Delek Marketing 7 14 Total MAPCO 3,235 3,058 Company headquarters 123 124 Regional headquarters 92 78 Fuel distribution 39 45 Stores and gas stations 2,981 2,811 Total 3,578 3,395

1. Investments in training – Delek Refining and Delek Marketing conduct safety training for all employees. Employees participate in seminars and professional training. Delek Refining and Marketing invest resources in the professional training of operation and maintenance personnel in their areas of occupation, while safety training is provided to all employees pursuant to relevant laws. 2. With the exception of several executives, employees of Delek Refining and Delek Marketing do not have personal employment contracts. As of December 31, 2010, approximately 190 of Delek Refining employees are members of a union and are governed by a collective bargaining agreement that is valid through January 31, 2012. 3. Most MAPCO employees are offered the opportunity to participate in a number of plans that include social benefits, medical insurance and life assurance, which includes insurance for work disability. B. Executive Officers 1. About ten executive officers are employed under personal agreements and in addition to salary are entitled to various benefits such as grants, reimbursement of expenses, options in accordance with the compensation plan set out below, etc. 2. In accordance with the long-term incentive policy of 2006 (“Compensation Plan”), as amended, Delek USA may grant its employees, consultants, officers and others various types of options, including restricted stock units or share-based rights of up to 5,053,092 options (jointly, "the Options”). In 2009, employees and officers were offered the option to replace the Options with new options for the purchase of fewer shares at a lower exercise price. Following the

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replacement, most of the options vest over a period of 4 years. The condition for exercise of the Options is the continuous provision of services to Delek USA through exercise. As aforementioned, Options were allotted under the Compensation Plan for Delek Refining employees (except for temporary workers and unionized employees), MAPCO managers (up to the regional manager level), officers and directors of Delek USA. Payroll expenses related to the stock options plan (as included in the financial statements of Delek USA) as of December 31, 2009 and 2010 amounted to USD 4.1 million and USD 3.1 million. In the years ended December 31, 2009 and December 31, 2010, no Options were exercised. 3. On February 21, 2010. Mr. Uzi Yemin, President and CEO of Delek USA, exercised the last 1,319,493 Options held by the Company, granted to him in the employment agreement dated May 1, 2004. As a result, Mr. Yemin was issued 638,909 shares, and 680,584 remained in respect of cashless exercise). As of December 31, 2010, Mr. Yemin held 6,444,009 shares of Delek USA and stock appreciation rights with respect to 1,850,040 shares of Delek USA. As of December 31, 2010, the options (included those that had not yet vested) constituted 4.58% of Delek USA shares. In September 2009, Delek USA entered into a new employment contract with Mr. Yemin for a period through October 31, 2014. For information about the terms of Mr. Yemin’s employment, see Standard 21 in part 4 of the periodic report. 1.7.12 Raw materials and suppliers A. Delek Refining The main raw material used by Delek Refining in its segment of operation is crude oil. The market for crude oil and products is a commodities market, which is sophisticated and has a high level of negotiability in both the physical arena and in futures trading, executed on stock exchanges or with large international entities. Delek Refining purchases its crude oil from various suppliers in the US. Below is a chart showing the breakdown of crude oil purchased by Delek Refining in 2009 and 2010:

% of crude oil purchased out of total crude oil purchased Source 2009 2010 Crude oil from East Texas 27.3% 25.8% Crude oil from West Texas 72.7% 71.7% Other - 2.5% Total 100% 100%

Over 90% of the oil processed by Delek Refining originates in Texas, with about 25% from East Texas in close proximity to the Refinery and the rest from West Texas. The location of sources of oil and the availability of the oil enable Delek Refining to benefit from low transportation costs. Delek Refining usually enters into agreements with 10 – 15 suppliers, although there is nothing to prevent it from entering into agreements with additional suppliers. In 2009 and 2010, the largest supplier supplied Delek Refining with some 11,000 and 13,000 barrels a day, respectively (accounting for about 23% and 25% of its crude oil purchases in 2009 and 2010, respectively), and its agreements with that supplier are on a monthly basis or agreements that are automatically renewed each month. The balance of its crude oil purchases from suppliers is performed a spot basis, and not on the basis of long-term transactions. Delek Refining is not dependent on one specific supplier since it has access to the crude oil markets in West Texas and in the Gulf of Mexico region. Delek Refining purchases oil in East and West Texas based on the economic profitability of processing the different kinds of oil. B. Delek Marketing In 2010, Delek Marketing purchased fuel products from two suppliers under two, different long-term agreements. The first agreement was with Northville Product Services L.P., which in July 2010 was transferred to Noble Petro, and pursuant to which Delek Marketing may purchase up to 20,350 barrels a day for the supply of fuels to the terminals in Abilene and San Angelo, at a price that is a function of the price in the US Gulf Coast and the price in the Abilene region. This agreement is valid through December 31, 2017. The second agreement is

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with Magellan, and enables Delek Marketing to purchase up to 7,000 additional barrels of fuel products a day, to be supplied to terminals in Aldo, Odessa and Dallas, Texas, and is valid through December 14, 2015. The second agreement also stipulates Delek Marketing's right to use the pipeline infrastructure for transporting Magellan fuels at a tariff set in the agreement, which is a function of the price of the basic product in the Gulf of Mexico region. Delek USA is dependent on Magellan which owns, as aforementioned, the pipeline infrastructure and terminals used by Delek Marketing for its operations. C. MAPCO 1. Suppliers of fuel and oil products - MAPCO purchases fuel products from suppliers in its areas of operation. The main fuel supplier in 2009 was Valero Marketing and Supply, and in 2010, it was Motiva (under an agreement that will expire in the second quarter of 2011), from which MAPCO purchased 21% and 20.4% of fuel consumption, respectively. Additionally, MAPCO purchases additional fuel products from other suppliers, including ExxonMobil, Conoco, Shell and BP and other independent suppliers. 2. Suppliers of retail products - In 2010, MAPCO purchased about 59.4% of the retail products it sells from Core-Mark International, Inc. ("Core-Mark"). MAPCO’s agreement with Core-Mark is valid through December 31, 2013. In addition, MAPCO purchases retail products from Coca Cola, Pepsi Cola, Frito Lay and others. For details, see Section 1.7.20B below. 1.7.13 Working Capital A. Inventory maintenance policy for crude oil and finished products 1. Delek Refining and Marketing It is the policy of Delek Refining to maintain an inventory of crude oil (the raw material) and fuel products (the finished product) at a level that ensures continuous supply of fuel products and fulfillment of its obligations to customers. The following are the main factors influencing the size of the inventory: − Need for a minimal inventory required to fill the lower part of the tanks and pipelines. − Need to maintain a large number of types of crude oil for the refining of various mixtures. − Condition of the crude oil market and the oil products market and Delek Refining's estimate regarding the level of expected demand for its products and its production capability. Delek Refining and Marketing hold in the Refinery, various terminals and third-party facilities, inventories of crude oil, fuel mixtures and distillates whose value changes according to the state of the global economy, the level of inventory on the local and global markets, and seasonal conditions. The following is a breakdown of the total inventories in the refining and marketing operations, including the average price at the end of 2009 and 2010: December 31, 2009 December 31, 2010 Quantity Av. price Total Quantity Av. price Total (in bbl M) per bbl ($) value ($M) (in bbl M) per bbl ($) value ($M) Delek Refining1 1.1 64.3 70.8 1.2 66.6 81 2 Delek Marketing 0.044 88.6 3.9 0.082 101.2 8.3 Total 1.144 65.2 74.7 1.282 68.9 89.3

2. MAPCO Average inventory days for MAPCO are generally five days for fuel products and 27 days for retail products. The value of the inventory as of December 31, 2009 and December 31, 2010 was USD 41.7 million and USD 48.6 million, respectively.

1 Delek Refining’s inventory contains both crude oil and fuel products for sale. 2 Delek Marketing’s inventory contains only fuel products for sale.

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B. Credit Policy 1. Customer credit: Delek Refining and Delek Marketing grant their customers between 3 – 15 days' credit (10 days on average). The average amount of credit to customers as of December 31, 2009 and December 31, 2010 was approximately USD 59 million and USD 86 million, respectively. MAPCO policy is not to extend credit to private customers. In certain cases, MAPCO has extended credit to its customers (mainly in out-of-station activity and car fleets), for insignificant amounts. The average term of credit to customers in 2009 - 2010 was 4 days. 2. Supplier credit: A) Delek Refining – receives a total of 35 days of supplier credit (EOM + 20) for the purchase of crude oil, usually accompanied by a bank letter of credit. As of December 31, 2009 and December 31, 2010 supplier credit was USD 104 million and USD 139 million, respectively. In 2009 and 2010, supplier credit for Delek Refining averaged 32 and 35 days, respectively. B) Delek Marketing - receives an average of 10-12 days' supplier credit for purchases of petroleum distillates. As of December 31, 2009 and December 31, 2010 supplier credit was USD 10.9 million and USD 16.3 million, respectively. In 2009 and 2010, supplier credit for Delek Marketing averaged 12 days. C) MAPCO - MAPCO receives credit from suppliers for periods of up to 30 days. In 2009 – 2010 the credit period from suppliers averaged between 13 to 20 days; however, there are some suppliers from which MAPCO receives no credit whatsoever. The credit MAPCO receives from its suppliers is more or less sufficient to finance inventory balances and customer credit. 1.7.14 Investments A. As aforementioned in Section 1.7.1 above, in 2007 Delek USA completed a transaction with a number of shareholders of Lion Oil for the acquisition of their minority interest in said company, whereby Delek USA acquired 34.6% of Lion Oil shares through a total investment of approximately USD 88.2 million in cash. The main shareholder holds 53.6% of Lion Oil. In addition, as part of the consideration, Delek USA issued 1,916,667 of its ordinary shares, with a value of USD 51.2 million. Upon the acquisition, the investment in Lion Oil was recognized according to the equity method. However, as of October 2008, Delek USA began presenting the investment in Lion Oil as an available-for-sale financial asset, in which the Company does not record equity profit/loss in respect of its investment in Lion Oil, but presents its investment according to its fair value on the reporting date. On each date, the indications of impairment of the fair value are examined. In the fourth quarter of 2010, in light of Delek USA’s bid to acquire control in Lion Oil, Delek USA recorded USD 60 million in impairment in respect of its investment in Lion Oil. The investment in Lion Oil as of December 31, 2009 and 2010 was USD 131.6 million and USD 71.6 million, respectively. A privately held company incorporated in the state of Arkansas, Lion Oil operates an 80,000- barrel-per-day oil refinery in El Dorado, Arkansas. It also owns three crude oil pipelines, systems for the collection of crude oil and two terminals for the marketing of fuels in Nashville and Memphis, Tennessee, through which Lion Oil supplies petroleum to third parties, including to some of the 180 convenience stores Delek USA operates in these areas. MAPCO's purchases of products from Lion Oil and sale of intermediate products from Delek Refining's Refinery to Lion Oil are not in material amounts. B. Lion Oil's refinery is located close to the TEPCO pipeline that transports light products. The pipeline passes through El Dorado, Arkansas and provides local access to products produced in the US Gulf Coast region. As a result, most of the products produced by the Lion Oil refinery are transported to other geographic markets. Asphalt and fuel oil are marketed in southern Arkansas, northern Louisiana and East Texas. The light products, such as gasoline products and low sulfur diesel, are marketed in central Arkansas, western Tennessee, and southern Missouri. A significant rise or fluctuations in crude oil prices might have a detrimental effect on profitability, particularly with respect to products such as asphalt, propane and other products produced by Lion Oil, as their prices are not correlated with the fluctuations in crude oil prices. C. Lion Oil’s refinery can produce a range of gasoline products, distillates, propane, solvents, high sulfur diesel, low sulfur diesel, asphalt products and protective coatings, and liquefied petroleum gas. The distillation capacity of the Lion Oil refinery is slightly higher than that of

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Delek USA's Tyler refinery, and it differs from Delek USA's refinery in two main aspects: First, the Lion Oil refinery is designed to process medium sour crude oil, as opposed to the Delek USA refinery, which is designed to process mainly, light, non-sour crude oil. Second, the Lion Oil refinery can produce asphalt and fuel oil, whereas the Delek USA refinery produces only minimal quantities of fuel oil. D. As set out in Section 1.7.1 A above, on March 17, 2010, Delek USA entered into an agreement to purchase another 53.7% of Lion Oil's shares. Completion of the purchase is subject to the performance of conditions precedent and is expected in the second quarter of 2011. Delek USA believes that the planned purchase is a strategic move that will increase Delek USA's refining capacity to more than double its existing refining capacity and it has the potential for synergy with Delek USA's existing activity. For more information about the purchase agreement, Lion Oil's activity, consideration for the purchase, manner of payment of the consideration, financing of the purchase, Lion Oil's main financial data, the conditions precedent for the transaction and predicted completion, see the Immediate Report dated March 21, 2010 (Ref. No. 2010-01-085755), the details of which are provided here by way of reference. 1.7.15 Financing Delek USA finances its operations through bank credit, non-bank credit and independent resources. A. Credit facilities 1. Delek Refining - In February 2010, a new credit facility (which cancelled the previous credit agreement with SunTrust for USD 300 million) of USD 300 million (and under specific conditions up to USD 600 million) entered into effect, with a consortium of lenders headed by Wells Fargo Capital Finance (“New Credit Facility”). The New Credit Facility is valid through February 23, 2014, and its main purpose is to support the refinery’s working capital needs. The New Credit Facility bears interest according to fixed, predefined brackets and allows Delek Refining to choose between base interest and LIBOR-based interest plus a margin, with the initial margin set at LIBOR+4% or Prime+2.5%. The ability to borrow against the New Credit Facility is determined according to a calculation included in the credit agreement. The average interest rate as of December 31, 2010 was 5.25%. As of December 31, 2010, the company had used USD 120 million, for the issue of letters of credit for the purchase of crude oil. 2. Delek Marketing - Delek Marketing has a credit facility raised in December 2006 through an American bank (Fifth Third) and secured by assets, which it uses for current operations and for purchases of fuel products. The terms have been amended several times since. The credit facility is currently for up to USD 75 million (of which up to USD 35 million for letters of credit), valid through December 19, 2012. The credit facility bears interest according to predetermined interest brackets and allows Delek Marketing to choose between LIBOR-based interest and interest based on the prime interest rate. The current interest in 2010 had a weighted average of 3.5%. As of December 31, 2010, Delek Marketing had used USD 29 million (of the credit facility) and in addition issued letters of credit for a total of USD 12.5 million. 3. MAPCO - MAPCO had a credit facility of USD 108 million from a consortium headed by a US bank (Fifth Third) and a long-term loan received in 2005, and immediately prior to the financing transaction in December 2010 was USD 55.2 million. In December 2010, the credit agreement was amended and extended through December 23, 2015, such that said loan was repaid, and the credit facility was increased to USD 200 million and, under specific conditions, up to USD 275 million. The facilities bear interest according to predefined brackets, which enable MAPCO to chose between base interest and LIBOR- based interest + interest of 2.25% - 4%, as stipulated in the agreement. The average interest rate as of December 31, 2010 was 6.25%. As of December 31, 2010, MAPCO had used USD 122.1 million of the aforementioned facility (including letters of credit amounting to USD 24 million). 4. Delek USA - As of December 31, 2010, Delek USA has a credit facility it uses for its ongoing operations, which was raised through a US bank (Reliant Bank) for up to USD 12 million, and valid through March 28, 2011. This facility bears interest of LIBOR + 3.25%.

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B. Loans Bank loans Delek Finance received two loans from an Israeli bank (Israel Discount Bank of New York), the terms of which were amended in 2010 and at this time are as follows: 1. A loan of USD 30 million, to be repaid on December 31, 2013, with interest of LIBOR + 4.5% or minimum interest of 5%. 2. A loan of USD 20 million, to be repaid on December 31, 2013, with interest of LIBOR + 4.5% or minimum interest of 5%. As of December 31, 2010, the balance of the loans was USD 50 million. Under the terms of the loans, payments on the principal of USD 2 million will be made quarterly, as of the end of the fourth quarter of 2011, and the balance of the consideration at the end of the term. 3. Delek USA was extended a loan in November 2010 by an Israeli bank (Bank Leumi USA) of USD 50 million, following which the previous loans for the same total amount were cancelled. Under the terms of the loan, USD 2 million of the principal will be paid each quarter as of the beginning of the second quarter of 2011, and the balance of the principal will be paid at the end of the loan term, on October 1, 2013. The loan bears interest at a rate that is higher than the fixed spread above LIBOR of three months or minimum interest of 5%. As of December 31, 2010, the debt balance was USD 50 million. The three aforementioned loans require compliance with financial covenants (see below), and a charge was placed on Delek USA’s shares in Lion Oil to secure the loans. 4. Loans from Delek Petroleum - In September 2010, the 2009 loan agreement with Delek Petroleum, the controlling shareholder in Delek USA, was amended and extended and is for USD 44 million (after USD 21 million was repaid in July 2010). Under the amended agreement, the date for repayment of the loan was extended through January 1, 2012. The loan will bear interest of 8.25% annually (after deduction of tax from source) to be paid quarterly. Delek USA will bear all taxes in respect of interest payments. In total, as of December 31, 2010, Delek USA had USD 49.1 million in cash, debts of USD 295.8 million, and an available credit facility (after partial use) of USD 168 million. C. Variable interest credit Following is a breakdown of the variable interest credit received by all entities of Delek USA, in accordance with current loan agreements as of December 31, 2010 (not including the aforementioned letters of credit):

Interest rate Average as of Loan as of Interest range Change interest rate December 31, December Jan. 1, 2010- Loan type mechanism in 2010 2010 31, 2010 ($M) Dec. 31, 2010 Delek Refining credit L+4% 5.3% 5.25% - 4.75% – facility - long term 5.75% Delek Marketing L+2.5% 3.79% 3.5% 29 3.5% – 4.25% credit facility - long term MAPCO credit facility L+4% (in the 6.02% (in a 6.25% (the 122.1 5.75% - 6.25% - long term current loan, previous current loan of (in a previous of December loan) December loan) 2010) 2010) Delek USA - credit L+ 2.5% 2.77% 2.77% 0 2.73% – facility short term 2.86% Delek USA - long L+ 4.5% 5% 5% 50 5% term loan 5% floor Delek Finance - 2 L+ 4.5% 5% 5% 50 5% long-term loans 5% floor

D. Securing additional sources of finance Delek USA estimates that its current cash flow, including loans and credit agreements, will be sufficient for the next 12 months. Additional financing might be required to perform

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acquisitions, expenses or general financing. However is not certain that Delek USA will be able to raise additional financing, or the terms under which it will be able to raise such. E. Credit restrictions From time to time, the financial ratios of Delek USA and its subsidiaries (Delek Refining, Delek Marketing, Delek Finance and MAPCO) are close to non-compliance with the financial covenants stipulated and this, inter alia, due to fluctuations of Delek USA/subsidiary, amount of funds withdrawn as dividends by Delek USA, extent of leveraging of Delek USA/subsidiary and the relevant market conditions. Non compliance with said financial covenants may lead to the significant amounts of credit Delek USA has to be called in for immediate repayment and may prevent the receipt of additional credit in accordance with the warranties of the lenders. Failure to comply with the financial covenants is therefore a risk factor for Delek USA. As of the report date, Delek USA is in compliance with all the financial covenants that apply to it and its subsidiaries, and there were no issues of non-compliance during the periods described in the report. 1. Delek Refining Following are details of the main financial covenants with which Delek Refining is required to comply to secure the New Credit Facility described in Section 1.7.15A.1: − Adjusted surplus of current assets less minimum of financial obligations ("Credit Margin") throughout the entire credit term. Delek USA provided a guarantee of up to USD 15 million to the consortium should Delek Refining fail to comply with the terms of the credit facility. − If the credit margin is less than the higher of USD 15 million or 10.5% of the adjusted value of the base assets used as security for the loan (cash, receivables and inventory in transit), the following covenants shall come into effect: (1) Delek Refining must comply with a ratio (EBITDA less capital investments) / (interest expenses + planned payment of loan principal + income tax payments) greater than the amount set in Delek Refining’s loan agreement; (2) There are various restrictions on the distribution of dividends and repayment of the loan to Delek USA. − The assets of the Refinery were charged to the consortium, however should Delek Refining borrow over USD 100 million in respect of this equipment, the charge will be removed, with the exception of USD 50 million. 2. Delek Marketing Following are details of the main financial covenants with which Delek Marketing undertakes to comply with respect to the credit facility described in Section 1.7.15A.2 above, short term, in the amount of approximately USD 75 million. − Equity value will exceed USD 30 million. − (EBITDA less current investments) / (interest expenses + planned payment of loan principal + income tax payments) will exceed 1.2. − The ratio of financial debt to the cash flow from current operations EBITDA will be lower than 3.5. 3. MAPCO In the credit facility and loans MAPCO received, as described in Sections 1.7.15A.3, MAPCO warranted to comply with financial covenants, the highlights of which are as follows: − (Total financial debt) to (EBITDA) will be lower than 3.60 from the first quarter of 2011 to the first quarter of 2012, 3.50 from the second quarter of 2012 to the third quarter of 2013, 3.40 from the fourth quarter of 2013 to the third quarter of 2014, 3.25 from the fourth quarter of 2014 to the first quarter of 2015 and 3.00 from the second quarter of 2015 onward. − (EBITDA less current investments) to (interest expenses + planned payment of loan principal + income tax payments) will exceed 1.25 from the first quarter of 2011 and thereafter.

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− (Total financial debt + 8 times rent) to (cash flow from current operations (EBITDA) plus rent) of MAPCO will be lower than 4.75 in the first quarter of 2011 to the third quarter of 2014 to the first quarter of 2015 and 4.25 as of the second quarter of 2015. − Additionally, there are certain restrictions on MAPCO’s dividend distribution, capital expenditures for growth and more. 4. Delek USA and Delek Finance Following are details of the main financial covenants with which Delek USA and Delek Finance have warranted to comply in connection with Delek USA's and Delek Finance's credit facility and loans. − Adjusted equity value will exceed USD 425 million. − The ratio of adjusted equity to assets will exceed 0.3. In addition to said financial covenants, the credit agreements include numerous non- financial stipulations and restrictions, as is standard for such agreements, including restrictions on transfer of funds, distribution of dividends, investments, sale of assets, transactions with related parties and the like. F. Changes in the prices of commodities (especially crude oil and fuels) and the interest rate are the main market risks faced by Delek USA. To protect against fluctuations in the prices of commodities, Delek USA, from time to time, enters into futures contracts. As at December 31, 2009 and 2010, the total of open contracts was not material. Additionally, Delek USA occasionally enters into interest rate swap contracts. As at December 31, 2009 and 2010, total use of said contracts was not material. Entry into financial instruments for the performance of hedging involves exposure to financial losses should there be unexpected fluctuations or deviations in prices, and exposure to credit risk of the parties with who the contract is closed. 1.7.16 Liens To guarantee the New Credit Facility, as described in Section 1.7.15A.1, Delek Refining placed a charge on all the inventories, receipts receivable from customers, accounts, rights under letters of credit, equipment and more in favor of a consortium headed by an American bank. Additionally, Delek Refining has a negative charge on the Refinery’s equipment. To guarantee the loans, as described in Section 1.7.15B, a charge was placed on Delek USA’s shares in Lion Oil. To secure the credit facility described in Section 1.7.15A.2, Delek Marketing placed a charge on all its assets in favor of an American bank. To secure the credit facility and loans as described in Section 1.7.15A.3, MAPCO charged all its fixed assets, including real estate, inventory, cash flow from customers and credit cards to a consortium headed by a US bank. 1.7.17 Taxation Delek Refining, Delek Marketing and MAPCO are wholly owned subsidiaries of Delek USA, and therefore their financial statements for tax purposes are consolidated with those of Delek USA both at the federal level and at the state level in the states in which Delek USA operates (State income tax and franchise tax). For details of the tax laws to which Delek USA is subject, see Notes 42 to the Group’s financial statements. Delek USA received a tax refund of USD 45 million in 2010. The Group holds Delek USA through a wholly-owned Hungarian company, and consequently the tax rates on capital gains, interest and dividends are affected by tax treaties between Israel and Hungary and between Hungary and the USA. The tax rate currently applicable to a dividend between the USA and Hungary is 5%, while the distribution of a dividend from Hungary to Israel is exempt from tax. 1.7.18 Environmental protection A. Delek USA is subject to the provisions of the environmental law, regulation, regulations and permits, determined by the authorized agencies in its area of activity at the federal, state and local levels, and specifically the Environmental Protection Agency ("EPA"), U.S. Department of Transportation, Pipeline and Hazardous Materials Safety Administration, Texas Commission on Environmental Quality ("TCEQ"), Texas Railroad Commission, and Tennessee Department of Environment and Conservation). Most of the environmental protection provisions applicable to Delek USA are related to the refining activity, and particularly issues of air quality, quality of waste, solid/toxic waste and prevention of ground pollution and pollution of ground water. Delek Marketing and MAPCO are also subject to environmental protection provisions,

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however given that they purchase finished fuel products, the degree of regulation applicable to them is significantly smaller. B. Delek Refining and Marketing 1. The provisions of the Federal Clean Air Act ("CAA") - an air quality control law – and state and local laws and regulations which govern the permitted level of emissions of certain substances which have a direct and indirect influence on refinery operations. CAA licensing requirements and/or control requirements relating to the permitted emissions levels of certain air pollutants can have a direct influence on refining operations. The CAA has an indirect influence on refining operations through comprehensive regulation of emissions of sulfur dioxide, nitric oxide and other compounds emitted by vehicles that use Delek Refining products. In addition, the unstable organic compounds emitted by the Refinery or products manufactured are heavily regulated, including compounds such as benzene are described below. The CAA imposes strict limitations on the emission of substances, which require a title V operating permit which enables the imposition of civil and criminal enforcement sanctions. The CAA also determines the final dates for implementation of the control standards and requirements based on the severity of air pollution in a specific geographic area. A) The EPA issued final regulations regarding changes to the formulation of benzene that will require an average annual reduction in benzene content by January 2011 and maximum reduction in permitted benzene content by July 2012. In October 2010, Delek USA installed a device to reduce the amount of benzene in fuels, and it plans to complete the second half of the project in 2012. Until the project is completed in 2012, Delek Refining is expected to purchase credits points (to comply with the regulations) from other refineries. B) Legislative initiatives and regulation (federal and state) to handle issues relating to climate change and greenhouse gas emissions ("GHG"), including carbon dioxide, methane and nitrogen oxides, are in various stages of discussion and implementation In June 2009, the US Congress approved the American Clean Energy and Security Act of 2009, which limits the emission of greenhouse gas and increases the costs of using carbon-based fuels. The US Senate began work on its own legislation in this regard. Additionally, at the beginning of 2010, the EPA mandated reporting on emission of greenhouse gasses and, at the beginning of 2011, started monitoring emissions of greenhouse gasses at the refineries through Prevention of Significant Deterioration programs and Federal Operating Permit - Title V. Although these rules do not limit GHG emissions and do not impact on the company's operations, the data reported may serve as the basis for future regulation. The EPA further plans to issue New Source Performance Standards for GHG emissions for refineries at the end of 2011 or beginning of 2012. Additionally, the EPA and Department of Transportation set final standards to increase Corporate Average Fuel Economy, which will impose federal restrictions on GHG emissions of cars and light trucks through 2016. They announced their plans to add additional requirements in the coming years. At this time it is not possible to anticipate the requirements of the legislation and regulation, but it can be assumed that they will lead to increased costs and negatively impact on the viability of purchasing the Refinery’s products. It is likely that as the number of electric cars and additional regulation on GHG emissions comes into effect, there will be a decline in demand for fuel products. 2. The Federal Clean Water Act 1972 ("CWA") influences refining operations by imposing restrictions on the discharge of liquid waste and rainwater into certain water reservoirs. Compliance with the stipulations of control, standards and regular reporting required by law is a precondition for the receipt or renewal of licenses which permit the discharge of liquid waste and rainwater into the water. The state of Texas has similar laws and regulations. The Refinery currently has the license required for the discharge of waste water in compliance with the National Pollution Discharge Elimination System Program. The waste water is to the local authority for treatment in accordance with said program. The Refinery also operates in accordance with internal programs for overseeing the efforts to comply with the aforementioned laws. In addition, at the federal level, the Refinery is governed by the Oil Pollution Act, which amended the Clean Water Act. The Oil Pollution Act stipulates, inter alia, that in respect of public water reservoirs, owners or operators of a facility or tanker must have a contingency plan to deal with spills or leaks of oil and/or oil products. Delek Refining has

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developed and implemented such a plan at each of its facilities to which the Oil Pollution Act applies. In addition, in the event of such a leak, the Act states that the companies responsible will bear the cleaning and purification costs and it imposes heavy civil fines as well as criminal sanctions for breaking the law. The State of Texas has passed legislation similar to the Oil Pollution Act. 3. Delek Refining is also subject to the Resource Conservation and Recovery Act ("RCRA"), which dictates how hazardous waste is to be treated, stored, removed and remediated. The state of Texas has similar law and regulations. The RCRA set standards and procedures for the treatment, removal, storage and transfer of hazardous solid waste. In addition to the current procedures for treatment, storage and removal of waste, the RCRA also relates to the environmental impact of removal of past waste, and the potential effects on ground water of the practices for current and historical waste management. 4. The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), the RCRA and state laws impose liability on certain groups of people, regardless of the question of responsibility or legality of the original deed, in respect of the discharge or the possible discharge of hazardous materials into the environment. These people include the owner and/or operator of the site where the hazardous materials were discharged, and the companies that discharged or organized the discharge of the hazardous materials. Under CERCLA, these bodies may be jointly and severally liable for payment of the costs of cleanup of the hazardous materials discharged into the environment, payment of compensation for damage to natural resources, and cost of certain health studies. It is not uncommon for owners of neighboring lands or third parties to file actions for damage allegedly caused to body and property by hazardous materials or other pollutants discharged into the environment. In addition, state laws impose similar duties and responsibilities. Waste is produced as part of the ongoing operations at the Refinery, and it may be considered to be a hazardous material that requires cleanup under this law. As of the report date, Delek Refining has not been recognized as a potentially liable party under CERCLA and has not borne any liability whatsoever regarding the discharge of pollutants and environmentally hazardous materials, should such have applied prior to its purchase of the Refinery. 5. The Energy Policy Act of 2005 requires an increase in the amount of renewable fuel that must be mixed with gasoline by 2012. The final rules for application of this law exempt small refineries, such as the Delek Refining Refinery in Tyler until 2010. The Energy Independence and Safety Act (“EISA”) of 2007 increased the quantity of renewable fuel that refineries have to produce under the Energy Policy Act. The Renewable Fuel Standard - 2 implements the EISA and requires the Company to increase the amount of renewable fuel in refined products to 7.8% in 2011 and up to 18% in 2022. This law may lead to a decline in the quantity of processed crude oil and impact materially on profitability, unless the demand for fuels increases in parallel or other markets are found for the processed products The Tyler Refinery began producing an E-10 mixture of gasoline and ethanol in January 2008 and began implementing projects that will facilitate a larger amount of ethanol and biodiesel in the fuel products as of the beginning of 2011. 6. In June 2007, the Federal Occupational Safety and Health Administration ("OSHA") announced a national program to address hazards in oil refineries. As part of the program, OSHA inspected the Tyler refinery and imposed a fine of less than USD 100 thousand on Delek Refining. Delek Refining appealed the decision. Between November 2008 and May 2009, OSHA conducted an additional inspection of the Refinery in Tyler after the fire and imposed a fine of USD 200 thousand. With respect to this fine as well, Delek Refining filed an appeal and does not believe that this will have an adverse effect on it. 7. Delek USA must pay a tax of USD 0.08 on every barrel of oil purchased to the Oil Spill Liability Trust Fund. There are federal bills to increase the tax to USD 0.78 a barrel. C. MAPCO 1. MAPCO's operations are subject to various environment protection laws, regulations and orders which may be federal, state or regional and consequently differ from region to region. The various states issue permits for above and/or underground storage tanks. At the federal level, the Resource Conservation and Recovery Act requires that the Environmental Protection Agency ("EPA") prepare a comprehensive regulatory program for assessing, prevention and cleaning leakages from underground fuel storage facilities. The regulations published by the EPA enable the various states to develop, manage and enforce state

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regulatory programs, provided they adopt standards which are no less stringent than the federal ones. The EPA, as well as most states, set requirements regarding the installation of underground reservoirs, the upgrade and maintenance of existing reservoirs, measures to be taken to repair leaks, closing underground reservoirs and saving relevant data. 2. After a financial deductible, MAPCO is entitled to payments from state funds that share the responsibility for inspection, investigation and cleanup of certain environmental damage caused by leaks from underground storage facilities and/or other leaks of fuel at gas stations. Additionally, MAPCO purchased an insurance policy that covers its liability beyond the payments it is entitled to receive from the aforementioned state funds regarding certain environmental damage. In 2009 and 2010, MAPCO did not file any material claims against insurance companies. As of the date of the report, there were no claims beyond those covered by the state funds. 3. MAPCO's operations are also subject to CERCLA, as described in Section 1.7.18B.4 above. As of the date of the report, MAPCO is not party to claims under CERCLA. D. Environmental protection policy 1. Delek USA has an Environmental Protection Department of nine employees and is responsible for handling all environmental issues. Five of said employees are allocated to the refining segment. The Vice President of Delek USA is responsible for overseeing all environmental protection and regulation issues. Delek USA also calls on external consultants and attorneys on specific issues. The Vice President is responsible for quarterly examination of the handling of environmental protection issues in each of Delek USA's segments of operation and determined whether there has been a material change in Delek USA's liabilities in the field of environmental protection, in accordance with the procedures Delek USA implements in accordance with the Sarbanes-Oxley Act and GAAP. Delek USA's policy is to comply with all relevant environmental protection requirements. Furthermore, Delek USA is subject to the requirements of the Sarbanes-Oxley Act with respect to identifying environmental liabilities which may have a material impact on the Company, and to do so quarterly and annually, and record this in the financial statements. 2. Delek USA's policy is to record environmental liabilities in its books that are not of a capital nature, when it is reasonable that the liability arose and its total can be reasonably estimated. Environmental liabilities present an estimation of the costs for testing and treating pollution. The estimate is based on internal and third-party estimates regarding the total scale of pollution, the technology to treat it, relevant regulation, generally factoring in all the activities and costs for the coming 15 years (unless they can be reasonably estimated for a longer term). 3. It should also be noted that Delek USA has environmental pollution policies that cover certain pollution damage claims and cleanup costs (but do not include, for example, cleanup costs in respect of historical environmental damage). As of the date of the report, no material claims have been filed in connection with these policies. E. Liability and legal action on environmental protection 1. At the end of 2004, the previous owners of the Refinery began negotiating with the EPA and U.S. Department of Justice on specific requirements of the CAA. A 2009 court order approved the arrangement with the Refinery, according to which Delek USA assumed the costs of compliance with the aforementioned law, and the fine was paid by the previous owners. The order did not claim breaches by Delek USA after acquisition of the Refinery. In accordance with the order, Delek USA completed projects it had undertaken to perform, including a new power plant to increase operational integrity and a sulfur removal project. The order also mandates ongoing operational changes. Delek USA does not believe that the costs attributable to this will have an adverse material effect. 2. In October 2007, the TCEQ approved a consensual order with respect to the alleged violations of the provisions for the prevention of air pollution, which continued after acquisition of the Refinery. In the consensual order, the Refinery was ordered to pay a fine and finance an environmental protection project for which Delek USA had previously earmarked funds. Additionally, the company was required to and implemented additional amendments, as stipulated in the consensual order. 3. OSHA - See Section 1.7.18B.6 above.

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4. Additionally, The Chemical Safety Board (“CSB”) and the EPA also demanded information regarding the fire at the Refinery in November 2008. The EPA is currently conducting an investigation under Section 114 of the CAA with respect to the company's compliance with the requirements for the prevention of chemical accidents under the CAA. 5. As of the date of the report, Delek USA is unaware of any ground or ground water pollution requiring investigation or clean-up near pipelines, but a need to perform assessments and clean-up of the pipeline area could arise in the future. Based on environmental assessments and inspections conducted by third parties when the Refinery was purchased and which were recently updated during the refinancing of the Refinery in March 2010, as of December 31, 2010, Delek USA recorded in its books a liability of approximately USD 4.3 million in respect of estimated clean-up costs at the Refinery site, approximately USD 1.5 million in respect of the coming year, and the balance of USD 2.8 million by 2022. Current and future environmental protection regulations, as well as other situations requiring reporting and action, could necessitate significant additional investigation and cleanup expenses. Efforts to purify the groundwater at the Refinery are expected to continue in the foreseeable future. F. Material investments in environmental protection 1. To comply with the regulation described above in Section 1.7.18B.1 on the restriction on the quantity of benzene in gasoline, Delek Refining invested approximately USD 18.8 million in 2010 in the Mobile Source Air Toxics ("MSAT") II Compliance Project and is expected to invest another USD 0.2 million in 2011. Completion of Phase 2 is expected at the end of 2012. 2. The estimate is that in order to comply with new environmental standards, Delek USA’s investments in this regard in 2011 will reach USD 4.6 million and USD 81 million over the next five years. This information regarding Delek USA’s estimates for investments in environmental protection is forward-looking information. The information is based on the EPA requirements at this time, the extent of ground or water pollution of which Delek USA is aware at this time, and its estimates regarding the cost to handle environmental protection issues, in light of its experience. The information may not materialize, inter alia, if changes are made in the EPA requirements or other relevant regulation, if Delek Refining finds new environmental protection issues that need to be handled and if while making the investments or prior to that time it is found that the costs of the investment are higher than expected. Delek USA estimates regarding investments in environmental protection and regulation depend on estimates and factors that are uncertain, including the complexity of the provisions regarding environmental protection and the various ways they can be interpreted, the possibility of discovering additional polluted areas and estimating the precise scale of existing pollution or pollution that may be discovered considering, inter alia, that it is an old refinery, there is a lack of credible information regarding the extent of clean-up work required to repair and clean up the unknown pollution and the lack of certainty regarding the selection of the most appropriate cleaning method to clean up the pollution. Additionally, given the ongoing developments regarding environmental protection, the legislation and regulations for environmental protection change and are revised frequently, and stricter legal provisions may be added in the future with respect to Delek USA operations, and they may impact on the above assessment. As of the date of the report, to the best of its knowledge Delek USA is in material compliance with environmental protection requirements. 1.7.19 Restrictions, oversight and legislation A. Delek Refining and Marketing 1. Business licenses - Delek Refining and Delek Marketing operate under many licenses they have obtained for their operations, such as licenses under various environmental laws (waste disposal licenses), pipeline operator license for the transportation of fuel, etc. 2. Standardization of fuel products - The EPA has the authority to enact regulations regarding production standards for petroleum distillates. The EPA promulgated regulations restricting the maximum permitted quantity of sulfur emitted by the use of gasoline in vehicles used for transportation. These standards stipulate that the average quantity of sulfur permitted in gasoline distillates shall not exceed 30 ppm in a single calendar year, and that one gallon of gasoline shall not contain more than 80 ppm. Further to discussions between the Refinery, the EPA and the US Department of Justice since 2004, regarding the requirements of the

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CAA with respect to the operations of the Refinery, in September 2009, an agreed order entered into effect. The order did not allege violations by the Refinery after its acquisition by Delek USA, and the fine was imposed on the previous owner. Under the order, investments in the Refinery were required, some of which have been completed and the cost of the remainder is not expected to be material. 3. Delek Refining is subject to the Federal Occupational Safety and Health Act (“OSHA”) and other similar state laws that regulate safety and health conditions for employees, including how hazardous materials are handled. B. MAPCO MAPCO’s operations are subject to laws and regulations including, inter alia, labor laws, regulations governing the sale of alcohol and tobacco products, minimum wage, work conditions, public access roads and additional laws, including: 1. Licensing of gas stations and fuel and oil sales – An annual permit for the sale of fuels and oils is issued by the various states in which MAPCO operates (Regulatory Services Permit). The permit is annual. In addition, states also issue an annual permit for above and/or underground storage tanks. 2. Lottery license - MAPCO is licensed to issue computerized lottery tickets and scratch cards in certain states, under the license it received. 3. Alcoholic beverages license - State or local laws restrict the hours during which certain products may be sold, the most significant of which are alcoholic beverages. State and local authorities have the power to approve, cancel, suspend or deny applications for the issue or renewal of licenses for the sale of alcoholic beverages, or to impose various restrictions and sanctions. 4. Cigarette license – The license to sell cigarettes is issued separately by three authorities: state, county and municipal. This license is granted annually, and in addition, MAPCO must obtain permits for the sale of other tobacco products. 5. License to operate convenience stores - Convenience stores are subject to various federal and state regulations governing health and sanitation, safety, fire, and planning and construction. C. Additionally, Delek USA is subject to federal and state legislation on wage protection, overtime, work conditions and civic affairs. It should be noted that to the best of Delek USA's knowledge, from time to time there are federal bills proposing to increase minimum wage and obligating employers to provide their employees with health insurance. Should these bills become law, they may adversely affect Delek USA's results. 1.7.20 Material Agreements A. Delek Refining and Marketing The agreements with Noble Group and Magellan are material. For additional information, see Section 1.7.12B. B. MAPCO 1. MAPCO has agreements for the purchase of fuels with a variety of suppliers and marketers, including the fuel purchase agreement with MOTIVA (from which approximately 20.4% of the fuel products were purchased in 2010) which is valid through the second quarter of 2011. The prices of the fuels are generally set as a margin of the standard local prices (benchmarks). The terms of the agreements range between 1-15 years, and the agreements generally include a minimum purchase amount, monthly or annually. As of this time, MAPCO has met with most of its purchasing commitments, and recorded minor expenses in respect of non- compliance with it purchase commitments in 2007-2010. 2. Core-Mark International Inc. ("Core-Mark") was the main supplier of retail products in 2009 and 2010, and purchases from it amounted to close to 59% and 59.4%, respectively. On August 23, 2010, MAPCO extended the supply agreement with Core- Mark through December 31, 2013. Under the agreement, inter alia, Core-Mark will continue to be the main supplier of food and retail products for all MAPCO stores.

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1.7.21 Legal Proceedings Delek Refining and Delek Marketing are not party to any material legal proceedings. MAPCO is party to various legal claims and proceedings stemming from its ordinary course of business. MAPCO believes the final decision in the matters known to it at present will not have a materially adverse effect on its financial condition or on its future operating results. 1.7.22 Goals and Business Strategy Delek USA reviews its plans and strategic goals from time to time and revises them in accordance with the developments in the fuel market, the competition map and macro-economic influences on its area of operation. In the coming years, Delek USA may focus on the following operations: A. Delek USA’s growth strategy since its establishment has been through acquisitions and sales. In the coming years, Delek USA is expected to examine potential acquisitions, including acquisition of additional refineries, gas stations and convenience stores or other supplemental assets, such as pipelines or terminals. The acquisition of complementary assets, as aforementioned, may be in the area in which Delek USA operates or in other regions of the US. Certain assets, such as gas stations and convenience stores with poor performance or an asset value that is very high compared to their profitability, may be sold or converted to operation by third parties. B. The acquisition of Lion Oil, should it go through, will be a strategic acquisition that will help realize the Company’s goal of having significant activity down the entire fuel production and marketing chain. For the first time, a refinery owned by Delek USA will be able to provide products to its chain of gas stations in the Tennessee and Arkansas. This transaction will significantly expand the ability to market Delek USA’s fuels and enable penetration into new markets. Through the refinery in El Dorado, Delek USA will be able to market products to its terminals and the terminals of third parties in regions outside the Gulf of Mexico region, reaching into the center of the United States. C. Increasing the refining capacity of the Refinery, the marketing efforts to expand its customer base and obtain better terms of engagement, and reducing production costs. D. Performance of projects such as a facility to produce low sulfur gasoline, as stated above, and projects leading to lower crude oil refining costs and therefore more efficient and better use of its refining facilities, will increase the production capacity of the Refinery and the quality of its products, including heavier and sourer crude. E. Expansion of retail activity and range of the products sold in the convenience stores, particularly ready-to-eat food. As part of this move, MAPCO intends to also sell premium products in its stores which it believes will also attract a new target audience. Among other things, MAPCO intends to introduce ready-to-eat foods that the customer can order via a touch screen, sell private label foods and offer a larger variety of products. The range of products to be sold at each convenience store will be determined in accordance with a unique sales strategy for each convenience store, which will take into account its location and customer profile. F. MAPCO is working to strengthen its brands and their recognition as leading brands in the Southeast USA, and to refurbish and redesign its convenience stores, with the goal of enhancing the customer shopping experience. MAPCO has begun the rebranding of some of its convenience stores under the name “Mapco Mart”. In 2009-2010, 22 and 13 stores, respectively, were refurbished . To date, a total of 129 stores have been refurbished. MAPCO believes that this move will expand its customer base. G. Attainment of said goals and strategy depends on various external factors which might prevent their realization or lead to changes in them. In addition, Delek USA customarily reviews and revises its goals in accordance with developments in the fuel market, the competition map and macro-economic influences. 1.7.23 Risk factors A. Macroeconomic conditions and the economic crisis - A global or local economic downturn, particularly in the southern US, may have an adverse effect on Delek USA's business, operating results, and sales turnover of fuel and retail products due to a decline in consumption. Some of the factors that impact on a decline in consumption are macroeconomic and geopolitical conditions (particularly in oil producing areas), unemployment, consumer debt, depreciation in net value based on sharp declines in markets, real estate value, mortgage markets, taxation, energy prices, interest rates, consumer confidence and additional macroeconomic factors. During a period of economic uncertainty, consumers may travel less, consume less, etc.

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B. Exposure to fluctuations in crude prices and irregular supply - historically, global prices of crude oil fluctuate and are dependent on factors not under the Company's control such as the geopolitical (including wars and terror) and economic situation, as described in Section 1.7.1B. Fluctuations in (crude) oil prices may reduce demand for crude oil products and have a detrimental effect on the profitability of Delek USA (especially on products, the prices of which are not correlated with the fluctuations in the prices of crude oil, such as asphalt, propane and other products produced by Lion Oil. From time to time, Delek USA conducts hedging transactions through derivatives to reduce its exposure to these risks, but the scale of these transactions changes from time to time, and they themselves entail various risks. Additionally irregular supply of fuels and retail products may impact negatively on company operations. C. Exposure to changes in the prices of raw materials and products - Changes in the prices for the purchase and sale of raw materials, crude oil products and retail products from Delek USA's suppliers and to its customers may impact adversely on the company. It should be noted that Delek Refining's competitors also include multinational companies with integrated capabilities significantly larger than those of Delek Refining, which, because of their size, the integrated nature of their operations and their complex refineries, are better able to withstand the vagaries of a changing market. D. Competition - High competitiveness, including competition against supermarket chains in the field of fuels, may lead to a drop in prices, expressed in relatively low margins and lost of market share that translates into a decline in revenues. E. Alternative products - Accelerated consumption of alternative or renewable energy such as ethanol or biodiesel, may lead to a decline in the prices of fuels and/or demand for fuel products. The use of electric vehicles may also lead to decreased demand for fuel products and may have a negative impact on the profitability of Delek USA. F. Changes in margins - changes in the refining margin, as described in Sections 1.7.1C and 1.7.7, and the risk of erosion inter alia due to an increase in crude oil prices and difficulty in fully adjusting the prices of fuels sold to consumers, may lead to a decline in profitability. G. Dependence on a single asset - Since all of the refining operations are concentrated at the Tyler Refinery, significant disruptions in its operation could have a detrimental effect on Delek USA. Said risk factor materialized on November 20, 2008, with the explosion at the Tyler Refinery, following which it was shut down through May 2009 and for unexpected repair work for about two weeks in the third quarter of 2010. The dependence on the Refinery may also be seen in the event of incidents such as natural disasters, work accidents, loss of licenses and the permits required for the factory’s activity, maintenance, etc. H. Operational and external risks - Delek USA's operation is exposed to risks that are inherent to the refining of fuels and supply of fuel products. These risks include, among others, natural disasters, negative climate conditions, seasonality, war, terror, fires, explosions, pipeline leaks, accidents involving the fleet of trucks for transport of the fuels, maintenance faults, problems with information technology, third-party intervention and other events that are beyond the control of Delek USA and that could disrupt the Refinery’s operations, pollute and harm the environment and damage third-party property, cause injury suits and even death. In the incident at the Refinery on November 20, 2008, two employees were killed and several other people were injured. All of the related proceedings are still not complete, and Delek USA may be exposed to various proceedings in the future as well. I. Limited pipeline infrastructure - The pipeline transporting crude oil to the Refinery has limited capacity, which could become insufficient if the Refinery increases its output significantly. Moreover, Delek USA has no pipelines for the delivery of its fuel products, and in 2010, virtually all of its sales were made through its own terminals. This could make it difficult to attract new customers. J. Decline in cigarette consumption - A decline in the consumption of cigarettes (MAPCO’s best selling retail item) and the difficulties of the US tobacco companies may have an impact on the prices and marketing of cigarettes. Future legislation concerning tobacco products, such as raising cigarette prices or increasing taxation on tobacco products, may have a negative impact on cigarette consumption. K. Existing debt, financing of activity and credit restrictions - Delek USA has significant debt and credit facility. It is not certain that Delek USA will be able to refinance its loans, renew credit facilities and secure new financing, at the time required and with good conditions. This leveraging has various negative implications, including significant exposure to negative

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conditions in the market and industry, the need to use cash flow to pay debt and the restriction of business flexibility in existing activity and entry into additional activities. Difficulties in servicing the existing debt and financing the activity may hurt relations with suppliers, lead to poorer conditions in the contracts with them, and hurt the company’s business operations (such as acquisitions). In this regard it is important to emphasize that the ongoing economic and financial crisis may have a materially adverse effect on banks and restrict the accessibility required to raise capital and debt. L. Compliance with financial and other covenants - Current and future credit agreements that include financial covenants may negatively impact on the ability to finance future activity, conduct business and may mandate early repayment of loans in significant amounts and make it difficult or prevent receipt of additional financing. At times, Delek USA is close to non- compliance with the financial covenants that apply to it. Compliance with financial covenants depends, among other things, on factors such as level of leverage, profitability, relevant market conditions and more, such that deterioration of various parameters may hurt Delek USA’s ability to comply with the financial covenants or to remedy them if necessary. This is, inter alia, due to the current crisis in the credit market and the general deterioration of market conditions. Additionally, by virtue of the credit agreements, various stipulations and limitations apply to the company and may impact negatively on its ability to perform various operations such as distribution of dividends, sale of assets, entry into new activities, investments, etc. M. Insurance - Delek USA has insurance policies, including property policies with coverage of up to USD 1 billion. Nevertheless, Delek USA could sustain damage that is not insured, or which cannot be insured under its policies, or that is higher than the sums insured by the policy. For example, the business interruption policy does not apply unless the interruption extends beyond 45-60 days. The company cannot ensure that the terms of the insurance policies will not change for the worse or if they will be renewed by its insurers. N. Legislative developments and changes and environmental issues - Delek USA is subject to various laws, regulations and standards related to its operations, particularly as concerns environmental protection. It is therefore exposed to legislative developments, changes and new requirements, and the possibility that in the future, material deviations will be discovered or new and more stringent legal provisions will be added, thus leading to expenditures. It is estimated that to comply with the new environmental standards, Delek USA's investments in this area will be approximately USD 4.6 million in 2011 and USD 81 million over the next five years. O. Dependence on employees - Most of Delek Refining’s Refinery employees, as well as 40 truck drivers, are unionized and subject to collective employment agreements. The collective agreement with the Refinery workers and drivers will expire in January 2012. Although these collective agreements contain conditions for strike prevention, there is no certainty that there will be no strikes or work stoppages. A strike or work stoppage could have adverse effects on Delek Refining’s operations. P. Dependence on material suppliers - Delek USA is dependent on material suppliers such as Magellan and Noble for marketing and Core-Mark in retail operations. Changes in suppliers, supplier relationships, agreements with material suppliers, compliance with terms of payment and supply or interruption in supply for any reason whatsoever may have an adverse effect on Delek USA. Q. Negative publicity - Approximately half of MAPCO fuel products are sold under exclusive agreements with Shell, Marathon, Exxon Mobil, Conoco and BP. Negative publicity about the aforementioned companies or Delek USA may impact adversely on Delek USA. R. Changes in the dollar interest rate - As of December 31, 2010, Delek USA had credit debt with variable interest of USD 251.1 million and total credit debt of USD 295.8 million. It is exposed to changes in the interest rates paid by said companies on these loans and in the future. S. Inability to control the operations of Lion Oil - Delek USA holds 34.6% of Lion Oil shares. Approximately 53.7% of Lion Oil shares are held by a single shareholder, who is a party to a management agreement with Lion Oil and has the right to select most of its directors. In light of the above, Delek USA is not able to control the operations of Lion Oil. T. Non-liquidity of the investment in Lion Oil - Since Lion Oil is a private company there is no market for its shares. As a result, it is uncertain that Delek USA will be able to increase or reduce its holding in Lion Oil or in the event that it does so, that it will be able to do it under good conditions or prices.

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U. Risks as a result of the purchase of control in Lion Oil - Should the transaction for the purchase of an additional 53.7% of shares in Lion Oil be completed, in addition to the potential advantages of the purchase (including reduction of some of the aforementioned risks, such as the inability to control Lion Oil's activity and dependence on the Refinery in Tyler) there are also several risks, including increasing the dependence on the refining activity and specifically on the results of Lion Oil; increasing the Delek USA's total credit; difficulty integrating the new activity with the existing activity; exposure to liabilities that were unknown on the date of entry into the agreement such as liabilities in respect of environmental protection, regulation and legal proceedings; increase in total investments Delek USA will be required to make in the future, and more. V. Following is a summary of the aforementioned risk factors by type (macro risks, sector risks, risks specific to Delek Refining and Delek Marketing) which have been rated based on an estimate by Delek USA, according to their impact on Delek USA – as major, moderate or minor:

Impact of the risk factor on Delek USA Major impact Moderate impact Minor impact Macro risks • Macroeconomic • Changes in dollar- conditions and the denominated interest economic crisis • Insurance

Sectoral risks • Exposure to • Exposure to changes • Alternative products fluctuations in the in the prices of raw • Decline in cigarette price and irregular materials and products consumption supply of crude oil • Operational and • Negative publicity • Competition external risks • Changes in margins • Legislative developments and changes and environmental issues

Risks specific • Compliance with • Dependence on a • Dependence on to Delek USA financial and other single asset employees covenants • Limited pipeline • Risks resulting from infrastructure the acquisition of • Existing debt, financing control in Lion Oil of activity and credit restrictions • Dependence on significant suppliers • Inability to control activity of Lion Oil • Non-liquidity of investment in Lion Oil

The degree to which Delek USA's risk factors impact is based solely on estimates. In reality the actual impact may be different.

1.8 Fuel Product Segment in Israel

The Company’s operations in the fuel products segment in Israel are conducted through Delek, The Israeli Fuel Company, Ltd, and partnerships under its ownership (Delek Israel and its subsidiaries are hereinafter referred to as “Delek Israel”). In August 2007, under a prospectus dated August 5, 2007, Delek Israel completed an IPO of shares, options exercisable for Delek shares, and debentures for total proceeds of NIS 940 million (gross). Delek Petroleum's profit from the issue of Delek Israel shares was NIS 75 million. Furthermore, under a shelf prospectus dated May 29, 2009 and shelf tender offer dated June 16, 2009, Delek Israel issued debentures to the public for total proceeds of NIS 814 million (gross). At the reporting date, the Group holds, through Delek Petroleum, 77.20% of Delek Israel shares.

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Delek Israel is active in the fuel products sector in Israel, including the sale of fuel products at public gas stations (including marketing to gas stations operated by third parties) and operation of convenience stores located at some of these gas stations ("gas station and commercial compounds"), initiating the setting up and operation of public gas stations and convenience stores, direct marketing and distribution of fuel products outside the gas station and commercial compounds ("direct marketing"), as well as the storage and dispensing of fuel for itself and others. In addition, Delek Israel holds approximately 3.3% of the shares in Delek Hungary Ltd., which holds 73.4% of the shares in Delek USA. Delek Israel also holds 20% of the shares in Delek Europe. Following is a diagram of the main structure of the holdings of the Group in the Israeli fuel products segment as at reporting date:

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Delek Petroleum Ltd.

77.20%

Delek, the Israel Fuel Company Ltd.

100% Delek Lubricants – Delekol Ltd. 51% Talus Ltd.

65% Delek Kliot Partnership

51% Delek Heating Ltd.

100% Delek Conveying Ltd.

100% Delek Menta Roadway Retail Stores Ltd.

75% Consolidated Fuel Export Company Ltd.

75% Tanker Services Ltd.

100% Delek-Pi Glilot Limited Partnership

15.3% Pi Glilot Oil Terminals and Pipe Lines Ltd.

50% 3% MAGAL - Israel Gas and Oil Enterprises Ltd.

100% Delek Retail Lots Ltd.

50% Orhan Mei Megiddo Ltd.

50% Eyn Yahav Delek Ltd.

50.1% Delek-Saadon Projects Initiation & Development

100% Inbal Fueling and Assets Ltd.

2.8% Orpak Systems Ltd.

100% Delek General Partner Ltd.

100% Delek Fund for Education, Culture and Science Ltd.**

3.33% 72.4% Delek Hungary Ltd. Delek US

20% Delek Delek Europe Holdings Ltd.*** 100% Benelux 100% B.V. Delek France

* On December 29, 2010, approval was received from the tax authority for the merger of Delek Retail Registered Partnership with Delek Menta Roadway Retail Stores Ltd. The approval of the Registrar of Companies has not yet been received. ** Delek Israel intends transferring its holdings in Delek Foundation to the Group. *** The holding is through Delek Europe B.V., a wholly-owned subsidiary of Delek Europe. Details relating to the investment in Delek Israel's equity during the two years prior to the date of the report:

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% of issued Capital investment Date Type of transaction capital1 in NIS thousands 2009 Exercise of options for shares 2.3% 257 2010 Exercise of options for shares 0.2% 25

To the best of Delek Israel’s knowledge, in the past two years no material transactions were made in Delek Israel shares by interested parties in Delek Israel outside the stock exchange, except for the following: On June 15, 2009, Delek Petroleum sold, under several transactions, 720,000 of Delek Israel's shares which constituted at the time of the sale 6.51% of Delek Israel's issued and paid up share capital, to entities defined according to TASE guidelines as public holdings, for proceeds of NIS2 95 million. Delek Petroleum's profit from said sale amounted to NIS 31 million (pretax). For additional information see the Company's immediate report of June 15, 2009 (Ref. No. 2009-01-142713), the information appearing therein is indicated herein by way of reference. On January 5, 2011, Mr. Elad Sharon (Teshuva) acquired in OTC 41,400 ordinary shares, par value NIS 1 each which constitute 0.36% of Delek Israel's issued and paid-up share capital for NIS 5,928 thousand. 1.8.1 General information about the segment of operation A. Structure of the segment Annual consumption of gasoline, diesel oil and kerosene fuels in Israel in 2010 and 2009 was approximately 6.9 tons (8.4 million kiloliters ("kl")) and 6.7 million tons (8.2 kl), respectively. The geographical breakdown of the consumption is: central region (Netanya to Kiryat Gat) – approximately 55%, south (south of Kiryat Gat) 10% and north (north of Netanya) 35%. The source of all the fuel is from the refineries in Ashdod and Haifa. In the fuel sector in Israel, there are infrastructure companies providing infrastructure services such as unloading, storage, dispensing and piping of fuel and fuel companies engaged in marketing, and sale of fuel products and oils in the gas station and commercial compounds and in initiating the setting up and operation of gas stations and convenience stores. The four main fuel companies: Paz, Delek Israel, Sonol and Dor-Alon own about 950 public gas stations in Israel. In addition, there are other fuel companies that together own about 130 public gas stations. Delek Israel’s activity includes the marketing of fuel and oil products to gas stations (including those operated by third parties) and operating the gas stations, including filling services using an electronic identification filling system (“Dalkan”) designed mainly for fleets, oils and other products at the public gas stations, and initiating the setting up and operation of gas stations and convenience stores. In some of the compounds Delek Israel leases out areas for commercial purposes to third parties (“Retail Areas”). Delek Israel also engages in marketing, distribution and supply of fuel products to consumers outside the gas stations directly to the customers' sites that are not open to the public at large. Delek Israel also provides storage and dispensing services for fuel products from the three terminals purchased from Pi Glilot in July 2007, located in Ashdod, Beer Sheva and Jerusalem. Additionally, Ionex operates a diesel fuel and fuel oil distribution facility in Ashdod used to issue diesel oil and fuel oil to direct marketing customers. At the report publication date, Delek Israel marketed fuel products to 246 public gas stations3, under the Delek and Gal brands deployed nationwide throughout Israel, including 162 in which convenience stores operate and 31in which there are Retail Areas. Delek Israel also has 10 convenience stores that operate outside the gas station compounds. As at the report date, Delek Israel is the second largest fuel company in Israel in quantity of gas stations. At the end of 2010, Delek Israel marketed fuel products to 246 public gas stations, including 160 in which convenience stores operate and 31 in which there are Retail Areas. At the end of 2009, Delek Israel marketed fuel products to 244 public gas stations, including 132 in which convenience stores operate and 28 in which there are Retail Areas.

1 Calculated according to the issued and paid up capital known on the date of this report. 2 The information is taken from data furnished by the Ministry of National Infrastructures. 3 Excluding 195 internal gas stations which, as at the report date, are part of the direct marketing segment.

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As at December 31, 2010, out of the gas stations in which Delek Israel markets its products, 52 stations are owned by Delek Israel or leased under primary lease from Israel Lands Administration (compared with 45 on December 31, 2009), 171 stations are sub-leased or leased by it (compared with 166 on December 31, 2009) and 23 stations are not owned and/or leased by Delek Israel and are operated by other companies with which Delek Israel has contracts for the supply of fuel products and oils (compared with 33 stations on December 31, 2009). As at December 31, 2010, Delek Israel operates 195 gas stations (compared with 177 on December 31, 2009), 20 gas stations are operated by other companies for and on behalf of Delek Israel (compared with 21 on December 31, 2009) and 31 gas stations are operated by others not on behalf of Delek Israel (compared with 46 on December 31, 2009). In addition, as at the report date, Delek Israel has 60 initial contracts in initiating, planning and setting up gas stations, out of which 20 projects are in the advanced stages of receiving a building permit and Delek Israel estimates at the construction of 13 of them is expected to begin during 2011. Delek Israel's assessment with respect to when the construction of the gas stations will begin is forward looking information based on assessments concerning receipt of the permits and approvals required to set up the stations. This information may not materialize, inter alia, due to failure to receive approvals and permits in the anticipated time for reasons beyond Delek Israel's control. Following is a description of the structure of the fuel sector in Israel, including reference to the importation of crude oil and fuel products, their transportation, storage, dispensing and trucking to the gas stations. Importation, purchase, transportation and storage of fuel products Fuel companies can import crude oil and crude oil products to Israel. In practice, at the reporting date, crude oil is imported to Israel by the oil refineries, which then refine them into products. Until the privatization of Oil Refineries Ltd. ("ORL"), selling prices of distillates (oil products) sold to the fuel companies by the refineries were controlled. After the privatization of ORL and the splitting up of the oil refineries, ex-ORL price control was removed except for the price of two types of bitumen (type PG-68 bitumen and non-blown bitumen). Delek Israel does not import crude oil1, but in 1999 it began importing fuel products (mainly gasoline and diesel oil). Nevertheless, the quantity imported in 2009 and 2010 was very small (negligible amounts only) due to Delek Israel's agreement with ORL for the purchase of fuel products in the said years which set a more attractive fuel price. At the report date, Delek Israel entered into an agreement with ORL for the purchase of most of the fuel for 2011. In addition, Delek Israel will examine importing various amounts of fuel. Its decision concerning the import of fuel products is affected by the economic feasibility of importation (the import price versus ORL ex-works price) and the cost of the infrastructure involved in sea freight, unloading, storage and piping from the port. Imported fuel products (as opposed to crude oil) may currently be offloaded at the following sites: (A) Haifa Port by PEI2, (B) Askhelon Port by PEI and EAPC3. (C) Israel Electric Corporation dock in Ashdod to a limited extent. Oil products are stored in terminals of infrastructure companies and at the facilities of the major fuel companies (Paz, Delek Israel and Sonol). The terminals / facilities are operated by their owners. The infrastructure companies that provide storage and dispensing services are: (1) PEI, which owns storage facilities throughout Israel and a storage and dispensing facility near Beer Sheva; (2) EAPC, which has a storage and dispensing facility in Ashkelon; (3) Ashdod Oil Refinery (AOR), which has storage and dispensing facilities in the oil refinery compound in Ashdod; (4) ORL, which has a storage and dispensing facility in the oil refinery

1 Delek Israel maintains an emergency stock of fuel oil, diesel and jet fuel reserves on behalf of the State, pursuant to the provisions of the State Economy Arrangements (Amendments to legislation for attaining the objectives of the 2001 budget) (Holding reserves and security reserves of fuel) Regulations, 5761-2001. For additional details, see section 1.8.19.A1. Delek Israel also maintains a small quantity of crude oil under the same regulations.This quantity is maintained for several years due to a dispute between PEI and Israel Fuel Authority concerning a financial debt between them 2 A company wholly owned by the State of Israel. 3 A company owned by the State of Israel (50%) and a third party.

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compound in Haifa; and (5) Delek Israel, which owns storage and dispensing facilities in Ashdod, Beer Sheva, Jerusalem and Haifa1. Fuel products are transported to the storage and dispensing terminals along a pipeline owned by Fuel Products Line Ltd. (“FPL”)2. Delek Israel's central storage facilities located Haifa and Ashdod (which it owns). The pipeline that carries the oil products to Delek Israel's storage and dispensing terminals in Haifa is usually the one owned by ORL. The rates for infrastructure services (unloading, storage and transporting) of oil products were set in the Commodity and Service Price Control (Infrastructure rates in the fuel economy) Order, 1995 (“the Infrastructure Price Control Order”). Transportation, issue and trucking Oil products manufactured at the oil refineries in Haifa or Ashdod and imported oil products are transported through a national distillate pipeline, which is primarily owned by FPL, to the various storage facilities. The transportation of oil products to several major consumers in the Haifa area is by means of the pipelines owned by ORL and IEC. The fuel products are dispensed at the dispensing sites to road tankers or directly to the end facilities of institutional customers. The choice of a storage site and the method of transporting the oil products is made from time to time by the fuel companies, based on their business considerations. Oil products are carried from the dispensing sites by road tankers, some of which carry only “white” products (gasoline, diesel oil and kerosene), some only fuel oil and some only bitumen. At the reporting date, more than 80% of transportation of the oil products sold by Delek Israel are by Delek Transportation Ltd. (“Delek Transportation”), a wholly owned subsidiary of Delek Israel. The rest of the transportation of fuels (about 20%) is by subcontractors hired by Delek Israel or by customers which transport the fuels using their own fleet of tankers or by parties acting on their behalf3. Marketing of oil products To the best of Delek Israel's knowledge, at the reporting date, there are more than 45 fuel companies registered with the Fuel Administration and licensed to purchase oil products directly from the refineries. Delek Israel estimates that additional entities operate in this market (companies, agents, distributors, wholesale customers), purchasing oil products from the licensed fuel companies and selling them to customers. B. Material changes in the segment. 1. Privatization of ORL– Pursuant to the decision of the Ministerial Committee on Privatization on December 26, 2004 ("the Ministerial Committee's Decision”), Oil Refineries Ltd. ("ORL”) was split into two (one in Ashdod, one in Haifa) and then sold by the State. The oil refinery in Ashdod was acquired on September 28, 2006 by Paz, while the controlling stake in ORL was sold on February 19, 2007 to a company owned by the Ofer-Federman Group The Ministerial Committee's Decision provided that the Commodity and Service Price Control (Maximum ex-works prices for ORL oil products) Order, 5753-1992, would be amended so that after the split of ORL and the privatization of Oil Refineries Ashdod ("ORA"), control of ex-works prices of oil distillates at the refineries will be lifted, except on the prices of oil products of which more than 50% of consumption in the local market is sold by one of the two refineries while less than 15% of consumption in the local is sold by the other refinery. At the reporting date, the various types of bitumen products are still under price control. At the date of the report, the splitting and privatization of ORL together with the acquisition of the Pi Glilot facilities as described below improved the commercial terms with the refineries. Nevertheless, in 2010, a downward trend in the trading terms with the refineries began compared with previous years, which is expected to continue also in 2011 due to the effect of the global energy market.

1 It is noted that most of the storage and issue services of Ashdod Refineries are primarily for their own use, since most of the distillates it manufactures are used by Paz and the Palestinian Authority. It is also noted that the Haifa facility is used mainly for Delek Israel's own use. Furthermore, it is noted that EAPC has recently substantially increased its storage capacity in order to lease mainly to international fuel traders 2 A subsidiary wholly owned by PEI. 3 Some of the agreements with third parties grant them the right to carry the fuel products they purchase.

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2. Pi Glilot Tender (storage and supply activities) – As stipulated above, on July 31, 2007, following a tender process Delek Israel acquired the three Pi Glilot terminals for approximately NIS 806 million, after the provisions of the sales procedure were upheld and approval from the antitrust commissioner was obtained. 3. Increased competition – The increased competition in the marketing of fuel products to the end customers is manifested in an ongoing increase in the number of gas stations and convenience stores, in the grant of discounts on fuel prices at the gas stations, in competition over customer credit terms, in the level of discounts for fleets and in the improvement of the quality of service, which necessitates investments in improving the infrastructures and appearance of the gas stations. In addition, the increasing competition in the area of Direct Marketing is manifested mainly in lower marketing margins. Furthermore, the structural changes described in Sections 1.8.1B1 and 1.8.1B2 above have increased competition in the fuel storage and supply area, which is affected mainly by the location of the storage facilities and establishment of companies that operate in this area and by the costs involved in transporting the fuel to the end user. 4. Changes in the area of fuel supply – Between 2001 and 2003 material changes occurred in the fuel supply area. Commencing 2001, ORL (at the Haifa refinery and the Ashdod refinery) began to provide fuel supply services directly from its facilities, and in 2002 it began supplying fuel at the PEI facility, which is located in the south of Israel. In 2003 the Pi Glilot facility in Herzliya shut down and Delek Israel began to supply fuel from the Pi Glilot facility in Ashdod, from the EAPC facilities in Ashkelon and the ORA facility in Ashdod. 5. Regulatory developments in the fuel sector – In recent years regulatory changes have been made related to the State’s policy on the control of the purchase of fuel products by the Fuel Companies after the privatization of ORL; the policy for control of sales prices of fuel products to consumers (at present the prices of 95 octane (unleaded) gasoline are controlled), including fixing the marketing margin; Fuel Economy Bill, 5770-2011; control of the infrastructure tariffs; the gradual conversion of some of the gas pumps at the gas stations to self-service pumps; and the passing of Amendment 4 to National Outline Plan 18, which will enable the setting up of “miniature” gas stations in cities, expedited approval processes, and planning reliefs. In addition, environmental protection requirements have become more stringent. C. Restrictions, legislation and standardization The operations of the fuel companies are subject to various legislative and regulation limitations. For details see sections 1.8.18 and 1.8.19 below. D. Changes in the volume and profitability of activity in the segment Global fuel prices directly affect the price of the fuel products marketed by Delek Israel. When crude oil prices decrease, the profitability of Delek Israel declines due to the impairment in value of Delek Israel's fuel product inventories and erosion of profits, which adversely affects its gross profitability. On the other hand, when global crude oil prices rise, Delek Israel's profitability could sometimes improves as a result of the realization of its fuel products inventory at higher prices as well as an indirect increase in marketing margins, while a possible decrease in demand, fiercer competition, increased discounts and financing costs could affect this profitability. The graph below illustrates the volatility of global crude oil prices from January 2008 to shortly prior to publication of this report (Brent crude oil in USD per barrel):

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From the graph, we see that in August 2008, the global crude oil prices reached record levels of USD 150 per barrel, and since then, they plummeted to under USD 35 a barrel in December 2008 and January 2009. As from the beginning of 2009 until 2011, we are witness to sharp fuel price rises which reached USD 94 per barrel at the end of 2010. The increase in fuel prices at the beginning of 2011 began mainly due to the policy/political changes in the various Arab countries. Changes in Israel's policy which included an obligatory increase of emergency inventory could affect the volume of storage operations. In this event, the effect on Delek Israel could be negative and the storage fees paid by the State will be lower than the market price. Therefore it would be less economically viable for Delek Israel. Moreover, the Pi Glilot tanks are currently full from the storage area aspect and if the Fuel Companies and Delek Israel are forced to increase the emergency inventories, this could harm Pi Glilot's business results. However, increasing the emergency inventory could have a positive effect on the fuel storage and supply segment. E. Developments in markets and customer characteristics Delek Israel’s activity is affected by various developments in markets, inter alia, economic developments in the Israeli and global fuel prices. Below are significant developments in these markets and in customer characteristics: Development of fuel stations into Retail Areas – Recent years have seen a growing trend by fuel companies, including Delek Israel, to develop and expand their fuel stations into Retail Areas that offer, in addition to fuel products and lubricants, a range of services such as convenience stores, restaurants and cafes, car wash services and more. Expanding self-service – In a gradual process that ended in April 2006, the fuel companies were required to install self-service gas pumps in their public gas stations. The selling price of gasoline products is lower at the self-service pumps, and no service fee is collected. In addition, in the wake of self-service there has been a drop in the sales of “island products”1 in the pump compounds. On the other hand, as a result of self-service the cost of employing gas station attendants has dropped, and the transition to self-service is also in line with the trend to expand the use of the convenience stores. The introduction of self-service at Delek Israel’s gas stations has not adversely affected Delek Israel’s results in the last year. The self-service discounts, on the other hand, (and their increase over the years) have had an adverse effect. Delek Israel estimates that in the long-term, the negative effect of the self-service discounts on its results will decrease since it intends establishing other Menta stores in its stations, which could increase its revenues from these stores. Its estimation regarding the effect of self- service on its results in the long term is forward-looking information based on Delek Israel’s experience to date. This information might not materialize, inter alia, due to the failure to set up convenience stores at the pace planned by Delek Israel and in the event that the drop in revenues in the wake of the self-service is greater than the reduction in gas station attendant costs and the incremental income that will stem from the convenience stores. Also see Section 1.8.19B2 below. Increase in the number of fleet customers – in recent years there has been an increase in the number of fleet customers that enter into agreements with fuel companies for the supply of oil

1 Products found on the gas pump islands, such as mineral water, children's toys, oils, etc.

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products. The number of fleet customers and their proportion out of the total number of customers in Delek Israel’s public gas stations has grown in recent years. The marketing and sale of oil products for fleets is carried out through the Dalkan system, which enables computerized filling and payment on credit. The competition between the four major fuel companies (Paz, Delek Israel, Sonol and Dor Alon) has led to increased discounts for fleet customers. Due to the global economic crisis that began to impact the Israeli economy at the end of 2008, fleet sizes began to decrease towards the end of 2008 and beginning of 2009, resulting in a decline in fuel sales to existing fleets. In 2009 this trend was halted and increase was recorded in the number of vehicles at the end of the reported year. It is noted that in 2009 and 2010 Delek Israel signed up new fleets, which offsets the fuel consumption decline in existing fleets. The decrease in fleet sizes could adversely affect the business results of Delek Israel. It is noted that at the publication of the report, following the fuel price increase at the beginning of 2011, there has been a discernible decline in fuel consumption among the large fleets. Nonetheless, it is emphasized that at the publication of this report, Delek Israel cannot assess the extent of the impact of this reduced fuel consumption during the rest of the year. F. Key success factors in this field and the changes in them: Delek Israel estimates that the key success factors in the segment are: 1. Nationwide deployment of fuel stations. 2. Financial strength which enables Delek Israel to invest in the construction of new gas stations under company ownership, to refurbish and expand existing stations, and purchase or set up storage and supply facilities and invest in the existing facilities. 3. Ability to raise capital from banking and non-banking sources. 4. Setting up a chain of convenience stores and Retail Areas. 5. The ability to provide credit to customers, including credit to fleets that fill up using the Dalkan electronic identification system. 6. Proprietary rights in properties that gas stations are built. 7. The terms of agreements with the station operators. 8. Attractive terms of agreements with fuel suppliers. 9. Attractive terms of agreements with convenience product suppliers. 10. The availability of fuels and various products and the ability to store them. 11. Competitive prices offered in the tenders of major institutional clients. 12. State-of-the-art marketing and logistic systems. 13. A developed collection and credit control system. 14. An advanced compound control system. 15. Significant branding of Delek Israel’s products compared to its competitors. 16. Equipment and professionalism of the services provided by Delek Israel to its customers, including the fleets. 17. Collaboration with retail chains to exploit joint logistics platforms and for better purchasing terms, for example Israel Postal Services, ACE, Auto Depot and customer clubs. 18. Diverse marketing and distribution channels throughout Israel, including an independent marketing system and independent agents. 19. In the Direct Marketing branded products (such as Delek oils), the significant success factors are reputation, know-how and professionalism, quality control systems and human capital. 20. The geographical location of the storage and supply facilities in places where the oil product pipeline is located. 21. Obtaining the required statutory permits for the foregoing operations. G. Changes in the supplier and raw materials array for the segment of operation There are two oil refineries in Israel – one in Haifa (ORL) and the other in Ashdod (ORA), which until ORL’s privatization were owned by the State. Since the privatization of ORL, Delek

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Israel has two potential local suppliers of petroleum products (ORL and ORA). At the same time, it should be noted that due to the fact that Paz Oil Company Ltd. (the parent company of ORA) provides fuels mainly for its own use, Delek Israel's primary potential fuel supplier is ORL. For further details see Section 1.8.13B below. H. Main entry and exit barriers in the fuel sector The main entry barriers in the segment of operation: 1. Financial strength, due to the high costs involved in locating and setting up gas stations, which are affected by high standards required for construction of the stations themselves or the installations and for the purchase and development of the know-how necessary to enter the field of direct marketing or for the construction of storage and supply facilities. 2. Ownership of the storage facilities in geographical locations where the oil product pipeline is situated. 3. The long period required to obtain a license for the construction and operation of gas stations. 4. Existing regulatory restrictions in the segment including legislation and regulation relating to planning, construction and the environment. 5. The competition with other old-established fuel companies in every area of operation. 6. The need for substantial credit resources for financing the purchase of oil products, granting credit to the station operators and fleet customers. The main entry barrier to fuel storage and supply is ownership of storage facilities located in a geographical location where the oil product pipeline is located. The main exit barriers in the gas station and commercial compounds is the rental/lease/operating agreements with land/station owners. The main exit barriers in the storage and supply area are the material investment made in facilities and the commitments and limitations that Delek Israel assumed as part of its acquisition of the terminals (see Section 1.8.20D below). I. Substitutes for existing products and the changes in them In 2003, the Israeli Government approved Amendment No.3 to National Outline Plan No. 18, which permits the use of LPG for the fueling of vehicles in gas stations (“Automotive LPG”). In addition, in recent years hybrid vehicles with a combined gasoline and electric motor have been introduced, and the result is that less gasoline is consumed. Delek Israel estimates that at the reporting date, the number of vehicles in Israel suited for automotive LPG or the number of hybrid vehicles, is negligible. Elements in the auto industry and other entities have recently been involved in the development of cars that will run only on electricity. In this regard, it is noted that the company, Better Place, is currently establishing electric car charging points as infrastructure for selling vehicles that run on electric engines powered by batteries, which are charged while traveling and at the charging points, as aforesaid. Delek Israel sees the development of alternative vehicles to those powered by fuel as a threat to the sale of fuel at filling stations. Notwithstanding, Delek Israel is unable to assess the scope of the impact, if at all, this may have on Delek Israel's sale of fuel at filling stations and on its profitability from such sales. J. Structure of the competition and the changes in it There are four large competitors in this market (including Delek Israel). Paz holds 26% of the country’s gas stations, Delek Israel holds 23%, Sonol holds 21% and Dor Alon holds 18% of all gas stations1. In the opinion of Delek Israel, each of its three main competitors has a nationwide chain of gas stations and the capability for providing fleet services. In addition, there are numerous smaller companies that together operate, at the reporting date, about 11% of the gas stations in Israel. The competition for private consumers is mainly reflected in prices, the range of services and the sale of related products at the gas stations. The competition for fleet customers is expressed in prices, credit terms and the provision of value-added services (such as fuel consumption analysis reports, car wash services, etc.).

1 These data are taken from the websites of the major fuel companies as at the reporting date.

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The competition between the fuel companies is manifested by the renewal of existing contracts with gas stations owners and also the competition for the locations of new gas stations, as the demand for gas stations in specific potentially lucrative locations leads to higher rents or higher purchase prices payable to land the owners and erodes the profitability of the fuel companies. The competition in the direct marketing segment is also intense, and is reflected in discounts, favorable customer credit terms and competition for the quality of service provided. The competition in this area is among all the fuel companies, large and small alike. Infrastructure companies and the three major fuel companies (Delek Israel, Paz and Sonol) operate in the fuel storage and supply sector. The geographical location of the storage and supply facilities of each of these companies is different. Competition in this area is affected mainly by the location of the facilities, by the costs involved in transporting the fuel to the end consumer, and the price for fuel storage and supply services, which is partly controlled. 1.8.2 Products and services The products marketed by Delek Israel and the services it provides in this segment of operation are mainly the following: A. Fuel products and other services 1. Distillates (“White Products”) Various types of gasoline – used as fuel in vehicles with a gasoline engine, and sold mainly at gas stations. Diesel oil – used mainly as fuel in vehicles with diesel engines, as well as for heating and industry. Kerosene – used mainly for heating in industry and in the home. Jet fuel – used for refueling aircraft. 2. Residues (“Black Products”) Fuel oil – used mainly as a fuel for industry, ships and the production of electricity. Bitumen (tar) – used mainly as a raw material in the manufacture of asphalt and as a sealant, and sold mainly to earthworks contractors. 3. Industrial Products Delek Israel sells oils and byproducts for automobiles and for industry from its own production and from imports. The industrial products, such as engine oils, lubricants, greases, water paints, fuel oil and oil products (including diesel oil) for industry are sold to industrial plants, garages, business customers, agriculture and to other entities. Moreover, until January 3, 2011, Delek Israel also engaged in the production and marketing of insulation and sealing products for the building industry and bitumen products for the infrastructure companies through Bitum Industries Ltd. (“Bitum”), a subsidiary in which Delek Israel held 60% of the shares. On January 3, 2011, Delek Israel sold all its shares in Bitum to a third party for NIS 17.3 million. 4. Services for ships Delek Israel provides services for ships anchored in Haifa, Ashdod and Eilat ports, including port, electricity and cash withdrawal services, as well as referrals to local offices and payment of fees, etc. B. Retail products In its Menta convenience stores, most of which are open 24/7, Delek Israel sells a selection of retail products such as food products (sandwiches, baked goods, snacks, etc.), beverages, cigarettes and other products. Delek Israel, together with Israel Postal Services, recently established service points at some 13 Delek Israel convenience stores and is expected to set up another 12 service points by the end of the first quarter of 2011. Most of the basic services provided by postal agencies are carried out at these points. Delek Israel, together with Israel Postal Services, intends expanding the deployment of these service points as well as the services provided at these points. In addition, most of its gas stations sell car-related accessories. At December 31, 2010 and December 31, 2009, approximately 173 and 147

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Menta stores, respectively, operate at Delek Israel’s gas stations. As at publication date, Delek Israel operates 10 convenience stores outside of gas station and commercial compounds; seven of which operate at train stations, two at hospitals and one at an academic college in central Israel. In addition, Delek Israel is working to set up another convenience store outside the gas station and commercial compounds, at a college in the center of the country. The majority of Menta stores are operated by Delek Israel, which plans expanding the nationwide deployment of these stores in additional gas stations. It also plans increasing the range of products and services offered in some of the stores. Furthermore, during the latter half of 2008 Delek Israel began operating convenience stores by means of franchisees, and currently eight stores are operated by this method. C. Supply services Delek Israel provides a supply service for various fuels from its four facilities: gasoline, diesel oil and kerosene are supplied from the Ashdod facility, 95 octane gasoline, kerosene, diesel oil (transport and heating), light fuel oil and "Delek Hom" from the Haifa facility, and only diesel oil and kerosene from the Beer Sheva and Jerusalem facilities. The supply service is provided to road tankers that carry the fuels to the fuel companies (including Delek Israel) that either transport the fuels to their customers or supply them by direct piping to the customer’s premises. In Haifa, Delek Israel also stores distillates from ORL and the distillate port at its Haifa facility. In 2009 and 2010 the three terminals and the Haifa facility supplied approximately 2,570,000 kl and 2,516,000 kl, respectively. In 2010, 42% of the supply volume at the Ashdod, Beer Sheva and Jerusalem facilities and 95% of the supply volume at the Haifa facility were for Delek Israel's own use. Approximately 54% of the supply volume in 2009 was for Delek Israel's own use. D. Storage services The storage services include operational storage for the fuel companies that receive supply services from Delek Israel (including Delek Israel itself), storage of a defense stock for the State by means of the fuel companies, commercial storage by means of renting storage tanks to Delek Israel’s customers (IEC, ORL and other commercial entities) and temporary storage (“in transit” storage) in five transit tanks at the Ashdod facility of fuel piped directly to FPL’s customers throughout Israel. In addition, Delek Israel sells fuel additives in order for the fuels to meet the standards of the Standards Institution of Israel, and also provides a service for adding the additives to the fuel that it supplies. 1.8.3 Breakdown of revenues The table below shows the amount and proportion of Delek Israel’s income out of total Group revenues, divided into groups of products or services for which the total revenues account for at least 10% of the revenues of the Delek Group in 2010 and 2009 (including excise taxes):

2010 2009 % of % of NIS Group’s NIS Group’s millions revenues millions revenues Fuels and oils 5,384 12.1% 4,537 11.72%

It is noted that the revenues from the sales of oils are not significant, and the profit margin from them is higher than from the sale of fuels. Delek Israel’s revenues from the sale of retail products at its convenience stores in 2010 and 2009 were not material, and the profit margin from them is higher than from the sale of fuels. Gross profit stemming from oil products in Israel in the years 2010 and 2009 amounts to approximately NIS 735 million and NIS 736 million, respectively 1.8.4 New products In the years ahead, Delek Israel plans to increase the diversity of the products and services it offers at the convenience stores. Currently, the products and services at the convenience stores include, inter alia, postal services (in cooperation with Israel Post), products such as easy-park devices and device loading services, ACE products, and cellular products. In addition, in 2010 and the

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beginning of 2011, Delek Israel established three new minimarket concept stores under the Menta Market brand. This convenience store differs from other convenience stores both in size and a wider range of products offered. In the forthcoming years, Delek Israel intends investing in accelerated development of these concept stores. 1.8.5 Customers A. Delek Israel’s customers can be classified into groups as follows: 1. Gas station and convenience store customers, which can be divided into two main groups: A) Private customers, who buy fuel products, lubricants or retail products at the gas stations and convenience stores operated by Delek Israel. Delek Israel sets the selling prices to the end user at the stations that it operates, while the selling price of 95 octane gasoline is limited as it is government controlled. The gap between the selling price to end users and the cumulative gasoline price at ORL's refinery gate, including excise taxes and payments for infrastructure services is called the "marketing margin". The selling price at stations operated by an external operator is set in an agreement between the parties, while the operator sets the price for random customers. B) Corporate customers, including fleets that subscribe to the Dalkan service, tender customers (“Dalkan customers”) and gas stations associated with Delek Israel under operating contracts on behalf of Delek Israel and supply contracts for the purchase of fuel and oil products. These customers differ from the private consumers mainly in the credit terms (which are longer) that they receive and the discount given to the corporate customers. It should be noted that during the ordinary course of business, and as is customary in the fuel sector, Delek Israel grants credit to its customers at the gas station and commercial compounds for several purposes: (a) enterprise loans – as part of a contractual arrangement of a third party (that is not Delek Israel) with a landowner for the development and construction of a gas station by the third party or by Delek Israel, where the gas station is subsequently leased by Delek Israel, Delek Israel provides the third party (the land purchaser) with a loan for the purpose of purchasing the land. These loans are generally repaid by way of offsetting the future rent to which the gas station owner is entitled; (b) commercial loans given for the renewal of a contract – sometimes, in agreements for the renewal of a contractual arrangement with a gas station owner and as part of a rental agreement or a supply agreement, Delek Israel provides the gas station owner with a loan. These loans are repaid by way of offsetting the current rent to which the gas station owner is entitled or against current cash receipts from the borrower according to a predetermined schedule; (c) agreements for scheduling a debt of those who operate gas station on behalf of Delek Israel or independent gas station operators. Sometimes, due to cash flow or other reasons, these operators ask to convert part of their debt balance into a loan, with this loan being spread out over a number of periods which do not cumulatively exceed the remaining term of the agreement between Delek Israel and the operator. Most of the enterprise and commercial loans are backed by a charge on the land on which the gas station is located, and most of the debt scheduling loans are without collateral. The total balance of these loans at December 31, 2010, is NIS 164 million, of which NIS 12 million are in respect of enterprise loans, NIS 84 million in respect of commercial loans and NIS 68 million in respect of debt scheduling agreements. Marketing margin is the difference between Delek Israel’s selling price to its customers and the accrued sum of the ORL ex-works fuel price plus excise taxes. The maximum margin element for 95 octane lead-free gasoline is a fixed amount (due to government control) which is not materially affected by ORL ex-works fuel prices (whether controlled or not) and changes in excise tax values and infrastructure tariffs. It is noted that under circumstances in which the global market fuel prices and the taxes thereon increase, a situation arises whereby there is no built-in compensation for financing and credit risk costs at a time when customer credit increases. 2. Customers of the Direct Marketing Sector: These include private customers, tender customers (both government companies and commercial companies), and corporate customers such as industrial plants, sea craft, infrastructure contractors, etc. At March 1, 2011, customers in the direct marketing sector included business customers in the

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construction and infrastructure segment and agents. In addition, until this date, Delek Israel will export sealants overseas. 3. Customers in the fuel storage and supply sector: these are private customers, including the fuel companies (including Delek Israel), and governmental customers including FPL, the Ministry of Defense and Israel Electric Corporation. 4. Below is a breakdown of sales in the gas station and commercial compounds (including excise) in 2010 and 2009 by type of customer (in NIS millions and as a percentage of the total revenues in the segment of operation in that year):

2010 2009 % of total % of total segment segment Type of customer NIS million revenue NIS million revenue Corporate (incl. tenders, Dalkan and operating / 3,191 36% 2,756 37% supply stations)* Private customers 2,420 28% 1,947 26% Total 5,611 64% 4,703 62%

* The operational profit percentages from sales to tender and Dalkan customers are similar. 1.8.6 Marketing and distribution Below is a brief description of Delek Israel’s marketing methods: A. Marketing at gas stations Marketing to the public – Delek Israel promotes its products and services in number of ways: discounts, national or station-specific sales and by using sales promoters (for example, handing out newspapers free of charge or at discounted prices to customers buying gas for more than a certain price amount, car wash at discounted price), and advertising in the media. In addition, Delek Israel invests in the maintenance and upgrading of its gas stations and the services provided there, the refurbishing of old stations and improvement of their exteriors and is working to expand the range of services provided in the stations. Marketing of Dalkan – electronic identification system– Delek Israel employs in-house marketing staff and also hires sales promoters to recruit new Dalkan customers. Delek Israel also participates in tenders published by companies with large fleets that are seeking collective arrangements for filling services. In addition, Delek Israel operates a fueling service through a network electronic card (“Station Owner Card”), which allows small private companies to obtain credit and discounts on the purchase of fuel at gas stations in the vicinity of their business. B. Expanding deployment of gas stations, convenience stores and Retail Areas 1. Delek Israel employs an enterprise manager to identify potential locations and entities interested in partnering with the company to set up gas stations. During the forthcoming year, Delek Israel estimates that it will attain deployment of over 200 convenience stores, i.e. to set up 30 additional stores (whether operated by the Company or through franchises). This information with regard to expanding the chain of convenience stores is forward-looking information, and it may not materialize, inter alia due to the need to obtain the approval of the holder of the rights in the gas station, difficulties in obtaining the necessary approval for establishing Retail Areas (in order to set up a Retail Area, Delek Israel is sometimes required to change the urban building plan that applies to the Retail Areas, to obtain building permits, and more), regulatory changes that might impede the construction of additional outlets, economic viability, heightened competition among convenience stores, an economic recession that would weaken sales at convenience stores, and more. 2. In 2004, Delek Israel and Delek Real Estate established Delek Retail Lots Ltd. ("Delek Retail Lots” or "DRL"). During the second quarter of 2010, Delek Israel purchased Delek Real Estate's shares in DRL, pursuant to which DRL became a wholly owned subsidiary of Delek Israel. DRL specializes in identifying and purchasing 50% or more of the ownership in land on which it will initiate, plan, build and operate real estate enterprises

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that include gas stations and commercial centers. At the reporting date, Delek Retail Lots has acquired fourteen plots of land on which it intends to operate in this manner (two already had active gas stations and commercial centers when they were acquired, four have begun operating by the reporting date and eight are in advanced planning stages, out of which four will be constructed during 2011 and the rest within another three years). 3. Marketing and distribution in Direct Marketing In the Direct Marketing operation, Delek Israel has a marketing and sales system, either alone or through investee corporations, for marketing the products to the end customers. Delek Israel also has contractual arrangements with fuel agents (third parties), selling fuel to end customers, who are the agents’ customers. The transportation of oil products marketed by Delek Israel in the Direct Marketing segment is mainly through its subsidiary Delek Transportation, through various subcontractor carriers and by direct piping to the customer. Delek Israel is not dependent on any single agent for marketing its fuel products; however, the entire marketing array is material for Delek Israel. 4. Exclusive agreements Delek Israel has an exclusive representation agreement, which is not material, with international corporation Exxon Mobile for the marketing of the latter's oils in Israel. The agreement is effective through December 31, 2011, and can be canceled under such terms and conditions as are acceptable in similar agreements. In addition, most of Delek Israel's supply agreements with gas stations are for the exclusive supply of fuel products during the period of the contractual arrangement. For further details about the supply contracts, see Section 1.8.10C. 1.8.7 Competition A. According to data published by the authorities, there are over 40 fuel companies registered in Israel and licensed to purchase oil products from ORL. Together, the four major companies hold the largest market share in Israel. Delek Israel estimates that it is the second largest fuel marketing company in Israel, its main competitors being Paz, which markets petroleum products to 280 gas stations (about 26% of all gas stations), Sonol, which according to Delek Israel’s estimates markets to about 229 stations (21%) and Dor Alon which according to Delek Israel’s estimates markets to about 193 stations (18%). B. The Israeli fuel economy is currently characterized by intense competition in all the areas of operation of Delek Israel, as follows: 1. Expansion of deployment of the gas stations of the fuel companies and their locations, whether by identifying new locations and setting up new stations or through agreements with old-established gas stations whose operating/supply contracts have expired. 2. Marketing to end consumers and increasing sales in gas stations. This competition is reflected in the erosion of marketing margins, the grant of discounts and holding various sales promotions, the service provided at the stations, and the range of services offered to the customer. 3. The entry of fuel companies and retail companies into retail activity on the premises of the gas stations. 4. Competition in the area of marketing to fleets, which is primarily between the major fuel companies, is manifested primarily in competition over the prices offered to the fleets and in the additional services provided by the fuel companies, such as electronic reports and media, fleet management software, car-wash services and the like. 5. The competition in Direct Marketing has become extremely aggressive, both due to the factors driving competition in the fuel sector in general and due to issues that are unique to this segment. Since the bulk of supply is carried out directly to the customer, independent of the physical location of the marketer (i.e. the gas station), and since no major financial investment in facilities is necessary, there is fierce competition among all the rival parties for each and every customer, with none of them having any comparative advantage. The competition is manifested in the price and credit terms given to the customers. The fierce competition in Direct Marketing stems, in part, from the fact that some of the oil products are generic, with limited importance as to their origin and/or quality, as well as from the low transfer costs (both for the customers and the fuel

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companies) and the terms of the contractual arrangements with customers, which are made in the framework of tenders or short-term engagements. 6. Competition in the area of fuel storage and supply is affected mainly by the location of the storage facilities of each of the companies (the infrastructure companies and the fuel companies), by the costs involved in transporting the fuel to the end consumer, and by the price for fuel storage and supply services, which is partly controlled. C. Below are the ways in which Delek Israel deals with competition and the factors affecting its competitive status: 1. Delek Israel is working to expand the deployment of its gas stations with which it is associated, and estimates that its nationwide deployment of stations increases their accessibility and provides it with an advantage in the competition for private customers and for Dalkan customers, to whom a wide distribution of gas stations is especially important. 2. Expansion of the marketing of additional products and services in gas stations on the basis of the existing infrastructure. 3. Improving the appearance, atmosphere and service at its gas stations. 4. Improving the stations’ operating structure. 5. Ability to grant credit to customers, bearing in mind that credit exposure is a risk factor. 6. Financial strength and a developed and supervised marketing array with a high-level control ability. 7. Levels of readiness to manufacture and supply large quantities when necessary. 8. In the fuel storage and supply segment, the main way in which Delek Israel copes with competition is by providing better service and more competitive prices. The costs differences versus the other infrastructure companies and the different storage capacity of each of the companies operating in this area, affect Delek Israel’s competitive status in this segment. 1.8.8 Seasonality In general, Delek Israel is not affected by seasonality. At the same time, it is noted that in recent years there has been an increase in the sale of fuels at gas stations during the summer which stems, Delek Israel believes, inter alia from an increase in car travel to vacation destinations and the use of air-conditioning in cars, which increases fuel consumption. During Jewish holidays (usually one or two days), fuel consumption decreases, especially in the business sector and in industry, while sales of retail products increases as compared with the rest of the week. Seasonality does not exist for most Direct Marketing products. However, sales of diesel oil and kerosene for domestic heating as well as sales to industrial customers increase during the winter i.e. in the first and fourth quarter of each calendar year. In addition, sealants and insulation products are seasonal and are applied mainly in the spring, summer and autumn, while in the winter (the second half of the fourth quarter and the first quarter), the demand for these products drops significantly, since many of these products cannot be successfully applied in winter weather conditions. The effects of seasonality on the fuel storage and supply activity are immaterial 1.8.9 Production capacity in direct marketing The maximum potential production capacity at the plant that produces oils and auxiliary products for vehicles and industry ("the Delek Lubricants Plant") is around 40,000 tons per year. The annual oil production capacity utilized at this plant is around 15,000 tons per year. For a description of the maximum and utilized capacity of the storage and supply facilities, see section 1.8.10H below. 1.8.10 Property, plant and equipment, and facilities A. At December 31, 2009 Delek Israel owns or leases from ILA 52 gas stations (including 10 jointly owned with third parties and Delek Retail Lots) and 171 stations all over the country leased or rented under long-term agreements. Delek Israel also has fuel storage and supply depots in Ashdod, Beer Sheva and Jerusalem, a fuel supply depot in Haifa, a fuel oil supply

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depot in Ashdod, a bitumen production plant1 and a plant for the manufacture and mixing of lubricants in Lod. Of all these gas stations, at December 31, 2010 Delek Israel operates 195 stations, 20 are operated by third parties on behalf of Delek Israel under operating agreements, and 31 are operated by third parties under supply agreements. All the gas stations are branded Delek or Gal and sell Delek Israel products exclusively. Below are Delek Israel's gas stations, classified according to proprietary rights in the land and terms of station operation, at December 31, 2010:

Operated by Delek- Operated by Self operation appointed contractor Type of station (Delek Retail) operator (supply) Total Ownership and ILA 44 8 -- 52 lease Disabled IDF veterans 19 1 4 24 Rent under three years 18 6 -- 24 Rent above three years 114 5 4 123 No proprietary rights -- -- 23 23 (supply) Total 195 20 31 246

B. Proprietary rights in station land Delek Israel's gas stations are divided into four categories from the aspect of ownership of the land on which the stations are located, as follows: − Stations owned by Delek Israel or leased from Israel Land Administration (ILA) include stations where the land is owned by Delek Israel or leased by primary lease from ILA, with a minority of stations jointly owned with a third party. − IDF veteran stations were established pursuant to an interministry agreement between the State of Israel and the fuel companies. This agreement stipulates that ILA land would only be allocated for establishing gas stations if the right to operate those stations is awarded to a disabled IDF veteran selected by the Rehabilitation Department of the Ministry of Defense for his rehabilitation. This guideline was modified in the 1990s and currently ILA allocates land for gas stations directly to the fuel companies, and not under the disabled IDF veteran rehabilitation agreement. Under the aforementioned agreement, the disabled IDF veteran is granted primary leasing rights for 49 years, with an option for extension for a further 49 years. Concurrently, the fuel companies are granted secondary leasing rights for the same term in return for leasing fees equal to the leasing fees paid by the veteran to ILA. Delek Israel would lease the land for establishing the gas station, install the equipment needed for its operation and maintain its systems. After establishing the station, Delek Israel appoints the veteran as operator on its behalf, so that they are required to purchase all oil products exclusively from Delek Israel, and the prices for the oil products to the station (i.e. the sale prices to the veteran) is set by Delek Israel. Under the agreements, in some cases the veterans have undertaken to pledge the station land to Delek Israel in order to secure their obligations, but in most cases this pledge has yet to be registered and only the contractual obligation exists. In this context it should be noted that according to the new Ministry of Defense guidelines pertaining to gas stations and the rehabilitation of disabled veterans, approval must be obtained from the Rehabilitation Department of the Ministry of Defense for any transfer of operating rights for these gas stations to a third party, including Delek Israel, requiring the consent and approval of the Ministry of Defense (this requirement appears, inter alia, in the gas station leasing agreement). The Ministry of Defense emphasizes that the main thrust of its policy

1 As part of the sale agreement of Bitum shares as described in section 1.8.2.A3 above, on March 1, 2011, Delek Israel signed an agreement for the sale of the land on which, inter alia, the plant is located for NIS 1.1 million. At the report date, transfer of this land was not yet completed.

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is that the station is designated for the occupational rehabilitation of the veteran and therefore it cannot be transferred to a third party. In a letter from the Rehabilitation Department to Delek Israel, the Rehabilitation Department requests details pertaining to stations owned by veteran soldiers that have contracts with Delek Israel, and Delek Israel provided the requested information. It should be noted that if the Rehabilitation Department does not approve operation of the veteran stations by Delek Israel, the Rehabilitation Department will order the termination of the operating agreement between Delek Israel and the veteran and Delek Israel will be permitted to supply only fuel to those stations. − Rented stations include those where the company is sub-lessee or lessee from a third party which is not ILA, and stations under long-term or short-term rental. Usually Delek Israel commits to establish the station at its own expense, to install most of the equipment required for normal operation, and to maintain all its systems. In these stations, the operator is required to purchase all oil products exclusively from Delek Israel, and prices for oil products to the station operator is are set by Delek Israel. Through the end of 2011, rental rights of Delek Israel in 13 gas stations are expected to expire. However, based on past experience, Delek Israel estimates that a rental agreement will be signed for most of these stations for an additional period, although it is uncertain that such agreements will be signed or that the rent will not change when renewing those contracts. − Stations where Delek Israel has no proprietary, possession or usage rights are those where Delek Israel has signed agreements with station owners which usually grant Delek Israel exclusivity in supplying fuel products for a 1-year term, with the owner alone having the option to demand renewal of the agreement for a further 1-3 years; the remaining cases include provisions with regard to commercial terms. In many of these agreements there is no guarantee for fuel product supply. The supply agreements for these stations will end by end of 2013. Nevertheless, in view of past experience and relationships with the owners of these stations, Delek Israel estimates that in most of these stations, supply will continue after expiration of the supply agreement. This estimate by Delek Israel is forward-looking information which may not materialize, inter alia, if the supply agreements are not renewed or if margins do not changed upon their renewal. If the agreements are not renewed, Delek Israel foresees no material negative impact on Delek Israel's business. For details of restrictions in restrictive trade practices legislation applicable to Delek Israel's engagements with the owners of rights in gas stations, see section 1.8.19J. C. Gas stations are operated in one of several ways: − By Delek Israel through Delek Menta Road Retailing Ltd.1 (“Delek Menta”) − By a third party appointed by Delek Israel – Gas stations in this arrangement carry Delek Israel signage and purchase all products exclusively from Delek Israel. The operator is obliged to operate the station in accordance with Delek Israel procedures which include, inter alia, criteria for opening hours, uniform outward appearance, maintenance standards and quality of service. In most cases the operator bears most of the operating cost of the gas station, including for hiring staff and purchasing inventory from Delek Israel. In some cases Delek Israel contributes to operating costs (property tax, station maintenance, payment of lease fees where the station is leased, participation in discounts for Dalkan or filling card customers). In other cases Delek Israel does not participate in the operators' costs, but gives a discount on the prices of the fuels sold to them. The operator is responsible for obtaining the licenses and permits required for operating the station, but in some cases Delek Israel processes and pays for compliance with regulatory requirements applicable to the gas station. The operator pays Delek Israel fixed and/or variable rent, based on sales volume at the station − By an independent third party not appointed by Delek Israel – In these stations there are in effect short-term supply agreements of a year, where only the operator has the option

1 On On December 31, 2009, Delek Retail and Delek Menta signed a merger agreement under which in the first stage Delek Retail would transfer all its assets to the new company set up especially for this purpose in return for allocation of shares in the new company and against the current liabilities and/or trade receivables and payables, and in the second stage (immediately following the first stage), the new company will merge with Delek Menta so that all its assets and liabilities will be transferred to Delek Menta and the new company will be dissolved without liquidation. On December 29, 2010, the tax authorities approved this merger. At the report date, approval from the Registrar of Companies for this merger was not yet received.

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to request renewal of the agreement for an additional year, up to three times. The supply agreements require operators to purchase fuel and lubricant products from Delek Israel at agreed prices and credit terms, and to sell them under Delek Israel trademarks, under their name and within price control restrictions, and in accordance with the stipulations of Delek Israel with regard to safety procedures, marketing, the outward appearance of the gas station etc. Usually Delek Israel owns the gas station equipment and lends it to the station operator. Delek Israel installs the equipment required for operation of the station and provides the owner of the rights with maintenance services and professional training pursuant to the contractual agreement. In most cases there is no collateral for selling fuel to stations. In some cases Delek Israel has no exclusivity in supplying fuel products. D. All Menta convenience stores are operated by Delek Israel through Delek Menta, with the exception of 10 stores operated under franchisees. All Menta store employees are Delek Menta's employees. Delek Menta purchases the inventory and bears the risk involved in operating the convenience stores. During 2008, Delek Israel began operating convenience stores through franchisees who run them with their own employees. The franchisees purchase the inventories and bear all the risk involved in operating the stores. Delek Israel will decide in each case, based on business considerations, whether to operate the convenience store through franchisees. E. Delek Israel’s property, plant and equipment in the gas station and convenience store segment include buildings and equipment in most of the public gas stations in which it has ownership rights. It also has equipment installed in all the stations in which it has no ownership rights or for which it has short-term lease agreements. In some of these stations, Delek Israel also has property, plant and equipment in station buildings constructed many years ago, when it had ownership rights (including long-term lease contracts) in those stations. Delek Israel’s equipment in its stations includes everything needed for operating the stations including tanks, pipes, pumps, computer and communication systems, office equipment, electrical systems and generators, fire extinguishers and public toilets. Delek Israel also has vehicles and trucks for the transportation of fuel and oil products. F. Delek Israel’s property, plant and equipment in the direct marketing segment includes the equipment in the inner stations, including infrastructure, tanks, pipelines, pumps and designated tanks on customer premises and in their facilities. Delek Israel also has a fuel supply depot in Ashdod, which it leases from Ashdod Port Ltd. (“Ashdod Port") through June 1, 2013. In addition, Delek Israel owns three barges for fueling ships in the ports of Haifa and Ashdod. Delek Israel has a 4.9 hectare plant in Lod, out of which about 4.7 hectares are owned by Delek Israel and the rest is leased from ILA. The plant contains lubricant mixing facilities, filling and packing facilities, an installation for lubricant renewal, solvent manufacturing and recycling facilities, a central sewage treatment plant, warehouses, laboratories, various buildings, a plant for the manufacture of water-based paint, and offices. G. Delek Israel also has an 1.1 hectare plant in the Haifa Bay industrial zone, most of which is owned by the Group (Delek Israel, Delek Investments) and part is leased from the Jewish National Fund (on April 1, 2004, the lease fees were capitalized for 46 years). The plant consists of industrial buildings, including production plants, offices, warehouses, facilities and sheds. As set out in section 1.8.2.A3 above, on January 13, 2011 Delek Israel signed an agreement for the sale of this land for NIS 1.1 million. At the report date, transfer of the land was not yet complete. H. Delek Israel’s property, plant and equipment in the storage and supply operation has four facilities: three in Ashdod, Beer Sheva and Jerusalem for providing storage and supply services for Delek Israel and third parties, and the fourth in Haifa, for Delek Israel's own use. The Ashdod facility, Delek Israel's main storage and supply facility in Israel, is located in Ashdod’s northern industrial zone on 32.9 hectares of land. Delek Israel is entitled to be registered at ILA as owner of leasing rights in this land through June 30, 2019, with an option for a further 49 years. The Ashdod depot has 26 above-ground tanks with a maximum capacity of 506,000 cu.m., as well as six tanks of additives and three water tanks. In practice, in 2010 100% of the total capacity of above-ground tanks was utilized. Adjacent to the tank farm is an operating area which includes an administrative building and an office building as well as technical and special-purpose buildings. The Beer Sheva facility is located next to the Hatzerim road, on 7.9 hectares of land. Delek Israel is entitled to be registered at ILA as

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owner of leasing rights in this land through July 31, 20151, with an option for a further 49 years. This facility has 10 above-ground tanks with maximum capacity of 72,000 cu.m., as well as two tanks of additives and two water tanks. Adjacent to the tank farm is an operating area which includes an administrative building with restrooms as well as technical and special- purpose buildings. In practice, in 2010 a total of 69,000 cu.m. of the total capacity of the above-ground tanks was utilized at this facility. The Jerusalem facility is located on the southern slopes of the Har Nof neighborhood, on 5.9 hectares of land on three levels, of which FPL holds 0.3 hectares under a separate leasing agreement. A plan was approved conditionally for filing by the Planning and Construction Sub-committee on March 25, 2002, whereby this land will be re-zoned for residential use. The plan has not progressed due to the opposition of green organizations to the location of the alternative site designated at the time, and the plan is no longer being processed. Delek Israel is entitled to be registered at ILA as owner of leasing rights in 5.5 hectares of land through March 19, 2015, with an optional extension for a further 49 years. ILA announced that it intends to renew the lease from April 1, 2008 for a further 49 years, but the lease agreement has not yet been signed between ILA and Delek Israel. The Jerusalem facility has eight above-ground tanks with a maximum capacity of 33,500 cu.m., as well as three tanks of additives and one water tank. The operating area includes two office buildings as well as technical and special-purpose buildings. In practice, in 2010 a total of 10,000 cu.m. out of the total capacity of the above-ground tanks2 was utilized The Haifa facility is in the Haifa Bay area (Hof Shemen) on 3.1 hectares of land, and is owned by Delek Israel. It has 14 tanks with maximum capacity of 20,000 cu.m, five tanks of additives, and water tanks. In practice, in 2010 Delek Israel used approximately 12,000 cu.m.of the maximum capacity of its tanks. In addition, Delek Israel has the equipment required for the storage and supply operation. 1.8.11 Intangible Assets Delek Israel operates under several well-known, protected brands: "Delek" and "Gal" (gas station brands), "Menta" (convenience store brand), "Delkol" (oil brand) and "Dalkan Delek" (electronic filling service brand). In addition, Delek Israel markets products under various brands, such as export lubricants under the Desko and Mapco brands, and is the exclusive importer of Exxon Mobil products in Israel. 1.8.12 Human Resources A. Delek Israel employees at December 31, 2010 and December 31, 2009:

Department No. of employees at No. of employees at December 31, 2010 December 31, 2009 Management/headquarters 153 143 Production and operation 270 272 Station service 1,863 1,503 Sales and marketing 115 107 Security staff 62 58 Total 2,463 2,083

At December 31, 2010, out of the total number of employees, 2,069 are employed in the stations, 228 in direct marketing, 106 in fuel storage and supply and 60 are not assigned to any operating sector. Most of the increase in the number of employees in 2010 stems from the transition of stations to self-service operation, rapid development of Delek Israel’s chain of convenience stores, and reinforcement of the marketing array and station control. B. Most of Delek Israel's employees are hired under personal employment contracts and are not subject to a special collective agreement, while special or general collective agreements apply by virtue of membership of the companies in employers organizations or by virtue of

1 The aforesaid date is according with Rights Confirmation issued by ILA. Under the leasing contract, the leasing rights are through August 20, 2015. 2 Delek Israel is currently reviewing the option of changing the future use of the property at the Pi Glilit compound in Jerusalem, including re-zoning the land for residential use.

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expansion orders. Delek Israel customarily grants its employees bonuses, based on performance and subject to the approval of the board of directors. C. Delek Israel only employs road tanker drivers who are licensed to transport hazardous materials. In addition, employees who work in the gas stations or who come into contact with petroleum materials, undergo training in fire extinguishing and the prevention of environmental hazards. D. Officers and senior management employees at Delek Israel are employed under personal employment contracts which include contributions to managers insurance. On November 5, 2007, Delek Israel adopted a stock options plan for 2007, whereby Delek Israel granted, free of charge, to employees, officers and consultants up to 442,624 unlisted options, exercisable for Delek Israel ordinary shares (“the 2007 Plan”), of which 109,483 options were granted to Mr. Moshe Amit, Chairman of Delek Israel Board of Directors, and the remainder to employees, consultants and officers of Delek Israel and/or corporations it controls. At December 31, 2010 61,840 options expired due to termination of the employment of the employees who were allocated these options and 22,020 options were exercised for shares. The options will vest over a 5-year period, with the exercise price varying at each grant date. Exercise of options for shares by employees who are not senior officers will be by means of cashless exercise, whereby the employee is eligible to receive shares reflecting the benefit component inherent in the exercised options, based on a formula set out in the Plan, in consideration of payment of the par value of the shares only. Employees who are senior officers can exercise the options granted to them by cash payment of the exercise price or by means of the aforementioned mechanism – as they choose. The option can be exercised for shares, subject to their vesting schedule, through May 31, 2013, or prior to that date in the event of termination of employment or of provision of services, as described in the Plan. The right to exercise is subject to adjustments described in the 2007 Plan. Senior officers of Delek Israel are entitled to receive a loan for exercise of the options, at annual interest of 4% and linked (principal and interest) to the CPI known on the grant date of the loan. The loan will be a non-recourse loan, secured only by a fixed senior lien on the underlying shares. The theoretic financial value of the total number of 358,764 options allocated to employees and which have not expired at December 31, 2010, based on the Black & Scholes model, amounts to NIS 14,382 thousand, based on the following parameters: price per ordinary share at the date of the board of director's resolution concerning the allocation; exercise prices as aforesaid; annual standard deviation of 35.29%; expiry date of the options for the purpose of this calculation was calculated as an average of the purchase date of each tranche and the formal contractual expiry date; annual discount rate of 4%; rate of employee churn of 3% per year; the expected expiry date of non-recourse loans was calculated as an average between the expected contract expiry date for the options and the extension of the options by six months from the original expiry date. The table below presents additional details of Delek Israel's employee stock options under the 2007 Plan:

Number of shares Value of benefit in exercisable under options granted Expenses the Plan under the plan recognized in 2010 (at full dilution) (NIS in thousands) (NIS in thousands) Employees (non-officers) 91,940 2,314 485 Officer 157,341 7,262 1,023 Chairman of the Board 109,483 4,805 - Total 358,764 14,382 1,509

On August 31, 2009, Delek Israel adopted a plan to allocate options for 2009, according to which Delek Israel awarded, free of charge, to employees of Delek Israel and/or companies under its control, 69,600 unlisted options, which are exercisable for ordinary shares of NIS 1 par value each of Delek Israel ( "the 2009 Plan"). The 2009 Plan was submitted for approval of the income tax authorities as required by the provisions of the Israeli Income Tax Ordinance (New Version) -1961 ("the Ordinance"). Out of the options allocated under the 2009 Plan, at December 31, 2010, 3,200 options expired due to termination of the employment of the employees who were allocated these options.

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The table below presents particulars of the 2009 Plan:

Number of shares Value of benefit in exercisable under options granted Expenses the Plan (at full under the plan (NIS recognized in 2010 dilution) in thousands) (NIS in thousands) Employees (non-officers) 26,400 1,080 498 Officers 40,000 1,665 684 Total 66,400 2,745 1,182

The shares stemming from the exercise of 425,164 options that were allocated under this plan that have not expired and/or were not exercised at the report date will comprise (assuming full exercise of all the options by all the employees) up to 3.6% of Delek Israel's voting rights and issued and paid-up capital1. E. For a description of the terms of employment of Mr. Moshe Amit, Chairman of Delek Israel’s Board of Directors, see particulars pursuant to Regulation 21 in Chapter D of the periodic report. 1.8.13 Raw materials and suppliers of fuel products and oils A. The main oil products used by Delek Israel The main fuel products used by Delek Israel, both in fuel marketing in public stations and in direct marketing, are oil distillates produced from crude oil purchased and traded on global exchanges. The oil distillates are purchased mainly from ORL, a small quantity from ORA, and the rest are imported from overseas suppliers based on financial considerations. It is noted that the oil distillate prices are exposed to fluctuations in currency exchange rates and global commodity markets. The main raw materials used by Delek Israel in the manufacture of oils and lubricants is basic oil, which is purchased from Haifa Basic Oils Ltd. and from overseas suppliers, and additives that are purchased from various suppliers in Israel and abroad. In addition, Delek Israel imports oils and finished products from overseas suppliers (Exxon Mobil) to supplement its product range. In 2009 and 2010 Delek Israel purchased over 95% of its fuel products from ORL and the rest from ORA. Delek Israel's decision concerning the source of purchase of fuels derived purely from financial feasibility considerations. Therefore, it is quite possible that Delek Israel will review the possibility of importing fuel in future. Delek Israel is dependent on ORL. In 2010 and 2009, Delek Israel’s purchases from ORL amounted to 86% and 87% of its total sales cost respectively. B. Agreements with major suppliers 1. Local suppliers At the report date, Delek Israel's principal petroleum product supplier is ORL. The purchases from ORL are made under a renewable agreement dated November 8, 2010, as from January 1, 2010 whereby ORL will sell and supply petroleum products to Delek Israel. In this agreement, the petroleum products will be purchased from ORA is by means of monthly orders. With respect to 96 octane gasoline and diesel fuel, the monthly order will be placed based on an annual plan (listed by month) which was submitted to ORL, while Delek Israel is permitted to update the volume of monthly and annual purchases by the deviation specified in the agreement. The price of petroleum products purchased from ORL is determined based on product prices at Lavera, Italy, including marine shipping cost and insurance (“CIF Lavera”). The

1 It is noted that this percentage of shares was calculated on the theoretical assumption that all the options allocated are exercised for a quantity of exercise shares that reflects the number of options exercised (i.e. that each option is exercisable for one ordinary share, and the total quantity of shares is 425,164). Since senior officers are eligible to exercise the options granted to them in cash or an option exercise mechanism for shares based on the cashless exercise, and since the options allocated to employees who are not senior officers are exercisable for ordinary shares only by this mechanism, the number of shares that will be allocated for exercise of all the options could be lower than the quantity of options offered.

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relevant Lavera price used to determine the price will be five consecutive published prices, the last of which is two working days in Israel prior to the beginning of the supply month, based on the mechanism set out in the agreement. The credit extended to Delek Israel is EOM + 15 days. Delek may also make pre-payments to ORL, subject to prior request and ORL's consent, against interest credit at a percentage to be agreed between the parties. The agreement includes, inter alia, provisions concerning ORL discounts based on quantities purchased by Delek Israel, financial collateral that Delek Israel must provide for the purchases, and so forth. In addition, Delek Israel also purchases small quantities of petroleum products from ORA under an agreement whereby the petroleum product purchases are made by means of monthly orders in exchange for prices as set in the agreement and calculated using a price formula derived from the price of petroleum in the Mediterranean Basin, where under the agreement, ORA is permitted to update the price structure from time to time at its own discretion. Purchases of petroleum products beyond the quantities noted in the above agreements are made on the basis of agreed terms between Delek Israel and petroleum product suppliers with respect to each and every purchase. 2. Import of petroleum products In the past Delek Israel imported petroleum products from global petroleum suppliers, in cases where the cost of imported oil products was lower than local supply. In 2008, Delek Israel imported petroleum products in negligible amounts from international suppliers and in 2009 and 2010 Delek Israel did not import petroleum products, due to the fact that ORL's oil product purchase terms were better compared with the cost of importation and of the infrastructure which includes unloading, storage and piping to Delek Israel's storage facilities. The import price for international trade companies is determined by a formula based on the local rate. Delek Israel is continuing its efforts to review import alternatives to for petroleum product purchases, including the option to reduce the unloading and piping costs of petroleum products to the Pi Glilot facilities in Ashdod. 1.8.14 Working capital A. Raw material inventory policy – Delek Israel's policy is to maintain a stock of basic oil sufficient for an average period of up to 60 days. In 2009 and 2010 Delek Israel maintained an average basic oil inventory of 60 days. B. Finished product and emergency inventory policy – Delek Israel is obligated by Emergency Regulations to maintain an emergency supply of diesel and jet fuel for the State of Israel. The expenses and financing for this inventory are covered by the State. C. Operating inventory – Delek Israel's policy is to maintain an inventory of petroleum products sufficient for an average of up to 30 days, oils sufficient for an average of 60 days and retail products sufficient for an average of 7-45 days, depending on the type of product. In 2009 and 2010 Delek Israel maintained inventories in accordance with its policy. D. Credit policy 1. Customer credit: Delek Israel provides credit to its customers for a period ranging between EOM + 5-30 days for the purchase of gasoline and EOM + 60-150 days for the purchase of diesel fuel and fuel oil. It should be noted that the average credit extended to the Delkan customers is shorter, at EOM + 45 days. .Delek Israel provides customers of its storage and supply services with credit at EOM + 15 days. The average credit period to customers in 2009 and 2010 was 52 days. Average credit amounts to customers in 2009 and 2010 were NIS 1,480 million and NIS 1,500 million, respectively. The percentage of secured customer credit is not material. 2. Supplier credit: Delek Israel receives EOM +15 days credit for fuels purchased under its annual purchase contracts with ORL. For purchases from ORL that are not under the contract and for purchases from ORA, Delek Israel pays on average in the middle of the month in which the fuels are purchased, and receives pre-payment interest of 30 days. Excise taxes (which are a significant amount of the cost of fuel) are paid by Delek Israel in accordance with the law within ten days after issue of the fuels. 3. The differences between the customer credit, supplier credit and excise credit compel Delek Israel to take short term loans to finance those differences. Delek Israel’s strategy for closing the gap is to shorten the customer credit period and to replace short-term credit with long-term credit.

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1.8.15 Investments A. Delek USA - Delek Israel holds 3.33% of the share capital of Delek Hungary, which holds 73% of Delek USA. For additional details on the activities of Delek USA in oil refining and fuel products in the USA, see section 1.7 of the report. B. Delek Europe – Delek Israel holds 20% of the shares of Delek Europe Holdings Ltd. (“Delek Europe”), which holds 100% of shares of Delek Benelux B.V. (“Delek Benelux”), through a wholly-owned foreign subsidiary. On October 1, 2010, Delek Europe acquired the petroleum and convenience store operation of BP France SA, through Delek France Finance SNC (“Delek France”), a wholly-owned subsidiary of Delek Europe held indirectly through Delek France B.V (a wholly-owned subsidiary of Delek Europe). For details of Delek Benelux's marketing operations in Benelux countries (Belgium, Holland and Luxembourg) and the fuel marketing operation in France, see section 1.9 of the report. C. Pi Glilot – Delek Israel holds 15.3% of Pi Glilot, a mixed company as defined in the Government Companies Law, together with Paz, Sonol, Sonefco Bank Street Corporation and the State of Israel (21.5%, 13.2% and 50%, respectively). Through July 31, 2007, Pi Glilot held real estate rights in the storage and supply facilities in Ashdod, Beer Sheva and Jerusalem. Following the privatization of Pi Glilot, on July 31, 2007 Delek Israel acquired these storage and supply facilities and the associated storage and supply operations, in consideration of NIS 806 million. Currently, Pi Glilot owns real estate rights in the 17-hectare Pi Glilot site in Ramat Hasharon, which used to include a storage and supply depot. At the report date, Pi Glilot contracted with third parties to lease some of the land. At the reporting date, to the best of Delek Israel's knowledge, ILA is promoting an urban building plan under which an area including the Pi Glilot site at the Glilot junction will be developed for housing, commerce and employment purposes. In the opinion of Delek Israel, which is based on an assessor’s valuation obtained for participation in the Pi Glilot tender, if these changes in the zoning of the land are completed, the property could increase in value. This is forward-looking information, based on the assessor’s valuation, the assumption that the urban building plan will be accepted, the demand for real estate in the compound and other reasons, and might not materialize. Pursuant to a district court decision on June 11, 2002, in 2004 Pi Glilot ceased all business activity relating to the supply of fuel products from the Pi Glilot site in Ramat Hasharon. The privatization agreement prescribes that upon completion of the privatization proceedings, the Ramat Hasharon facility will be transferred to Pi Glilot shareholders and Pi Glilot will enter into voluntary liquidation, ending all operations. As part of the agreement, in view of the privatization process, Pi Glilot was supposed to enter into voluntary liquidation soon after completion of the privatization process. This agreement was secured in an agreed order that received the validity of a ruling in the Antitrust Court. The petroleum companies, the Governmental Companies Authority and the Antitrust Authority reached an agreement, which has not yet been approved by the court, with respect to amending the privatization agreement and the agreed order to postpone liquidation of Pi Glilot. 1.8.16 Financing A. Below are the average effective interest rates on loans from bank and non-bank sources effective in 2010 and not intended exclusively for specific use by Delek Israel:

Average interest rate Short-term Long-term credit credit Bank sources Shekel loans 2.60% 4.30% CPI-linked loans - 3.50% Foreign-currency-denominated loans 2.04% - Non-bank sources Shekel loans - - CPI-linked loans - 5.60% Issued debentures – CPI-linked - 5.55% Issued debentures – in shekel - 5.57%

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B. Financial covenants – As part receiving of loans and credit facilities from banks, Delek Israel has undertook to maintain the following financial covenants: 1. Delek Israel is obligated to the banks not to encumber its property, plant and equipment in any form without the prior written approval of the banks (except for property, plant and equipment encumbered in favor of the entities that financed purchase of those items). 2. Delek Israel‘s subsidiary undertook towards a bank to maintain an equity to balance sheet ratio of 35% in the subsidiary. At December 31, 2010, the ratio in the subsidiary was 43%. At the report date, Delek Israel complies with all the above financial covenants. C. Credit facilities – At December 31, 2010 and as at the publication date of this report Delek Israel's bank credit facilities (separate) total NIS 1,750 million, of which it has utilized NIS 1,310 million. Nevertheless, it is emphasized that at December 31, 2010, Delek Israel's balances of cash and cash equivalents were NIS 110 million. D. Credit rating – Debentures (Series A) issued by Delek Israel in August 2007 were rated (A+)/Stable by Standard & Poor's Maalot ("Maalot"). In August 2008 Midroog Ltd., ("Midroog") rated said Debentures (Series A) Aa3. On June 15, 2009 Midroog announced a decline in the rating of Debentures (Series A) to A1 with stable outlook. On May 26, 2009 Maalot announced lowering the rating of Debentures (Series A) to A with stable outlook. On June 14, 2009, Standard & Poor's Maalot ("Maalot") announced awarding a rating of iLA with a stable outlook for debentures in the amount of up to NIS 800 million issued by Delek Israel under a shelf tender offer of June 16, 2009. On June 15, 2009 Midroog Ltd. set a rating of A1 with stable outlook for debentures in the amount of up to NIS 800 million issued by Delek Israel under a shelf tender offer of June 16, 2009. On June 9, 2010 Maalot announced ratification of the i1A rating with a stable outlook for the Company's Debentures (Series A) and Debentures (Series B). On August 29, 2010 Midroog announced ratification of the A1 rating with a stable outlook for Delek Israel's Debentures (Series A and B). On January 6, 2011 Maalot updated the rating forecast of Delek Israel from stable to negative and at the same time ratified the rating at “i1A”. On February 8, 2011 Midroog updated the forecast of Delek Israel to A2 with a stable outlook. E. Variable interest credit: Details of variable interest credit obtained by Delek Israel at December 31, 2010 and at the reporting date are as follows:

Range of interest Interest rate rates at December immediately prior to Track 31, 2010 the reporting date Shekel 5.70% 6.50% Dollar 1.70%-2.30% 1.70%-2.30% On Call 2.70%-3.20% 2.95%-3.45%

F. Liens – To secure the NIS 1,378 million debt to banks, Delek Israel placed an unlimited floating lien on the inventory in its possession, its consideration and the rights in respect thereof as defined in the lien documents. In addition, Delek Israel guaranteed debenture- raising (Series A) of Delek Petroleum issued from institutional investors, and the proceeds from the debentures raised by Delek Petroleum was provided as a loan on the same terms to Delek Israel, except for the interest rate charged to Delek Israel, which was 0.05% higher than interest on the debentures, and a number of additional terms laid down between Delek Israel and Delek Petroleum. The total balance of the loans extended to Delek Israel as at December 31, 2010, as described above, amounted to approximately NIS 271 million. In January, 2004, in an issuance of debentures by Delek Petroleum, Delek Israel encumbered under a senior fixed lien unlimited in amount, all of its rights in respect of the loans extended by Delek Israel to the Company. 1.8.17 Taxation The primary tax rate applicable to Delek Israel is different to the effective tax rate, due mainly to the timing differences between expenses, unrecognized discounted expenses, exempt income and affiliated company losses.

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Other than the regular corporate tax laws (see additional details in Note 42 to the financial statements), it is noted that under the Fuel Excise Law, 5719-1958 and the Fuel Excise Order, 5640-1980, a tax is imposed in a defined amount on the fuel products listed in the Order, which is updated every three months based on changes in the CPI. In January 2005, an order was issued whereby the rates of the excise tax on diesel fuel and kerosene would be raised gradually to equal the excise taxes on gasoline, over a period from 2005 until 2009. The excise tax component in fuel prices is highly significant. Fuel companies are charged excise tax directly upon issuing the fuel, with 10 days’ credit, whereas the number of credit days granted by Delek Israel to its customers is significantly higher, especially for diesel fuel sales. 1.8.18 Environmental risks and manner of handling them Delek Israel's operations are regulated under various laws, regulations and directives concerning protection of the environment. Delek Israel works constantly to minimize and prevent possible damage to the environment, investing considerable resources to do so. Delek Israel has increased its investments in this area since Water (Prevention of water pollution) (Gas stations) Regulations, 5757-1997 were promulgated, which include comprehensive provisions aimed at regulating this issue and preventing soil and water pollution. A trend of stricter enforcement of environmental laws is evident in recent years. For details of pending indictments in this matter, see section 1.8.18I. The principal provisions, regulations and orders relating to environment laws and applicable to Delek Israel and their impact are specified as follows: A. Cleanliness Preservation Law The Cleanliness Preservation Law, 5744-1984 (“the Cleanliness Preservation Law”) imposes criminal liability on whoever disposed of waste (including fuels) in the public domain and/or dirtied the public domain. The Cleanliness Preservation Law grants authority to levy fines, issue an order requiring the polluter to restore the polluted area or to impose double the expenses for restoration of the site by the authorities. B. Water Law and Regulations The Water Law, 5719-1959 (“the Water Law”) imposes liability for polluting water sources. The Water Law grants State authorities extensive powers, including the authority to demand termination of the pollution, restoration, to levy fines and charge expenses. The Water (Prevention of water pollution) (Gas stations) Regulations, 5757-1997 (“the Water Regulations“) promulgated by virtue of the Water Law, include comprehensive provisions aimed at regulating this field and preventing soil, water or air pollution. The Water Regulations include, inter alia, provisions requiring gas station operators to install various means of protection for various matters, including the construction of a sealed floor and a drainage system, regular periodic inspections, to fix leakages and report them immediately, and to adapt old gas stations to the current standards. The gas station operator is defined in the Water Regulations as the business license holder, or the person under whose supervision, management or control the station operates. It is noted that in the supply contracts, the liability for handling this matter is imposed on the gas station owner or his operator. As noted above, at December 31, 2010, Delek Israel operates, itself and through its operators, 215 gas stations (of which 124 are stations established before 1997 ("the Old Stations"), in which liability for pollution control and treatment is imposed on Delek Israel. Most of Delek Israel's gas stations are located in high risk areas for groundwater pollution. Under a multi-year contract with the Ministry for Environmental Protection and based on the Ministry's requirements prior to the signing that contract, Delek Israel ran about 75 tests at its gas stations. At 60 stations soil and groundwater pollution was found from past violations and fuel infrastructure leakages in respect of which Delek Israel made provisions in its books. Soil surveys and groundwater monitoring bores were carried out at these stations in order to characterize the type of pollution. At the other stations, where no pollution was found, Delek Israel was required by the Ministry for Environmental Protection and the Water Commission to conduct annual monitoring tests. Pursuant to receiving the status, treatment for restoration of the soil and water will begin, using standard technologies and in cooperation with the Water Commission and the Ministry for Environmental Protection. The cost estimate for cleaning up soil and water contamination depends on its size of the contaminated area and the severity of the contamination. At the report date, 15 gas stations completed soil surveys and groundwater monitoring bores and Delek Israel began the soil restoration process in them.

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C. Means of monitoring in old gas stations Under the Water Regulations, Delek Israel is required to install monitoring means in all the old gas stations to detect fuel leakage into soil at the gas stations. At the report date, Delek Israel has 124 old gas stations, where it has installed the required monitoring means. D. Impermeability tests The Water Regulations require that regular impermeability tests (once every five years) be conducted on the pipes and tanks at all gas stations or more frequently, depending on the circumstances. At the date of this report, tests were completed in most of Delek Israel's gas stations, and at least one round of tests are expected to be completed for all the infrastructure of Delek Israel's gas stations by the end of 2011. The cost of these tests is immaterial to Delek Israel and will not significantly affect its results unless soil or water pollution is detected, which was caused as a result of defective sealing and will lead substantial repairs. E. Clean Air Law, 5768-2008 On July 22, 2008, the government adopted the Clean Air Law, 5768-2008. The law is meant to improve the quality of the air and to prevent and reduce air pollution by means of a series of treatments under a single legislative procedure. For the most part, the law enters into effect on July 1, 2011. A gradual transition period ending on March 1, 2015 was also set for enforcement of the obligation to obtain a permit for emission sources requiring a permit under the law, including inter alia, the energy industries, and the gas and fuel refinery industry in particular. F. The Environmental Protection (Polluter pays) (Legislative amendments) Law, 5768-2008 On July 29, 2008 the government adopted the Environmental Protection (Polluter pays) (Legislative amendments) Law, 5768-2008, which entered into force on October 10, 2008. The objective of this law is to protect, maintain and improve the environment and to prevent damage to the environment or to public health, and to negate the economic viability of causing harm to the environment, inter alia, by means of punishment that takes into account the value of the damage caused and the benefit or profits gained by the commission of environmental crimes. In addition to stricter penalties for environmental violations, the Court is authorized, for a violation by a person that resulted in that person gaining a benefit or profit, to impose a fine at the value of the benefit or profit in addition to any other punishment. G. Bills on environmental issues In recent years several bills on environmental issues have been proposed which are liable to impact Delek Israel if they are adopted, such as the Bill for the Encouragement of Use of Environmentally Friendly Vehicles (Legislative Amendments), 5766-2006, aimed at encouraging the use of vehicles that are environmentally friendly and lower the level of air pollution compared to gasoline engines and of noise nuisances; the Bill for Reduced Greenhouse Gas Emissions, 5768-2008, which defines goals for significantly reducing greenhouse gas emissions and promoting a national multi-year plan to reduce greenhouse gas emissions; the Bill for the Restoration of Contaminated Soil, 5767-2007, for solving the problem of soil and groundwater contamination in order to protect the environment and public health in Israel from pollution caused by the presence of hazardous substances in the soil. H. Additional environmental requirements 1. In November 2005, the Ministry of the Environment published framework terms for gas stations, enabling the authorities, under certain conditions, to carry out additional station infrastructure improvements that are not included in the water regulations published in 1997, e.g. sealing beneath the pumps, installation of overfilling limiters and the installation of means for preventing cathode protection spillovers. The total cost of meeting these requirements is approximately NIS 150 thousand per station. At the report date, Delek Israel was required to conduct tests in 124 old stations as described above. The estimated cost of these tests and treatment is estimated at NIS 25 million over the years 2011-2013. At the report date, Delek Israel has carried out tests and treatment in 75 stations, while in practice, in 2008-2010 the costs amounted to NIS 20 million. Delek Israel reached an agreement with the Ministry of Environmental Protection to install Stage 2 vapor retrieval systems at 70 of its stations (old) over the next six years as of 2008, at overall cost of NIS 14 million, and in addition to the installation of this system at

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its new stations under construction. To date, such retrieval systems have been installed at 50 stations (the majority of which are Old Stations). On May 31, 2010, the Minister of Environmental Protection sent a letter to the gas companies informing them of the Ministry's intention to compel all the gas stations in Israel to install vapor retrieval systems and that this obligation will be included in the business licenses for all stations. The time schedules include mainly the installation of the vapor retrieval systems in 20% of the stations in each of the forthcoming years until the installation is complete in all the stations within five years. It is noted that Delek Israel is opposed to this provision since it contradicts the vapor retrieval system installation agreement which Delek Israel reached with the Ministry of Environmental Protection and Delek Israel is working to change it through Israel Oil Companies Association. During 2011, the Ministry of Environmental Protection intends updating the terms of the gas station business licenses and including updated requirements with respect to the installation of vapor retrieval systems therein. The Ministry of Environmental Protection also intends requiring the installation of systems which meet the more up-to-date standards existing around the world and thus Delek Israel will be required to invest a higher amount to purchase the systems. Delek Israel has also expressed opposition in this matter as this requirement contradicts approvals given in the past by the Ministry with respect to the type of systems that Delek Israel is permitted to install under the agreement with it. 2. In February 2008, Delek Israel received from the Ministry of Environmental Protection draft framework terms for a fuel tank farm, which would determine benchmarks and requirements applicable to Pi Glilot with regard to operation of the tank farm, in order to protect the environment. The draft contains provisions dealing with the prevention of soil and water pollution, including the manner of discharging industrial wastes, the installation of a waste treatment facility, determination of the quality of wastes to be discharged into the sewerage system, tank testing, pipe testing, installation of means for locating leaks in tanks, as well as the testing and treatment of contaminated soil and water. At the report date, the draft framework terms for a fuel tank farm had not received validity, but some of its requirements have been included as additional terms for a business license. I. Criminal proceedings related to environmental protection Failure to comply with the provisions of the Water Law and Water Regulations could constitute a criminal offense, carrying a one year prison sentence or a fine of up to NIS 350,0001, and heavier penalties in the event of an ongoing offense. An indictment concerning environmental issues has been filed against Delek Israel and its managers, alleging contamination of soil and groundwater, and was filed against Delek Israel’s then CEO, its VP Sales and several of its marketing staff. The case is in the evidentiary hearing stage, while at the same time, the parties are negotiating for a possible plea bargain. In addition, a second indictment was filed at the end of 2010 against Delek Israel and its former officers concerning, inter alia, alleged violations of the Water Law and the Regulations by virtue thereof with respect to fuel leakage from tanks and pipelines and the reporting thereof. A reading meeting of the indictment has been scheduled for April 5, 2011. J. Stricter enforcement of the prevention of diluted fuel sales In April 2008, the Knesset adopted an amendment to the Vehicle Operation Act (Engines and fuel) Law, 5721-1960, with the purpose of minimizing the sale and supply of gasoline blended with diesel fuel, naphtha and other substances, for which the prices and taxes payable are significantly lower than the price of the fuel. Under the amendment, every gas station operator is required to conduct at least six annual tests to have product quality verified by an authorized laboratory. Sanctions against nonstandard oil products will be increased substantially, including possible administrative closure orders, publication of the names of gas stations which sell nonstandard products, and significantly higher fines. The provisions of the amendment entered into force on October 10, 2008. Delek Israel believes that enactment of the law will not have a materially negative impact on the company. For the investigation conducted / in progress against Delek Israel with respect to fuel dilution which came to light in October 2006, see Note 33A1 to the financial statements. Delek Israel is unable to evaluate the exposure in claims concerning the October 2006 fuel dilution issue, if any.

1 The financial fine is in addition to the expenses involved in treating the contamination.

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K. Fuel supply facilities The Ministry of Environment requires installation, at supply facilities that issue gasoline, of a vapor retrieval system to treat gasoline vapors collected from petrol tanks of stations when these tanks are being filled. The Ashdod facility had already included such a system upon its acquisition by Delek Israel in July 2007. The Beer Sheva and Jerusalem facilities have no such systems, hence no gasoline is supplied from these facilities. It is noted that Pi Glilot has recently started planning the installation of a vapor retrieval system in the Beer Sheva facility and preparation of a tank for supplying 95 octane gasoline from this facility. The installation and operation of the system at the supply facility in Haifa was completed at the end of April 2007 at a cost of NIS 3 million. L. Bottom filling system Under the Ministry of Transportation regulations, Delek Israel is required to install a bottom filling facility in its distribution facility and in its petrol tankers in order to prevent environmental pollution when the tankers are filled. At the date of this report, Delek Israel has completed the installation at its distribution facility in Haifa and in all its tankers. Delek Israel has acquired the Pi Glilot supply facilities including such systems, except for the Jerusalem facility which has no such system since supply at this facility by gravitation. Since investment in construction of a system in order to change the current supply method, adapting it to requirements with regard to vapor retrieval and bottom filling was found to be economically unfeasible in all aspects, considering future fuel supply volume at the facility and the supply rate compared with the required investment – no bottom filling system has been installed and gasoline supply has been completely discontinued from this facility. M. Fuel oil distribution facility in Ashdod Ionex (a Delek Israel subsidiary (75%) operates a fuel oil distribution facility for which it has a lease from Ashdod Port through June 1, 2013. At the demand of the Ministry of Environmental Protection, the soil in this facility was surveyed three years ago, with no adverse findings requiring treatment. Ionex and the Ministry of Environmental Protection discussed adding of terms to the business license of the Ashdod supply facility relating to the need for special investment for preventing future contamination. Ultimately, the parties agreed on the special terms which were added to the business license while others were deleted and will be added to the business license of the winning bidder on the tender for operation of the supply facility that will be issued by the Israel Ports Company ("IPC"). At the end of February 2011, a leak was discovered in the pipelines transporting fuel from the Ionex facility located in the area of the Ashdod Port fueling dock. The leak seeped into the soil and reached groundwater. Ionex management reported it to the Ministry of Environmental Protection, the Cities Association and the Port authorities as required and is currently working to repair these faults in cooperation with the Ministry of Environmental Protection and IPC. It is noted that Ionex and IPC are in disagreement with respect to responsibility for the leak. N. Hazardous materials Under the Hazardous Materials Law, 5753-1993 ("the Hazardous Materials Law"), oil distillates are defined as hazardous materials. The Hazardous Materials Law prescribes a duty to hold a "poisons permit" from the supervisor authorized to issue such by the Environment Minister. Delek Israel has permits to hold hazardous materials as defined therein, and to trade in fuels without storing them. O. Projected significant costs and investments in environmental issues In 2010 and 2009 total expenses and costs incurred by Delek Israel in gas station and commercial compounds for compliance with statutory and official requirements concerning environmental issues amounted to approximately NIS 10 million and NIS 9 million, respectively (excluding investment in the construction of new gas stations in compliance with statutory environmental requirements). Since Delek Israel's old stations (about 124 in number) were built according to standards that predate the Water Regulations, and since accumulated knowledge indicates that the required standards of that period cannot ensure prevention of damage to soil and/or water, Delek Israel cannot estimate which of its Old Stations polluted the soil or the water surrounding the stations. Tests conducted detected several stations where the soil and/or groundwater is contaminated. Delek Israel has begun implementing a soil and/or groundwater rehabilitation plan at the stations where the survey was completed and contamination was discovered. In this matter, Delek Israel is in compliance with the arrangement signed with the Ministry of Environmental Protection in 2008 with respect to the

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timetables for locating and rehabilitating contaminated soil at old gas station. This arrangement does not contradict any other law applicable to Delek Israel. However, under the agreement, as long as Delek Israel operates according to the rehabilitation plan, this will be taken into consideration in decisions of the authorized entities when they are required to rule with respect to the legal and public justification of enforcing this matter. As stipulated above, if additional pollution which is unknown at the date of this report is identified, it could be required to allocate substantial investments to that end. Delek Israel has submitted to the Ministry of Environmental Protection a work (rehabilitation) plan for locating, monitoring and surveying soil and water at its Old Stations (established prior to January 1, 1998) operated by or on behalf of Delek Israel. According to the plan, all surveys will be completed within 3-10 years from start of the plan, with at least 15 gas stations surveyed and completed in each calendar year. After these surveys, Delek Israel will prepare an individual soil rehabilitation plan for each station found to be contaminated – to be submitted for review by the Ministry of Environmental Protection. Once the results of the review are known, Delek Israel will start rehabilitation work in the relevant station, with such work on the final station to start no later than in the seventh years after the start of the rehabilitation plan. The Minister for Environmental Protection indicated to Delek Israel that the Ministry regards favorably the formulation of a plan for cleaning up contamination from gas stations, and action based on such plan in coordination with the Ministry. Nevertheless, it is Ministry policy to enforce provision of environmental protection statutes, and execution of the plan would not grant immunity from enforcement of the law where its provisions were violated or result in the cancellation of indictments already filed. However, when considering the legal and public justification of prosecution, all circumstances of the matter would be taken into account, including actions taken by the violating entity. It is noted also that to the best of Delek Israel’s knowledge, a number of fuel companies have submitted similar plans to the Ministry of Environmental Protection. Details of costs (expenses involved in ground- and underground water treatment) and investments (in equipment and means to prevent and alert to such contamination) estimated for the coming years in gas station and commercial compounds are as follows:

2011 2012 onwards 2013 onwards (NIS thousands (NIS thousands) (NIS thousands) Anticipated significant costs 6,000 7,500 7,500 Anticipated significant investments 5,700 6,000 5,000 Total 11,700 13,500 12,500

This information on the estimated costs and investments is forward-looking information that might not materialize if Delek Israel is found to be in breach of regulations or if new regulations issued by the Ministry of Environment enter into force, obliging Delek Israel to allocate additional funds P. As part of the understandings and agreements with the Ministry of Environmental Protection, Delek Israel began implementing a plan to install vapor retrieval systems at part of the stations as noted in section 1.8.18H at a total cost of NIS 50 million. Q. Delek Israel's direct marketing activities in internal gas stations located on customer premises is also subject to the provisions of the Water Regulations, as described in section 1.8.18B. The gas station operator as defined in the Water Regulations is held responsible for implementing these provisions. If the matter is brought for its decision, a court may rule that in view of the terms of the agreement between Delek Israel and the owner of the internal station, Delek Israel is also considered to be a “station operator”. However, a recent ruling regarding an indictment of Delek Israel in connection with a public gas station to which Delek Israel supplied fuel, Delek Israel and its management were cleared of all charges. For details of the responsibility of a “station operator,” see section 1.8.18B. R. A subsidiary of Delek Israel (Delek Oils Ltd. – "Delkol"), removes industrial waste under the provisions of environmental laws. S. In 2010 and 2009, total costs and investments by Delek Israel in direct marketing and storage and supply operations for compliance with statutory provisions and official requirements concerning the environment, were negligible, and Delek Israel does not foresee any material costs in these areas of operation. This information on estimated costs and investments is

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forward-looking information that might not materialize if serious deviations are found in the activities of Delek Israel, or if new environmental requirements enter into force, necessitating material expenditure. 1.8.19 Limitations and supervision of Delek Israel's operations Below is a description of the main limitations and supervision that apply to Delek Israel, in addition to the supervision concerning the environment described above: A. Legislation specific to the fuel economy: 1. Arrangements in the State Economy (Legislation amendments for achieving the budget and economic policy goals for fiscal 2001) Law, 5761-2001 ("the State Economy Law") – This law states that a fuel company must be registered before commencing operation, and may continue to operate as long as it is registered in the register maintained by the Fuel Administration. Delek Israel and Gal Fuel Co. Ltd. (a subsidiary of Delek Israel) are registered at the Fuel Administration Register as fuel companies. It should be further noted that the State Economy Law states that a fuel company must maintain, at its own expense, such stock of fuels as is determined by the National Infrastructures Minister in consultation with the Ministers of Defense and Finance, and that the State has promulgated regulations1 by virtue of the State Economy Law that regulate his matter. In November 2002, the High Court of Justice approved an interim arrangement requiring the maintenance of security inventory, but the State can change the present status to require also the maintaining of a civil inventory. 2. Fuel Economy (Promotion of competition) Law, 5754-1994 – The law lays down, inter alia, limitations on the opening of new gas stations near stations marketing the products of the same fuel company or operated by the same operator. The section in the law that deals with the limitations for the matter of a regional engagement between gas stations of one fuel company is in force through the end of July 2018. In December 2007, the Fuel Industry (Promotion of competition) (Amendment No. 2) Law, 5767-2007 designed to regulate the advertising of prices at gas stations in order to increase competition and prevent deceit in prices was enacted 3. Fuel Economy (No sale of fuel to specific gas stations) Law, 5765-2005 – This law bans the sale and supply of fuel to gas stations unless they are on the list maintained by the Fuel Administration. At the reporting date, most of Delek Israel's public gas stations are included in the list published by the Fuel Administration. 4. Excise – Under the Excise Law, no person shall manufacture fuel nor deal in its sale without a license from the Customs and Excise Administration. Delek Israel has been issued with such a manufacturing license, which it renews each year. Excise is levied on fuel when it is issued at a supply facility or when it is released from customs in the case of import. As a result, only companies holding such a manufacturing license may purchase oil distillates directly from refineries in Israel or import them. The Excise on Fuel (Levying excise) Order, 5764-2004 (“the Excise Order”) sets specific excise rates for every oil product. In January 2005, the Excise on Fuel (Amendment No.3 and temporary order), 5764-2004 and the Excise on Fuel (Exemption) Order, 5764-2004 entered into force, raising the excise rate on diesel fuel and kerosene gradually from 2005 to 2009, to equal that levied on benzene. At the publication date of the report, the excise on naphtha was the same as that applicable to benzene and the excise applicable to diesel fuel and kerosene is 14 agorot (including VAT) lower that the excise on gasoline. Furthermore, the Excise on Fuel (Exemption) Order states, inter alia, that fuel used by civilian commercial marine vessels which transport passengers or cargo is exempt from payment of excise in respect of the fuel, provided that after fueling the vessel departs from a Port of Israel and reaches a port outside Israel. On June 20, 2010, the Excise Tariff and Exemptions and Purchase Tax on Merchandise (Amendment No. 19) Order, 5770-2010 and Excise on Fuel (Imposition of excise) (Amendment) Order, 5770-2010 were published whereby the excise will be updated every four month and not every three months as it was until now. On July 21, 2010, as part of the Economic Plan for 2011-2012, Structural Change, Budget Aggregate and Budget Composition - Government Decision No. 2059 dated July 15, 2010 ("the Government Decision") was published whereby the excise imposed on

1 Arrangements in the State Economy (Legislation amendments for achieving the budget and economic policy goals for fiscal 2001) (Maintaining inventory and security inventory of fuel) Regulations, 5761-2001.

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gasoline, diesel oil, kerosene and fuel mixtures will be increased by another 20 agorot per liter. At the publication date of the report, following the public outcry against increasing the excise on gasoline, the government canceled it shortly before it was to be implemented. Based on the Government Decision, Excise Tariff and Exemptions and Purchase Tax on Merchandise (Amendment No. 22) Order, 5770-2010 was published prescribing that as from October 3, 2010, tax of NIS 2.5 per liter will be imposed on biodiesel which is similar to the tax applicable to diesel fuel. The excise increase on fuel sold by Delek Israel significantly increases the credit extended to customers purchasing these fuels and Delek Israel's exposure to this credit and its dependence on banks and other financing sources to finance this credit. 5. Hours of Work and Rest Law, 5711-1951 – Under Section 9 of this law, employing Jewish employees on Saturday, which is part of the statutory weekly rest period, must be approved by the Minister of Labor. Furthermore, the Hours of Work and Rest Law states, inter alia, that on rest days as defined in the Administration and Rule and Justice Ordinance, 5708-1948, no store owner shall conduct business in his store. The above law lays down a fine or up to one month's imprisonment or both for whoever employs staff in breach of the law. Most of Delek Israel’s public gas stations and some of its convenience stores operate on Saturdays. To date, the restrictions imposed by these laws have had no materially negative impact on Delek Israel’s business results, and Delek Israel estimates, based on past experience, that they will not do so in the future. This estimate is forward-looking information which may not materialize, inter alia, due to stricter enforcement of provisions of the Hours of Work and Rest Law all over Israel, which could lead to convenience stores being closed on Saturdays. At the reporting date, investigations were conducted in the past against Delek Israel in connection with convenience stores and gas stations operating on Saturdays. All the foregoing investigations were concluded without any legal / criminal proceedings instituted against Delek Israel. 6. Vehicle Operation (Engines and fuel) (Supply of fuel by tanker) Order, 5768-2007 (“the Fuel Supply Order”) was enacted pursuant to the Vehicle Operation (Engines and fuel) Law, 1961 (“the Vehicle Operation Law”). The Order states that a motor vehicle will run on gasoline, diesel, LPG or other fuel prescribed by the Vehicle Operation Law, provided it meets standard requirements for the product and requirements laid down in the Order, if any. The Order imposes liability on fuel companies supplying gas stations, on owners of a supply facility, on the owner of a gas station and on transporters of fuels to gas stations – requiring them to take all reasonable precautions to ensure that every fuel product supplied is in compliance with the requirements of an official Israeli standard as defined in the Standards Law, 5713-1953 (“the Standards Law") and with regulations pursuant to the Vehicle Operation Law, by means of duties imposed on each such entity within its area of responsibility. In January 2011, an amendment was published to the Vehicle Operation (Engines and fuel) (Supply of fuel by tanker) Order, 5768-2007 (“the Order") under which by the end of June 2012, an electronic seal (a device designed to control opening of the tanker and the quantity of fuel therein) must be installed on every fuel tanker, according to the definitions in the order. 7. Fuel Economy Bill, 5767-2007 ("the Fuel Economy Bill") – At the beginning of 2007, a draft of the Fuel Economy Law, 5767-2007 (“the Draft Fuel Economy Law") was announced. The aim of the draft, according to its synopsis, is to regulate all the operations in the fuel economy, from its financial, safety and consumerism aspects, by setting an appropriate licensing and regulatory regime. On January 30, 2011, the updated Fuel Economy Bill, 5770-2011 was received from the Fuel Administration and the Company was given the opportunity to respond in respect thereof. Delek Israel submitted its response to the updated bill, which the Fuel Administration intends taking up with the Ministerial Legislative Committee as soon as possible. Delek Israel cannot assess whether the Fuel Economy Bill will pass or not, and if so, to what extent and when. Delek Israel estimates that approval of the Fuel Economy Bill in its current version, if at all, could materially affect its results, while the extent of the impact will derive from the wording of the law that is approved in the long run, if at all. 8. Proposed Fuel Economy (Promotion of competition) (Rules for automatic fueling devices) Regulations, 5767-2007 (“the Proposed Automatic fueling device Regulations”): At the onset of 2007, the National Infrastructures Ministry proposed, pursuant to section 7(b) of the Fuel Economy (Promotion of competition) Law, 5754-1994, the Automatic fueling device Regulations. The main points of the proposal include the establishment of a

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“universal fueling array”, which is defined as an automatic fueling array in which every each gas station, irrespective of its ownership, may install a reader. Under these regulations, only universal readers will be able to be installed in gas stations. The “automatic fueling array” is defined in the proposal as an array of readers and filling devices enabling a vehicle to fill up with gas while the vehicle is identified and the volume of fuel is measured electronically, and the information is then transmitted electronically for computerized billing. The universal fueling array will be set up by a principal who, according to the proposal, is not a fuel-marketing company and is not owned by such a company, other than a maximum stake not exceeding 10%. According to the proposal, any vehicle in which a universal fueling device is installed will be able to fill up at any station where a universal reader is installed. On July 21, 2010, an amendment to Section 7(b) of the Fuel Economy (Promotion of competition) Law, 5754-1994, ("Amendment to the Fuel Economy Law") was published. Under the Amendment to the Fuel Economy Law, inter alia, the definition of "a universal automatic fueling device" was changed so that according to the new version it is a device that may be used to purchase fuel from any fuel company independent of the identity of the fuel company that installed it. This amendment also stipulates that regulations by virtue of the amendment will be brought before the Knesset Economic Committee for approval. On February 14, 2011, Knesset Economic Committee began deliberations concerning the new draft regulations which have not yet ended. It is clarified that under the Amendment to the Fuel Economy Law, the regulations will stipulate that in order to purchase fuel using the device, the customer must initially contract with a fuel company that he wishes to purchase the gas from using the device B. Price control 1. Supply of fuel products by ORL to the fuel companies - ORL was declared a monopoly at the time in the refining of crude oil in Israel. At present, only various types of bitumen sold by ORL and ORA are still subject to maximum ORL ex-works prices and are set by the Commodity and Service Price Stability Order (Temporary Order) (Maximum ORL ex- works Prices for Oil Products) 1992 ("the ORL Ex-Works Price Order"), which sets the maximum prices for the various fuel products at ORL's factory gate (see section 1.8.1(B)(1) above). The ORL ex-works price is updated on the first of every month, based on the external price of the fuel product plus or minus an amount set by the Fuel Administration director, with the approval of the Ministers of Energy and Finance. To date, after privatization of the oil refineries, the price setting mechanism has not changed. Of Delek Israel's fuel product purchases, its purchase price for controlled price products in 2010 and 2009 amount to 1.88% and 22.7%, respectively. 2. Consumer price - Commodity and Service Price Control Order (Maximum prices at gas stations, 2002 - under this order, the maximum price for lead-free 95 octane gas sold at a public self service pump is fixed, as are the date and methods of its update. It is noted that until February 2009, the Order also set the maximum price for 96 octane gasoline. 3. Control of infrastructure tariffs - Infrastructure services relating to fuel products in Israel, which include, inter alia, unloading, transportation, storage and distribution of fuel products. The Commodity and Service Price Control Order (Fuel Sector Infrastructure Tariffs) 1995 (in this section - the Order) aims to ensure obtaining the maximum price for the various infrastructure services. In 2004, a committee was appointed to examine the prices of infrastructure in the energy sector. The Committee approached the Company to obtain data for the purpose of conducting an updated survey of the prices, as aforesaid, and even distributed a draft report in March 2010 concerning its recommendations for the various infrastructure tariffs. The Company had a hearing before the tariffs committee at which Delek Israel sought to reject the recommendations of the draft report. As at reporting date, the committee has not yet submitted its findings. Acceptance of the committee's recommendations are liable to have material impact on the results of Delek Israel and the scope of the impact will arise directly from the recommendations that will be adopted, if any. C. Essential Operations - Delek Israel, its gas stations and storage and supply terminals have been declared an Essential Operation as approved by the Ministry of Industry, Trade and Labor. Under this approval, during an emergency, Delek Israel’s fleet and fuel storage and supply installations are mobilized for national emergency in order to enable the regular supply of fuel and gas.

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D. Weights and Measures Ordinance, 1947: ("the Weights Ordinance") - the Weights Ordinance sets standards for weights and measures, including th liter as the measure of volume. The Weights Ordinance describes a number of offenses, among them refusal to cooperate with the inspector and the possession for use in commerce or for commercial use of instruments not certified by the inspector, or instruments that have been tampered with. Based on the Weights Ordinance, the Weights Regulations were established, laying down, inter alia, how liquid fuel pumps are to be tested and calibrated, and the obligation to place a calibration seal on the pumps after they are tested and calibrated. In addition, the Weights Regulations set out provisions for instruments that measure oil products assembled on tankers, including place a calibration seal on these instruments. The Weights Ordinance prohibits the use of such instruments unless they have been calibrated and sealed in accordance with the Weights Regulations. All Delek Israel storage and supply terminals, other than the supply terminal in Haifa, have calibration certificates for their measuring instruments through to December 31, 2010. Final calibration tests of the equipment at the Haifa terminal are currently being carried out. E. Gas station operating licenses The licensing procedures for new gas stations are long and complicated and require large investments that involve obtaining approvals and licenses from numerous entities. This procedure is regulated under many laws which grant licensing powers to various governmental authorities. Furthermore, an amendment to the Business Licensing Law (Amendment 27) was recently published, which prescribes, inter alia, an expedited procedure for receiving a temporary license valid for one year only, under the terms laid out in the amendment. Below are the main legislature granting licensing powers to the various governmental authorities: 1. Planning and Construction Law, 1965 ("the Planning Law") and its Regulations - Under this law, the National Planning Council approved the National Outline Plan for Gas Stations, setting conditions and criteria for the establishment of gas stations. Under the Planning Law and its Regulations, approval is required for any use of land - for erecting a structure and the use of any structure, etc. A building permit for the construction of a gas station often requires rezoning of the land. During the first half of 2006, Amendment No. 4 of the National Outline Plan No. 18, came into force, the purpose of which is to adapt the gas station network to the needs of the population in Israel while ensuring appropriate service for consumers and preventing transportation, safety, visual or environmental nuisances. Most of the change is that local Planning and Construction Committees are authorized to approve construction of a gas station in any built-up area, including areas zoned for residential, office, commercial or industrial and commercial areas. Another change in the plan is the possibility of setting up "mini" gas stations, an option not available under National Outline Plan No. 18. Mini stations require smaller capital investment that that required for public gas stations. A mini gas station is any station that can serve up to four 4-ton vehicles simultaneously and no structure can be added to such station other than a roof over the gas pumps. 2. Business Licensing Law, 1968 its Regulations and Orders issued pursuant thereto: A) Business Licensing (Businesses requiring a License) Order, 1995 - Under this order, a gas station is a business that is required to be duly licensed. The licensing authority is the local authority in whose jurisdiction the gas station is located. To operate a gas station approval is required from the following authorities: Israel Police, the Ministry for Environmental Protection, Ministry of Industry, Trade and Labor, the Fire Services and the relevant Planning and Construction Committee. B) Business Licensing (Fuel Storage) Regulations, 1976, ("the Fuel Storage Regulations") - Regulations promulgated under the Business Licensing Law, setting out detailed provisions for obtaining a business license for a gas station. The Regulations describe, among other things, the fuel safety and storage conditions for receipt of a license. C) Business Licensing (Sanitary Conditions in Gas Stations) Regulations, 1969 - These regulations set out, inter alia, provisions concerning the sanitary conditions and facilities required at gas stations. D) Business Licensing (Hazardous Plants) Regulations, 1993 - Under these regulations, a business that stores, produces, processes or sells hazardous materials must have

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a special license to do so, and must comply with the safety provisions laid down in or under any law. E) On July 29, 2010, an amendment to the Business Licensing Law, Amendment No. 26 (Temporary Order), 2010 ("the Business Licensing Law Amendment"), pursuant to which, inter alia, a business where alcoholic beverages are sold or served, including food chains, kiosks and convenience stores are prohibited from serving or selling alcoholic beverages between the hours 11:00 p.m. through 6:00 a.m. 3. Supervision of Commodities and Services (Garages and Vehicle-related Plants) Order 1970 - issued under the Supervision of Commodities and Services Law 1957, prohibits the opening or operation of a gas station without a license from the Ministry of Transport Division of Vehicles and Maintenance Services. F. Most of Delek Israel's public gas stations and convenience stores have received business licenses or temporary permits pending receipt of permanent permits. With regard to other gas stations and convenience stores, Delek Israel or the station owner are taking necessary action to obtain business licenses or temporary permits, and Delek Israel believes there is nothing material preventing their receipt. G. At the reporting date, five indictments are pending against Delek Israel relating to the operation of gas stations and/or convenience stores without a business license or deviation from a permit. The indictments were filed against Delek Israel's CEO, a number of its senior managers and against station owners / operators. Delek Israel estimates that apart from insignificant fines, it has no other material exposure in this regard. Delek Israel's assessment concerning such exposure is forward-looking information based on Delek Israel's past experience. This forward-looking information may not materialize, due to the occurrence of events contrary to Delek Israel's expectations. H. Business licenses are required for the Ionex supply facility and for Delek Oils. As of reporting date, the Ionex supply facility at Ashdod and the Delek Oils plant have permanent business licenses, issued in perpetuity. I. The storage and supply operations require business licensing. Some of the conditions for issuing a business license require additional approvals such as permits from the Fire Department and the Ministry of Environmental Protection. The supply facilities in Ashdod, Beer Sheva and Jerusalem have permanent valid business licenses. The Haifa facility has a temporary license, subject to compliance with certain conditions, valid until September 2011, and Delek Israel is acting to obtain a permanent business license. J. With regard to the internal gas stations at kibbutz or moshav settlements, the Israel Lands Administration Agricultural Division provides that an internal non-commercial gas station may be set up within the area of the agricultural settlement without requiring payment to the ILA, under certain conditions. The establishment of an internal station requires receipt of a building permit and operating approvals. K. Antitrust 1. Exclusive supply agreements with gas stations: On October 27, 1997 the Antitrust Commissioner and Delek Israel reached an agreement ("the Agreement"), which was filed for approval of the Antitrust Tribunal ("the Tribunal") according to which the Commissioner narrowed the scope of his decision of June 28, 1993 ("the Original Decision"), according to which the delivery arrangements between the fuel companies and the gas stations which are not owned or under primary lease from the ILA, are cartels, so that the Original Decision will only be applicable to gas stations in which Delek Israel does not have an accepted lease agreement, (i.e. a lease agreement under which the lease fees paid exceed a certain amount, as defined in the agreement with the Commissioner). The agreement also set terms for Delek Israel future engagement with gas stations, providing that when engaging in exclusivity agreements Delek Israel may request specific approvals for longer periods from the Tribunal. These conditions include, among other things, an obligation for Delek Israel to file an application for approval of these agreements with the Tribunal. The Commissioner announced that he would recommend to the Tribunal that it approve exclusive supply agreements for limited periods of between one and 14 years, depending of the special circumstances of the station for which the approval of the agreement is requested.

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In addition, Delek Israel has undertaken that there will be no partnership or other arrangement between it and Paz and/or Sonol for rights in gas station land or in marketing agreements with the gas station operator. Under the arrangement, Delek Israel agreed to the immediate release of 35 of its 65 stations with which it did not have an accepted lease agreement, while the Commissioner has agreed to support the approval of Delek Israel's agreements with some of the other 30 stations for fixed and limited periods, based on the specific circumstances. As at reporting date, of the 35 stations that were released, 10 stations continue marketing Delek Israel's fuel. On July 1, 2002 Delek Israel reached agreement with the Commissioner regarding a consensual order pursuant to section 50B of the Restrictive Trade Practices law, 1988 ("the Consensual Order"), which was confirmed by the Tribunal. The main point of the Consensual Order is that Delek Israel's lease of gas stations for a period of longer than seven years, under the circumstances described in section 17 of the Restrictive Trade Practices Law, would be viewed as a merger. This means that in those cases, the transactions requires the consent of the Commissioner. On January 21, 2007, Delek Israel received a written request for information from the Commissioner, requesting, inter alia, that Delek Israel submit information to the Authority concerning its rights in stations where other fuel companies also have rights. Delek Israel responded to the Authority's demand in two letters dated February 4, 2007 and February 8, 2007. Delek Israel was required by the Commissioner to separate sub-leasing rights shared by Delek Israel and another fuel company in one of these stations. On March 18, 2008, Delek Israel signed an agreement under which it acquired the sub-leasing rights of the other company, thereby complying with the Commissioner's requirement with regard to this station. 2. Commissioner's approval for the merger of Pi Glilot and Delek Israel - As part of the acquisition of the three storage and supply depots by Delek Israel, the Commissioner issued approval for this merger, with the following main points: A) Delek Israel and any person controlling it, corporation controlled by it and any corporation controlled by any of them (jointly referred to in this sub-section 1.8.19 [K](2) as "Delek Israel"), shall not unreasonably deny distillate supply services to anyone requiring them from the Ashdod and Jerusalem supply depots, under terms that were acceptable at Delek-Pi Glilot facilities prior to the merger, and shall not make provision of supply services contingent upon conditions which, by their nature or under acceptable trading terms, are unrelated to the subject of the arrangement. Delek Israel shall not set different terms of engagement for similar transactions for providing supply services, shall not discriminate among its customers, and shall not make the provision of supply services or grant of any benefits contingent upon the purchase or receipt of other products or services. B) Throughout operation of the Ashdod supply depot, Delek Israel will allocate storage tanks at the Ashdod depot to a third party for operating storage, as provided in the appendix to the privatization agreement, unless permitted otherwise in advance and in wiring by the Commissioner. During the term of lease of tanks as stipulated in this section, Delek Israel will be responsible for their operation and proper maintenance so as to ensure continuous service and repair as provided by Pi Gligot prior to the merger. C) Delek Israel shall not engage, directly or indirectly, with another person in an arrangement conferring upon it rights in infrastructure necessary for importing or refining operations or in land designated for the construction of infrastructure facilities, without the prior written consent of the Commissioner. The provisions of this section shall not apply to agreements in effect prior to this decision, between Pi Glilot and another person holding or operating storage or piping infrastructure for oil products or LPG, which are necessary for ensuring regular operation of the national pipeline network, or to the extension of such agreements. D) Unless otherwise authorized by the Commissioner, any restriction applicable to any corporation by virtue of the Commissioner's approval applies also to any officer, agent or consultant of a corporation and to any agent or substitute of any of the foregoing, all by statue or agreement or in practice.

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L. Recognized Supplier to the Ministry of Defense Delek Israel participates in tenders published by the Ministry of Defense which contain standards and threshold requirements, and complies with all of them. Delek Israel and Delek Oils are approved suppliers, recognized by the Ministerial Committee for the approval of suppliers to the Ministry of Defense. M. Standardization Israel has standards for the fuels that are marketed in Israel. Delek Israel markets only those products that comply with these standards. Delek Israel and Delek Oils have permits from the Israel Institute of Standards concerning ISO 14001 (environmental), ISO 9001 (quality management) and Israeli Standard SI 18001 (safety management) standards. These permits were valid through March 31, 2013, October 31, 2013 and April 30 2013, respectively. Furthermore, in October 2006, the Fuel Administration published service standards designated as a normative code of conduct for the fuel infrastructure sector, to improve service and bring it up to par with developed countries. If a particular subject is covered by an agreement between a service provider and a service recipient, the agreement supersedes these service standards, provided it is not injurious to any third party, does not contravene the principle of service equality for all and is performed lawfully. Delek Israel complies with these service standards. 1.8.20 Material agreements A. Most of the fuel products sold by Delek Israel are purchased from ORL. For details, see section 1.8.13B. Therefore, the agreements between Delek Israel and ORL are material for Delek Israel. B. In general, the filling and commercial compounds segment has no single material agreement with regard to rights in land and the operation of the gas stations, but the entire set of agreements in the segment is material for Delek Israel. C. Generally, the fuel storage and supply segment has no single material agreement which is not in the course of Delek Israel’s regular business. D. Pi Glilot privatization agreements On July 31, 2007, Delek Israel and Pi Glilot entered into an agreement to acquire the terminals operation ( “the Terminal Acquisition Agreement”), whereby Delek Israel acquired all rights in movable goods, land and other rights and obligations, including with regard to staff employed at the terminals, as set forth in the appendices to the agreement ( “the Property Being Sold"), in consideration of NIS 806 million, after fulfilling provisions of the sale procedure and obtaining the approval of the Antitrust Commissioner (for a description of main points of the Commissioner's approval, see section 1.8.19K.2 of the report). Delek Israel acquired rights in the Property Being Sold as-is, and undertook to comply with all conditions laid down by the Antitrust Commissioner. Delek Israel undertook to operate the Property Being Sold for periods defined by the State and within limits set by the State as follows: (1) Delek Israel undertook to operate the Ashdod terminal as a storage and supply depot for at least 10 years from the acquisition date. Delek Israel may, with consent of the Fuel Administration Manager at the Ministry of National Infrastructures, sell the terminal to a third party, provided the latter commits to comply with the same requirements. At any time after this 10-year period, depot operations may be cut back or discontinued, provided that the Fuel Administration is given at least 2 years' notice. The agreement further stipulates that throughout operation of the Ashdod terminal, five transit tanks would be leased to FPL, which is responsible for the fuel piping array in Israel, or to any successor thereof or to anyone designated by the Fuel Administration, in exchange for a tariff that would be set in an order. (2) Delek Israel undertook to continue operation of the Beer Sheva terminal and to preserve its storage and supply capacity so as to ensure continued regular supply of fuel products to the Air Force base being supplied by pipeline from the depot, unless the Fuel Administration Manager confirms that an alternative arrangement is in place. Notwithstanding the above, the buyer may discontinue operation of this terminal, provided that the Fuel Administration Manager is given at least one year's notice. Delek Israel informed the Fuel Administration Manager on November 17, 2007 of discontinuation of operation of the Beer Sheva terminal. Subsequent to negotiations with the Fuel Administration Manager, it was agreed that Delek Israel will withdraw its foregoing discontinuation notice subject to the Fuel Administration Manager's undertaking to store emergency supplies at the Beer Sheva depot. At the reporting date, the Fuel Administration Manager fulfilled its undertaking and Delek Israel

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withdrew its notice concerning the discontinuation of operations at said depot. (3) Delek Israel undertook to operate the Jerusalem terminal as a storage and supply depot for at least 3 years from the acquisition date. The buyer may, with the consent of the Fuel Administration Manager, sell the depot to a third party, provided the latter undertakes to comply with the same requirements. At any time after this 3-year period, depot operations may be cut back or discontinued, provided that the Fuel Administration is given at least two years' notice. Delek Israel informed the Fuel Administration Manager in December 2007 of discontinuation of operation of this terminal at the end of the 3-year operation period. Notwithstanding the above, the closing of any terminal by order of competent authorities would exempt the buyer from its undertakings, provided that the closure order was not given due to an act of commission or omission by the buyer. Delek Israel made an irrevocable undertaking to Pi Glilot and the State of Israel that it would not take any action in the Property Being Sold which is not in keeping with the foregoing, and that should it decide to transfer or pledge its rights in the Property Being Sold to any third party, the transferee would undertake to act in accordance with Delek Israel's undertaking. Delek Israel and its interested parties have declared and undertaken that except for allegations against Pi Glilot in respect of breach of the Depot Acquisition Agreement, they waive any and all claims and demands of any kind against the State of Israel and/or the Joint Committee and/or any of its members and/or Pi Glilot and/or officers, managers and employees of Pi Glilot and/or anyone acting on behalf of any of the above in the sale which isthe subject of the agreement. If despite the aforesaid such a claim or a claim whose cause pre-dates the agreement, in respect of which Delek Israel or its interested parties are compensated, Delek Israel shall be obliged to indemnify those entities in the amount of any compensatory amount charged to any of them. 1.8.21 Legal proceedings For a description of legal proceedings (including motions for class action status) to which Delek Israel is party, see Note 32 to the financial statements. 1.8.22 Business Objectives and Strategy Delek Israel reviews its strategic and business plans from time to time and updates them according to developments in the energy market, the gas station and retail roadway industry, the competitive environment and the economic situation. Delek Israel’s operations in the coming years are expected to focus on the following activities: A. Material investment in the construction, acquisition and development of existing and new retail complexes, including leveraging its real estate infrastructure to set up dozens of various sized commercial centers at different scopes of investment. In this framework and as part of other operations, Delek Israel aspires to signficantly increase the volume of sales from operations not originating from fuel. Delek Israel set a visionary target of five years to increase the volume of sales from trade operations that are not from fuel to NIS 1 billion in 2015-2016. B. Subject to obtaining the required approvals, Delek Israel strives to increase the number of convenience stores and “Menta Market” minimarkets in gas station and commercial compounds at strategic locations and expanding their deployment. C. As part of its plans for 2011, and subject to obtaining various administrative approvals, Delek Israel intends to establish 10-13 new gas station and commercial compounds as well as 30-40 new conveneince stores (some in these new compounds) and to convert 8-10 convenience stores into “Menta Market” stores. In 2011, Delek Israel strives to increase its sales which are not from selling fuel by 25%-30% compared to 2010. As at the reporting date, Delek Israel has three “Menta Market” stores set up during 2010 and early 2011. D. As part of Delek Israel’s efforts to increase the scope of its commercial operation not from fuel, Delek Israel will examine options of entering new areas beyond the existing commercial operation (convenience stores and minimarkets). At the same time, upon realization of the potential significant organizational growth from setting up of convenience stores and minimarkets, Delek Israel will also from time to time examine growth options by the acquisition of new businesses. E. Generally, Delek Israel acts to transfer public gas stations operated by operators and independent store owners to self-operation (operation by Delek Israel) of those facilities. However, it is quite possible that Delek Israel will examine the possibility of other operation,

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including leaving some of the public gas stations in the hands of external operators, as long as this maximizes its profit margin in operating these facilities. F. Entering long-term rental contracts with gas station owners and reducing uneconomical rental contracts. G. Establishment of mini gas stations in strategic locations as long as licenses and approvals are granted by the authorities. H. Introduction of the private brand to new areas and categories, and increasing the range of brand products in the chain’s stores. Increasing the range of services offered at Menta stores, such as the postal service points offered in the chain’s stores. I. Delek Israel intends to expand direct marketing to end users, inter alia, by increasing the number of internal gas stations. Delek Israel will also work to improve the marketing margins and collateral from its customers. J. Increasing the share of Delek Israel in the automatic devices for fleets. K. Delek Israel itself, and/or in cooperation with Delek Petroleum, is reviewing options to expand overseas, primarily in Europe, through Delek Europe, in which Delek Israel has a 20% stake. L. Development of a fuel product import array in cooperation with a leading international fuel trading entity, using the Pi Glilot terminals. M. Reviewing the establishment of additional storage tanks to maximize utilization of the land at the storage facilities. N. Maximization of the storage and supply capacity at Delek-Pi Glilot facilities, including collaboration with international entities. O. Reviewing of options of unloading distillates from ships anchored offshore directly to Ashdod port, which will save costs and reduce dependence on EAPC's facilities and FPL’s pipelines. P. Examination of new opportunities in the oil industry and other chemical products. Q. Examination of expansion possibilities in the marine fueling field through the subsidiary Ionex. R. Enhancing vacant property owned by Delek Israel. Delek Israel’s above estimations and intentions concerning the volume of investment in the retail compounds and its revenues therefrom, utilization of Delek Israel’s real estate to establish commercial centers, increasing the number of Menta and Menta Market stores, and increasing Delek Israel’s sales turnover is forward-looking information, as defined in the Securities Law, 5728- 1968, based on existing information at Delek Israel at the date of this report. This estimation might not materialize, partially or fully. The factors that could affect it are, inter alia, changes in Delek Israel’s work plan, market conditions, competitors entering the market and/or materialization of any of the risk factors described in this report. 1.8.23 Risk Factors It is noted that there are several risk factors on Delek Israel’s operation as described below: A. Geopolitical situation – The geopolitical situation worldwide directly affect the economic situation, the global oil prices, Delek Israel’s general operations and its ability to import oil distillates. In addition, the security and political situation in Israel materially affects the situation of economy. An economic slowdown in the Israel market could lead to a decline in demand for Delek Israel’s products, resulting in a drop in the volume of sales of its fuel products and profitability. The security situation in southern and northern Israel could directly impact Delek Israel’s infrastructure facilities and gas stations in these regions. B. Exchange rate fluctuations – Fuel products are purchased by Delek Israel from its suppliers in or linked to the US dollar. Therefore, any fluctuation of the dollar/shekel exchange rate could affect its stock value. Delek Israel’s policy is to avoid currency exposure using various financial instruments and taking dollar loans to finance inventory. It is noted that Delek Israel charges exchange rate differentials of the operating inventory immediately when they arise. In view of this, exchange rate changes could adversely affect its financial results. C. Changes in interest rates – Changes in interest rates are likely to affect the bank loans given to Delek Israel and debentures raised by Delek Israel at variable interest rates. A rise in the interest rates will lead to increased financing expenses. Therefore, Delek Israel is exposed to interest rate changes.

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D. CPI fluctuations – Delek Israel has long/short-term CPI-linked loans arising mainly from the issue of CPI-linked debentures in August 2007 and June 2009. It also provided CPI-linked loans to the Delek Group and its customers. Thus, a significant rise in the CPI might lead to an increase in Delek Israel’s financing expenses accordingly, and as a result thereof, harm its profits. E. Strikes and lockouts in the Israeli market – Strikes and lockouts in the Israeli economy and especially lockouts at the ports and/or the fuel supply infrastructure companies could prevent the importation of raw materials and prompt supply of orders. This could harm Delek Israel’s ability to meet its commitments to its customers and harm its goodwill. F. Economic slowdown in Israel and worldwide – The global economic crisis, including in the Israeli market, might result in a decrease in demand for Delek Israel’s products, inter alia, and lower the consumption of fuel and retail products purchased in Delek Israel’s gas stations and harm its business results. G. Difficulties in obtaining financing – Delek Israel finances its operations, inter alia, from bank and/or non-bank credit. In light of the grave global economic crisis that erupted towards the end of 2008, followed by the collapse of banks and investment houses around the world, the banks in Israel have introduced more stringent requirements for granting bank financing. Moreover, the global economic crisis also affected the Israeli capital market so that the activity in the capital market at the end of 2008 and the onset of 2009 was minimal. In view of the above, if Delek Israel requires additional financing for its ongoing operations, it may encounter difficulties in obtaining bank and/or non-bank financing. H. Changes in oil and petroleum product prices – The price that Delek Israel pays for the fuel products purchases derives from the fuel product price on the free market in the Mediterranean region and therefore is exposed to fluctuations in the petroleum prices in these markets. An increase of fuel product prices worldwide leads to a rise in prices of the products sold by Delek Israel, which could cause a downturn in demand for these products, while adversely affect Delek Israel’s business results. Among the factors that affect fuel prices are changes in the global and domestic economy and the oil producing regions in particular (USA, the Middle East, former USSR countries, Western Africa and South America); the global production level of crude oil and distillates; development and marketing of fuel substitutes; disruptions in the supply lines; and domestic factors, including the market and weather conditions. I. The competitive environment – The fuel market is characterized by fierce competition expressed in eroded margins and increased customer credit. Delek Israel’s financial results are materially affected by the competitive environment in which it operates. J. Construction of additional gas stations – In recent years, there is a trend of constructing dozens of new gas stations annually. Continuing this trend will strengthen competition in the fuel market. Approval of the proposed changed to the provisions of NOP 18 could aggravate this trend. K. Fuel taxation – The excise component in some of the petroleum product prices is significant. Since the credit terms that Delek Israel receives from the fuel suppliers to pay for the fuel product price (include the excise) is far shorter than that offered to its customers, Delek Israel’s financial exposure will increase with any rise in excise rates (including on diesel fuel). This could impair Delek Israel’s business results. Additionally, an increase in excise taxes could result in a drop in demand for the products sold. L. Changes in requirements for maintaining civilian inventory – As stipulated in Section 1.8.19A.1 above, the High Court of Justice approved an interim arrangement requiring maintenance of emergency security inventory only. However, the State is permitted to change the existing situation by giving 60 days prior notice while preserving the rights of the parties to revert to the High Court of Justice. The significance of the requirement to maintain civilian inventory, at whatever volume, is on the one hand an increase in financing cost for Delek Israel and an increase in the volume of credit, and on the other hand could lead to a growth in demand for storage of inventory at Delek Israel’s storage and supply facilities, which could have a positive effect on its business. Nevertheless, it is noted that such change could reduce the capacity of Delek Israel’s available storage for providing storage services at prices which are economically viable for Delek Israel. M. Dependence on infrastructure facilities – The fuel industry is limited in infrastructure facilities (two refineries, a small number of storage and supply depots) and therefore, termination of

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operation at an infrastructure facility could harm the proper operation of the refineries and fuel companies. Termination of operation could be caused by strikes, security events, accidents, natural disasters and so forth. Additionally, damage in fuel pipelines to Delek Israel’s storage and supply facilities might harm its operation in the fuel storage and supply operations. Delek Israel estimates that because of its fuel storage and supply operation, it is beyond the exposure of the other fuel companies which have no such infrastructure facilities. N. Regulatory involvement – As noted above, Delek Israel is affected by regulatory changes in the fuel economy, including control of benzene prices and of storage and supply prices, restrictions of the purchase price from refineries and regulatory restrictions on contracts with respect to gas stations in the distillate segment. Regulatory changes in the fuel market could affect the extent of investments required from Delek Israel in its area of operation and as a result, its financial results and profit margin. O. Changes in marketing margin – Since the maximal profit margin on 95 octane gasoline is a fixed sum (due to governmental control), it is not materially affected by ORL ex-works fuel price fluctuations and changes in excise tax values and in infrastructure tariffs. Under circumstances in which the global market price and the tax applicable to them increases, a situation arises whereby there is no built-in compensation for credit risk costs at a time when customer credit increases. See the Fuel Administration’s report concerning marketing margin analysis and changes in the method of updating it. Changes in the method of calculating and updating marketing margin could materially impact Delek Israel’s results, while the scope of the impact will arise from change ultimately adopted. P. Infrastructure tariffs – The infrastructure services for fuel products in Israel include, inter alia, unloading and loading services at the fuel port, fuel product piping services, fuel product storage services and so forth. The maximal price for the different infrastructure services are set out in the Commodity and Service Price Control (Infrastructure rates in the fuel economy) Order, 1995 (“the Order”). For information of the draft report of the Committee for examination of the prices of infrastructure in the energy sector, see section 1.8.19.B3 above. Acceptance of the Committee’s recommendations could significantly affect Delek Israel’s results, while the scope of the effect will arise from the recommendations adopted, if any. Q. Environmental protection – The provisions of various laws, regulations and orders as well as the Ministry of Environmental Protection’s requirements concerning the gas stations, facilities and plants with respect to environmental protection require Delek Israel to allocate financial resources in this matter. In recent years, the Ministry of Environmental Protection’s requirements have become more stringent. These requirements could expand and multiply, which are liable to compel Delek Israel to allocate additional financial resources in this issue, including as stated in section 1.8.18 above. Delek Israel intends to continue working towards implementing the statutory provisions and the requirements of the Ministry of Environmental Protection and will also implement its soil identification and rehabilitation plan as described in Section 1.8.18O above. R. Exposure to legal proceedings due to environmental contamination – Delek Israel is exposed to civil and criminal legal proceedings due to environmental contamination allegedly caused in the past and likely to be caused in the future as a result of its operations, and as part thereof, the enforcement authorities conduct inspections and investigations from time to time. There is a risk of indictments against Delek Israel and its officers if soil and water contamination is discovered in other stations than those specified in Section 1.8.18B above. As described above, rehabilitation the surroundings of a station where groundwater has been contamination might involve significant expenses that cannot be estimated. S. Lack of insurance coverage – Delek Israel’s third party liability insurance policy covers, inter alia, its liability for bodily harm or property damage caused by accidental environmental pollution up to a liability limit of USD 50 million per incident and per insurance period. Nevertheless, the third party liability limit for professional responsibility is USD 3, 750 thousand. Delek Israel does not maintain an insurance policy for liability that could be imposed due to ongoing environmental contamination that is not accidental, such as the pollution described in Section 1.8.18 above. T. Hazardous and toxic materials – Since Delek Israel deals in hazardous and toxic materials, with potential for explosion, ignition or poisoning, it is exposed to damages that might be caused by these materials, including health damage, environmental damage, and damage resulting from ignition of flammable substances and so forth. Claims for these damages could adversely impact its business results and harm its goodwill. Delek Israel purchases insurance

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policies customary and accepted Israel to insure its assets and liabilities arising from dealing in these materials. There is no certainty that the coverage and/or liability limits in the policies cover all the risks involved in Delek Israel’s operations, and it is uncertain whether it will be able to continue the policies in future under reasonable commercial terms or at all. U. Product liability – Delek Israel markets various distillates which are especially sensitive due to them being hazardous materials and due to the manner in which they are used. Many laws and regulation regulate the rights of victims or groups of victims of damage caused by a product manufactured, stored, marketed or sold by a supplier. If any damage is suffered by a consumer or group of consumers as a result of the products marketed by Delek Israel, the Company could be sued by those consumers, including in class actions, and this could be detrimental to its business and business results. V. Natural gas – The state published an RFP for the franchise to distribute natural gas in the southern Israel region. As far as Delek Israel knows, these RFPs were published concerning the Negev region (where connection of initial consumers at Ramat Hahovav by the third quarter of 2011 is in the establishment stage, while with respect to areas in the Negev, connections will be established within about 18-24 months), the central region (the timetable for connecting consumers will be published soon, which is within 18 months in the Rehovot area, and some 24-30 months for the rest of the central region), the northern region (concrete tenders will be published during the forthcoming year) and the southern region (this refers to the Ashdod-Ashkelon-Kiryat Gat region where a vendor was chosen and as long as its selection is not disqualified, the connections are expected to be implemented within 24-30 months). The gas is used for burning and is an alternative to kerosene, fuel oil and LPG marketed by Delek Israel. Marketing natural gas expands the range of alternatives to Delek Israel’s products and as a result, could decrease Delek Israel’s volume of sales. W. Development of alternative energy sources – Transition to using alternative energy sources such as natural gas, electric engines, etc. could affect the quantity of fuel products that Delek Israel sells and compel it to invest substantially in adapting its stations to new customer requirements and may also create competition beyond gas stations. Delek Israel estimates that this process will not materially affect its results in the forthcoming years, except in the matter of natural gas as set out above. X. Automotive gas –The transition to automotive gas which will replace gasoline will require Delek Israel to prepare in advance by setting up gas filling points at a cost of hundreds of thousands of shekels per filling point integrated into gas stations. It is emphasized that the extent of transition to filling with automotive gas is still unclear, due inter alia to uncertainty regarding government intentions for taxing the gas (excise) and matching the tax levels to those levied on gasoline. Y. Dependence on refineries – As stipulated in Section 1.8.13B, companies operating in the oil distillates field are almost totally dependent on the refineries, which are the central and main suppliers of various distillates which they purchase. In view of the acquisition of the Pi Glilot storage and supply facilities in late July 2007, Delek Israel is slightly less dependent on the refineries. Z. Entry of ORL into the fuel marketing segment – Following its sale, ORL was given the opportunity to market fuels directly to consumers as well as establish or acquire gas stations. AA. Economic slowdown in the domestic market – A slowdown in the economy brings about deterioration in payment ethics, including for objective reasons of harm to the customers’ ability to pay. The industry is characterized by offering extensive credit, some without or with partial collateral, and therefore, an economic slowdown exposes companies operating in the industry to the possibility that such credit might not be repaid. Additionally, a slowdown in the global and Israeli economy is liable to decrease private consumption and commercial operations, and cause a drop in sales of Delek Israel’s products, revenues and profitability. BB. Transition to public transport – In recent years, there has been a steady increase in the use of railways, including the light rail which is planned to criss-cross the major cities, which could reduce the use of private cars. The more this trend expands, so the quantity of gasoline and diesel oil sold to customers will decrease. This could impact Delek Israel’s financial results. CC. The Antitrust Court’s ruling concerning exclusive supply agreements at stations where fuel companies have no proprietary rights – According to the Antitrust Court’s ruling of March 25, 2001, exclusive supply agreements maybe entered into for a maximal period of three years in an existing station and six years in a new station which fuel companies have constructed or

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invested in their construction in which they have no ownership rights. This could increase competition and might cause changes in the deployment of gas stations in Israel. Delek Israel has 44 such contracts. DD. Regulation in the food industry – Food products sold in the Menta convenience store chain are subject to many diverse statutory provisions. In the event of non-compliance with these laws, Delek Israel might have to bear liability for harm from eating spoiled food and failure to meet the standards and legal provisions of the competent authorities. EE. Approval of the proposed Automatic Fueling Device Regulations – In 2007 a proposal was raised to enact regulations for automatic fueling devices, as described in Section 1.8.19A.8 above. Delek Israel cannot evaluate whether the proposed regulations will be adopted or not, and if so, when. On July 21, 2010, an amendment of Section 7(B) of the Fuel Economy (Promotion of competition) Law, 5754-1994 (“Amendment of the Fuel Economy Law”) was published. Under the Amendment to the Fuel Economy Law, inter alia, the definition of a “universal automatic fueling device" was changed so that according to the new version it is a device that may be used to purchase fuel from any fuel company independent of the identity of the fuel company that installed it. This amendment also stipulates that regulations by virtue of the amendment will be brought before the Knesset Economic Committee for approval within three months from the law entering into force, and the Minister, at the Committees consent, is permitted to extend the period by another three months. On November 10, 2010, the Knesset Economic Committee extended the period set in Section 2 of the Fuel Economy (Promotion of Competition)(Amendment No. 4) Law, 5770-2010, whereby the Minister of National Infrastructure is empowered to enact general regulations concerning fuel facilities by a further month until December 10, 2010. Deliberations in the Knesset Economic Committee concerning the new draft regulations began on February 14, 2011 and have not yet ended. It is clarified that under the amendment to the Fuel Economy Law, the regulations will stipulate that in order to purchase fuel using the device the customer must initially contract with a fuel company that he wishes to purchase the gas from using the device. Delek Israel estimates that approval of the automatic fueling device regulations as currently worded, if enacted, could mean material expenses (the amount of which cannot currently be estimated) for Delek Israel to convert existing Dalkan devices to universal fueling devices. Furthermore, making fueling devices universal would increase the number of stations at which the customer can purchase fuel products, and therefore could lead to a decline in the number of customers purchasing fuel products using Delek Israel’s automatic fueling array. FF. Increase in the use value of company cars and decrease in the number of cars – On December 31, 2007, the Income Tax (Use value of a vehicle) (Amendment) Regulations, 5767-2007 were published, whereby the use value of a company car will increase gradually over four years from January 1, 2008 through January 1, 2011. Simultaneous to approval of these regulations, income tax rates on middle level incomes were reduced, with the purpose of partially offsetting the additional tax that will be paid on the use of the company car. Following the "green tax" reforms, as of January 2010, the method of calculating the charge for use value of a company car changed from the group price method to a linear method, whereby the use value will be a fixed percentage of the vehicle price, thereby canceling in practice the group price with respect to cars registered as of January 1, 2010. These regulations as well as the increasing numbers of lay-offs, might to, in the long term, impact the number of company vehicles used by employees, which in turn would lead to a decline in fuel consumption. GG. In the fuel economy, a small number of companies other than Delek Israel operate in the distillate storage segment, the main companies being EAPC, Paz and ORL. An increase in their distillate storage capacity and/or expansion of their fuel supply capacity poses a real threat to Delek Israel’s advantage of holding its own storage and supply facilities. HH. Failure to obtain required approvals and licenses for operating gas stations –Operating a Delek Israel gas station requires approvals and licenses from various entities. At some of its stations Delek Israel does not have all the required approvals and licenses, and in some cases these have expired and require renewal. If Delek Israel does not succeed in obtaining these approvals and licenses, this could adversely affect its operating results. II. Credit risk – Most of customer credit that Delek Israel offers is not secured by any collateral or guarantees, thereby exposing it to credit risks. At December 31, 2010 and December 31, 2009, Delek Israel had trade receivables amounting to NIS 1,515 million and NIS 1,444 million, respectively. At December 31, 2010, over 95% of these debts are not secured with any collateral or guarantees. At December 31, 2009, Delek Israel has 9 customers with outstanding debt of between NIS 10-25 million and total debt of NIS 132 million; Delek Israel

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also has four customers with outstanding debt ranging from NIS 25-50 million and total debt of NIS 133 million; and two customers with total debt of between NIS 50- NIS 95 million and an overall total of NIS 158 million. JJ. Default of loans granted to customers – Delek Israel extended loans to customers who operate stations on behalf of Delek Israel or independent station operators in the normal course of business as described in Section 1.8.5A. Delek Israel has collateral for most development loans and commercial loans (which at December 31, 2010 amount to NIS 96 million), whereas for part of debt rescheduling loans, Delek Israel has no collateral (which at December 31, 2010 amount to NIS 68 million). Therefore, Delek Israel is exposed to credit risk for default of uncollateralized loans. KK. Non-renewal of Ionex’s agreement with Haifa and Ashdod ports for marketing fuel products to ships – The agreement with Ashdod port was effective through April 30, 2010. Under the agreement, the Ports and Railways Authority is entitled to publish a new tender for the supply of fueling services, and if Ionex does not win the tender, it will be required to vacate the port on 60 days' notice. Haifa Port published a tender for the provision of fueling services there. Ionex submitted a proposal as part of this tender and on March 24, 2011 was notified that it was awarded the tender. As at the report date, the mandate to provide fueling services to vessels at Haifa Port is valid through May 31, 2014, while it includes the option to extend the validity for another two years and in total through May 31, 2016. In Ashdod port, Ionex operates under a permit to provide fueling services to vessels, effective through June 1, 2013. If the leasing period is not extended, this could have a materially negative impact on its business. This information is forward-looking information, which might not materialize, inter alia, due to the occurrence of events unforeseen by Delek Israel. LL. Ownership structure of gas stations – Due to the ownership structure of gas stations, some of which are rented by Delek Israel and some with which Delek Israel only has a fuel supply contract, there is a risk that these stations will switch to marketing the products of other fuel companies at the end of the rental period /supply contracts. Additionally, at stations that it neither owns nor operates, Delek Israel is exposed to greater pressures from operators/owners, and therefore, the profitability of such stations is eroded. MM. Short term direct marketing contracts – In direct marketing, the contracts are short term and thus, there is a risk that customers will leave and move to competitors at short notice. NN. Lawsuits – There are material lawsuits against Delek Israel, including class actions in material amounts that could reach hundreds of millions or even billions of shekels, for some of which it is impossible at this stage to estimate the outcome (see Note 32 to the financial statements). Delek Israel is exposed to the consequences of these claims. OO. Dependence on brand name and goodwill – Delek Israel's goodwill has been earned over many years and has brand names that distinguish it and its subsidiaries and affiliates from its competitors. Harm to this goodwill or these brands through various publications or other means could adversely affect Delek Israel even if such publications are incorrect. PP. Environment at Old Stations – Delek Israel has old public gas stations established before 1997, accounting for about 55% of all its stations. These stations were built to standards acceptable in the past and which according to current know-how do not guarantee that there will not be leakage from a tank or pipe. QQ. Delek Israel belonging to a Group and to its controlling shareholder, Mr. Yitzchak Teshuva – The fact that Delek Israel belongs to a group and to its controlling shareholder, Mr. Yitzchak Teshuva, has implications on Delek Israel's ability to raise credit, inter alia, due to the "single borrower" restrictions, which could result in its sources of bank credit being limited, and other regulatory regulations imposed on the banking system and institutional bodies by the Ministry of Finance and the Bank of Israel. RR. Possible difficulties in obtaining financing – During February 2010, the Securities Authority notified Delek Israel of suspending the issue process of debentures by Delek Israel, due to press reports of an interview with Delek Israel’s CEO that were not expressed in previous reports on behalf of Delek Israel. As long as this decision is not changed, it poses difficulties with respect to the possibility of raising of financing from the public.

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Below is a summary of the risk factors described above according to their type (macro risks, industry-wide risks and Delek Israel-specific risk), rated by extent of impact on Delek Israel's business (major, medium, minor):

Impact of Risk Factors on Delek Israel’s Business Minor Impact Medium Impact Major Impact Macro risks • Security and political • Changes in interest situation rates • Strikes and lockouts • CPI changes • Economic slowdown in • Difficulties in obtaining Israel and worldwide financing • Changes in foreign exchange rate

Industry-specific • Lack of insurance • Competition • Changes in oil and risks coverage • Establishment of petroleum product • Product liability additional service prices • Automotive gas stations • Changes in civilian inventory • Food industry • Fuel taxation regulations • requirements • Regulatory involvement • Increase in • Dependence on • Marketing margin company car infrastructure facilities changes utilization value • Exposure to lawsuits on • Infrastructure tariffs • Transition to public environmental issues • Environmental transport • Hazardous and toxic protection materials • Dependence on • Natural gas refineries • Entry of ORL into the fuel marketing segment • Economic slowdown in the domestic market • Antitrust Authority • Transition to automatic fueling facilities • Development of alternative energy sources • Material increase in distillate storage capacity by competitors.

Company-specific • Short-term contracts in • Failure to obtain permits risks the direct marketing and licenses for stations operations • Credit risks • Dependence on • Ownership structure of branding and goodwill gas stations • Environmental issues at • Lawsuits old stations • Delek Israel belonging • Default of loans to the Delek Group and extended to customers its controlling shareholder, Mr. Yitzhak Teshuva • Non renewal of Ionex contracts with ports. • Environmental protection at old gas stations

The extent of the effect of risk factors on Delek Israel’s business is based on estimates only and it is possible that in practice this impact could be different.

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1.9 Fuel products in Europe

1.9.1 General The Company's fuel product operations in Europe are carried out through Delek Europe Holdings Ltd. ("Delek Europe"). Delek Europe is a subsidiary incorporated in Israel, owned by Delek Petroleum (80%) and Delek Israel (20%). The fuel products in Europe segment consists of fuel marketing operations in Belgium, the Netherlands and Luxembourg ("Benelux") and of fuel marketing operations in France. A. Acquisition of fuel marketing operations in Benelux: On August 8, 2007, Delek Benelux B.V ("Delek Benelux"), an indirectly held foreign subsidiary of Delek Europe, incorporated in the Netherlands (together with its subsidiary incorporated in Luxembourg), acquired the marketing operations of a Chevron Global Energy Inc. ("Chevron") subsidiary in Benelux (Belgium, the Netherlands, and Luxembourg). On December 31, 2010, these operations included 845 gas stations ("Marketing Operations in Benelux"). Marketing operations in Benelux, carried out by three separate companies in each of the aforesaid countries, also encompasses convenience stores, food chain branches, carwash facilities, and holdings in two terminals, as detailed in Section 1.9.12 below. Consideration for the acquisition of the above operations totaled approximately EUR 404 million, after working capital adjustments. The acquisition was financed through foreign bank funding, raised by Delek Benelux and its subsidiaries, as well as an equity investment in Delek Benelux. Bank funding accounted for 63% of the total funding, while the equity investment accounted for 37% of the total funding and was invested in Delek Benelux upon the transaction's completion. The three acquired companies had previously included other operations, which Chevron withdrew from the companies prior to their acquisition. B. Acquisition of fuel marketing operations in France: On October 1, 2010, the subsidiary Delek Europe B.V. acquired BP France SA's ("BP) fuel marketing and convenience store operations in France. As of December 31, 2010, these operations consist of 405 gas stations, 354 convenience stores, 237 carwash facilities, and holdings of between 21.5% and 100% in three terminals for the supply and storage of fuels used in the operations ("Marketing Operations in France"). Acquisition of the marketing operations in France also included an exclusive usage license to the BP brand in France in the gas stations, as well as long-term agreements concerning refueling cards. The marketing operations were acquired by Delek Europe through Delek France Finance SNC ( "Delek France"), a company incorporated in France which is a wholly-owned subsidiary of Delek Europe, indirectly held by Delek France B.V., a wholly-owned subsidiary of Delek Europe. The consideration for acquiring the aforesaid operations amounted to EUR 209 million (after working capital adjustments but before transaction costs and was financed through banks (70%) and shareholders loans extended by Delek Petroleum and Delek Israel (30%), pro rata to their holdings in Delek Europe. For more information concerning the financing for the acquisition of the marketing operations in France, see Section 1.9.24 below. The acquisition of the aforesaid operations was effected through the purchase of shares in the companies carrying out the said operations.

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The following chart details Delek Europe's primary holding structure:

Delek Europe Holdings Ltd.

100%

Delek Europe BV

100% 100%

Delek Luxembourg Delek Benelux BV Delek France BV Holdings 100%

100% 100% 100% 100%

Delek Delek Delek Delek Luxembourg Belgium Netherlands France

1.9.2 Financial information concerning the fuel products in Europe segment A. Below are data regarding the operating segment in 2009 - 2010 (in NIS millions):

12010 2009 Revenues (NIS Revenues from 13,130 10,681 thousands) externals Revenues from other - - segments Total 13,130 10,681 Total attributable Costs constituting - - costs (NIS revenues for another thousands) segment Other costs 12,947 10,591 Total 12,947 10,591 Fixed costs attributable 566 585 to segment Variable costs 12,381 10,006 attributable to segment Profit from ongoing operations attributable 183 90 to equity holders of the parent Share in profit from ongoing operations - - attributable to minority interests Total assets attributable to segment 5,529 4,154 Total liabilities attributable to segment 5,529 4,154

1 Includes the results of marketing operations in France, starting October 1, 2010.

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B. Below are data regarding marketing operations in France in 2008 - 2010 (mainly reflecting data according to the fifth schedule to the Periodic and Immediate Reports Regulations (in EUR millions)): Pre-acquisition data (results of BP's operations):

Nine months 2009 2008 ended Sept. 30, 2010 Revenues 602 620 875 Cost of revenues 526 518 769 Gross profit 13 102 106

Operating profit 602 13 16

Assets1 223 243

2 Liabilities 121 139

Post-acquisition data - results of Delek France's operations in EUR millions:

Q4/2010 Revenues 218 Cost of revenues 184 Gross profit 34 Operating profit 3 Net profit2 0.4

Assets2 357

Liabilities3 291

1.9.3 Dividends and restrictions on the distribution thereof Delek Europe has not distributed dividends in the past two years. For information concerning limitations on dividend distributions pursuant to financing agreements signed by Delek Europe, see Section 1.9.24 below. 1.9.4 Structure of the operating segment and changes therein As aforesaid, fuel operations in Europe are comprised of marketing operations in Benelux and marketing operations in France. A. Marketing operations in Benelux As of December 31, 2010, marketing operations in Benelux include 845 gas stations: 567 gas stations in the Netherlands, 264 gas stations in Belgium, and 14 gas stations in Luxembourg. Furthermore, operations include 605 convenience stores, 231 bakeries, 182 carwash facilities, 7 motorway restaurants, and a hotel. In 2010, three important motorway sites and two motorway restaurants were added to the chain in Belgium. B. Marketing Operations in France As of December 31, 2010, marketing operations in France consist of 405 gas stations. Delek France's gas stations are located mainly in the north of France (including Paris) (approximately 240 stations), which account for approximately 56% of Delek France's total fuel

1 After adjusting for Delek Europe B.V.'s finance expenses in acquiring Delek France, Delek France's net losses totaled EUR 4 million. Finance expenses include EUR 4.6 million in exchange differences, following a decrease in the EUR/NIS exchange rate. 2 Assets and liabilities data is current as of the last day of each of 2008, 2009 and 2010.

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sales, and in southern France (South PMR Corridor) (approximately 140 stations) which account for approximately 27% of all fuel sold by Delek France. It is noted that 52 gas stations are located alongside motorways, and account for approximately 10% of all motorway gas stations in France. To the best of the Company's knowledge, Delek France is the second largest fuel supplier (approximately 20% market share) in northern France (including the greater Paris area), and holds the third largest market share (approximately 11%) in southern France. Furthermore, marketing operations in France include 354 convenience stores, 237 carwash facilities and holdings of between 21.5% and 100% in three terminals for the supply and storage of fuels used in the operations, and which account for 40% of the fuel sold by Delek France. C. For more information concerning Delek Europe's marketing products in Benelux and France as of December 31, 2010, see Section 1.9.12 below. D. Marketing operations in Europe are carried out under several formats: 1. Gas stations owned or leased for the long term as well as operated by Delek Benelux or Delek France (Company-Owned Company-Operated - COCO). 2. Gas stations owned or leased for the long term by Delek Benelux or Delek France, and operated by third parties (Company-Owned Retailer-Operated - CORO; in Delek France these stations were previously called - Company-Owned Dealer-Operated - CODO). 3. Gas stations owned or leased for the long term by Delek Benelux or Delek France, and operated by franchisees (Company-Owned Franchise-Operated - COFO; in Delek Benelux these stations were previously called Company-Owned Retailer-Operated +, or CORO+).1 4. Gas stations owned or leased and operated by third parties, who buy fuel exclusively from Delek Benelux or Delek France (Retailer-Owned Retailer-Operated - RORO; in Delek France, these stations were previously called - Dealer-Owned Dealer-Operated - DODO). 5. In Benelux only - holdings of 40% in a joint venture company operating independently in the marketing (both retail and wholesale) of fuels (Equity Distributors). 6. In Benelux only - Authorized Distributors - supply of fuel by Delek Benelux to 16 gas stations in Belgium and 29 gas stations in the Netherlands, who independently sell fuel to SMEs, households, and service stations. 1.9.5 Restrictions, legislation, standardization and special constraints Delek Benelux and Delek France's operations are subject to various regulatory restrictions and requirements, including environmental protection requirements, labor laws, regulations for the sale of alcohol and tobacco products, minimum wage, labor conditions, public access and other legislation. For more information, see Sections 1.9.26 and 1.9.27 below. 1.9.6 Changes in the operating segment's scope and profitability A. Economic conditions in Benelux and France Belgium has one of the most developed economies in Europe. Its geographic location along the North Sea enables Belgium to rely mainly on international trade, with 70% of the country's GDP being generated through such trade. Antwerp is the second largest seaport in Europe, and is a key destination in the global fuel market. Belgium has a population of 10.5 million residents, and is ranked first in the world in GDP per capita. In 2010, the Belgian economy emerged from the global economic crisis and resumed growth. According to forecasts by the Central European Bank, the Belgian economy is expected to grow by a similar percent in 2011. The Netherlands is considered one of the strongest economies in Europe. Rotterdam is the largest seaport in Europe, and together with Amsterdam and Antwerp constitute Europe's gateway to the global fuel market (ARA - Amsterdam, Rotterdam, Antwerp). The Netherlands has a population of 17 million residents, and is ranked 18 in the world in GDP per capita.

1 Under this method of station operation, Delek Europe provides full support for the supply, marketing, and trade of fuel and convenience store products, so as to allow retailers and franchisees to focus on station operation and improving customer service and sales turnover.

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Unemployment in the Netherlands is one of the lowest in the world (5.5%), and in 2010 the Dutch economy grew by 2%. According to forecasts by the Central European Bank, the Netherlands' economy is expected to grow by a similar percent in 2011. Luxembourg is one of the smallest countries in the world, with a population of just 0.5 million residents. However, Luxembourg is considered one of the best economies in the world and is ranked third in GDP per capita. Fuel taxes in Luxembourg are low compared to other countries in Europe, and so the country is host to what has been termed "tourist fuelling", with residents of neighboring countries and truck fleets crossing the continent passing through Luxembourg in order to benefit from the lower fuel prices. In 2010, Luxembourg's economy grew by 2.5%, and according to forecasts by the Central European Bank is expected to continue growing at a similar pace in 2011. Benelux is considered as having a high percentage of motor vehicles per capita. France is the second largest economy in Europe, and accounts for 14% of the European Union's gross national product. Its population accounts for approximately 13% of the European Union's population. Despite the economic crisis experienced by European Union countries, France remained a strong economy, and is expected to grow in the coming years. France is one of the most important tourist destinations in Europe, situated in a key geographic location. Furthermore, France houses approximately 19% of Europe's roads, with 11,000 km of highways. Annual gasoline and diesel consumption in France in 2010 and 2009 was 50.6 billion liters and 50.5 billion liters,1 respectively. B. The gas station market in Benelux 1. The gas station and convenience store market in Benelux is relatively stable and centralized. Each of the Benelux countries has 5-6 key players, including Delek Benelux. To the best of Delek Benelux' management's knowledge, fuel consumption in Benelux has gone down 3% in 2009 compared to 2008, after a modest growth trend in recent years which brought it up from 18.8 billion liters in 2004 to approximately 20 billion liters in 2008. This decrease is due mainly to the global economic crisis which is primarily the impacting overland freight industry which is plays an extremely significant part in fuel consumption in Benelux. In 2007 and 2008, fuel sales were divided between diesel (approximately 59% and 60%, respectively) and gasoline (approximately 41% and 40%, respectively). In recent years, demand for diesel has gone up, while demand for gasoline has gone down, as the number of gasoline-powered vehicles is decreasing. This trend stopped in 2009 due to the aforesaid reasons. In 2010, demand for diesel stabilized. Fuel consumption is influenced by a variety of factors such as growth rates, fuel taxation policies, growth in the number of vehicles in Benelux, and the characteristic usage of these vehicles. As a result of the global economic crisis and its effects on the movement of goods, a significant drop in demand for fuel was recorded in the fourth quarter of 2008, which continued throughout 2009. However, in 2010 this trend leveled off, and fuel consumption stabilized. It is not possible for Delek Benelux to assess the duration and/or extent of this trend, but it may continue and adversely affect the results of Delek Benelux's operations, and may expand and affect convenience stores as well. 2. The gross margin per liter of fuel sold in Benelux has remained relatively stable in recent years due to the structure of the market and the competition. 3. To the best of the Company's knowledge and based on research data from such companies as Wood Mckenzie and Nielsen, the convenience store market in Benelux has grown in recent years by an annual rate of between 4% and 5%. Among other reasons, this is due to changes made in the late nineties which eased restrictions on store opening hours, and due to liberal regulatory policies concerning the products allowed for sale. However, in 2010, due to the global economic crisis, the market experienced a general slowdown. C. The gas station market in France The gas stations and convenience store market in France is extremely competitive. In France, there are numerous competitors, mainly the hypermarket chains which hold a market share of

1 This information is derived from monthly data publications by UIFA (Petroleum Federation) and motorway operating companies.

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approximately 50%, and five international fuel companies including BP, which jointly account for approximately 40% of the French fuel market. The remaining portion of the market is split among smaller companies. Hypermarket location sinclude gas stations owned and operated by the hypermarket chains, which are a major player in the market. To the best of Delek France's knowledge, following a period of stability in fuel consumption in France in the period 2000-2007, fuel consumption has decreased by approximatley 2.7% in 2008. This decrease is mainly due to rising fuel prices since mid-2008, which affected consumer behavior, and due to the global economic crisis, which mainly affected the land transport industry, which constitutes an extremely significant factor in fuel consumption in France. From 2009 and until the reporting date, no material changes have occurred in the annual fuel consumption in France. However, in recent years there has been a continuing increase in diesel consumption, as compared to a decrease in gasoline consumption (in 2001-2008, diesel sales were up by 2.5% on average, as comapred to a 5.5% decrease in gasoline sales). This is due to a lack of substitute products, incentives promoting the use of diesel-powered cars over gasoline- powered cars (such as the incentive plan for reducing CO2 emissions), and regulation. In 2008, 2009, and 2010, fuel sales were distributed between diesel (approximately 76%, 77%, and 78.5%, respectively) and gasoline (approximately 24%, 23%, and 21.5%, respectively). To the best of the Company's knowledge, the convenience store market in France has grown in recent years by an annual rate of 3% to 4%, inter alia, due to a rise in living standards and expanded product offerings. D. Fuel prices and consumption and the effects thereof on Delek Europe's fuel margin: Fuel prices in Benelux and France are materially influenced by crude oil prices, which are subject to significant fluctuations on the global markets. Fuel consumption depends on various factors such as economic growth rates, population growth, fuel taxation policies, growth in the number of vehicles and the use made of those vehicles. Between 2000 and 2004, fuel margins fluctuated, but have gradually increased since 2004. Fuel margins are influenced by the following factors: (1) market competition - in Western European countries, where competition in the fuel market is high, fuel margins have gone down compared to less competitive fuel markets in Europe; (2) changes in the number of self- service stations - an increase in the percentage of unmanned gas stations offering customers discounts of up to 12 cents; (3) the location of gas stations alongside motorways enables higher fuel margins and fuel sales turnover that is three times greater than that of non- motorway gas stations; (4) in France - changes in the market share of hypermarkets (which sell fuel at lower prices than the fuel companies), especially as regards motorway stations, may affect fuel companies' ability to compete, and so affect fuel margins. The competitiveness of the French market and the various competitors' reluctance to start a "price war" in recent years, has led to an increase in the retail margin. In competitive European countries, convenience store sales have become an important part of the fuel market. Furthermore, regulatory changes have accelerated the closing of less-profitable gas stations. 1.9.7 Developments in the operating segment or changes in its customer profiles A. Netherlands: Demand for fuel in the Netherlands has grown constantly in 2000-2008 at a rate of over 2%, due to high GDP numbers and the growth in demand for vehicles. It is noted, that demand for diesel fuel has grown at a greater rate, while demand for gasoline has gone down following a decrease in the number of gasoline-powered vehicles. Following the global economic crisis of 2009, overall demand for fuel went down 3% in 2009, with the majority of this decrease being attributable to a decrease in diesel consumption. 2010 saw a stabilization in demand for fuel. B. Belgium: In 2003-2008, demand for fuel grew by 2% each year. Belgium serves as a passageway for goods to and from the ports of Rotterdam and Antwerp. Following the global economic crisis, this trend stopped in Q4/2008, and in 2009 and the first nine months of 2010 the demand for fuel went down by 1%. C. Luxembourg: The fuel market in Luxembourg is characterized by high demand, mainly due to the low fuel tax as compared to neighboring countries (which leads to customers from other countries buying fuel in Luxembourg - "fuel tourism"), and due to Luxembourg's geographic location. In the first three quarters of 2008, no significant changes occurred in the demand for fuel. Following the global economic crisis, Q4/2008 saw a significant drop in demand for fuels in general and for diesel in particular, due to decreased motorway truck traffic. This trend continued through the first three quarters of 2009, with a total decrease of 7%, mostly

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attributable to decreased consumption of diesel. 2010 saw a recovery in demand, which drove diesel consumption up by 2.5% D. France: Developments in the French market are affected mainly by three key trends: 1. Entry of hypermarket chains into the fuel market - Between the 1980s and the early 2000s, the market share held by hypermarket chains has grown consistently, up to a record high of 55% of the entire fuel market in France in 2001. In recent years, the hypermarket chains' market share has stabilized at around 50%. Hypermarkets offer fuels at significantly lower prices than those offered by the fuel companies, as they use fuel as a means of attracting customers to their stores (lost leader). Delek France estimates that the hypermarkets' share in the motorway segment is expected to decrease in the next few years in light of public statements made by the hypermarket chains that the significant capital and operating expenses involved in upgrading motorway gas stations do not coincide with the hypermarket chains' business model. These expenses are liable to damage their image as offering affordable prices. As part of their strategic shift, hypermarkets are not signing new gas station franchise agreements, and their motorway market share is expected to plummet as low as 0% by 2015. It is noted, that in early 2010, Carrefour and Leclerc closed motorway hypermarket locations for these reasons. This information concerning Delek France's assessment that the hypermarkets' share in the motorway segment will decrease constitutes forward-looking information, based on Delek France's estimates. However, such forward-looking information may fail to materialize, inter alia, due to decisions made by the hypermarket chains and changes in their approach, entrance of new players into the market, changes in the results of the fuel companies and the hypermarkets' operations, consumer behavior, etc. 2. Increase in self-service stations - Recent years have seen a trend towards self-service stations in order to allow fuel companies a level of competitive flexibility in lowering fuel prices. 3. Increase in motorway stations - Fuel margins in motorway gas stations are higher than those in urban gas stations. Furthermore, fuel consumption in these stations is greater than that recorded in urban gas stations, and their convenience store and restaurant revenues are relatively higher. 1.9.8 Critical success factors in the operating segment and changes therein Delek Benelux and Delek France believe the critical success factors in the operating segment to be as follows: A. Widespread deployment and attractive location of gas stations. Transition of more profitable gas stations to ownership or long-term leasing and operation by Delek Benelux or Delek France (COCO), according to their location. B. Matching the gas station operation model to their potential and minimizing holdings in less profitable gas stations. C. Financial stability enabling, inter alia, investment in setting up new company-owned stations, and in renovating and expanding existing stations. D. Advanced retail strategy management, including investment in developing the convenience store chain in order to offer customers a value proposition (service/quality versus price). E. Advanced information technology and decision-support systems; establishing support for critical business processes. F. Ownership rights in the land on which the gas stations are built. G. Contracting terms with station operators. H. Development of fuel card programs. I. Availability of fuel and other products and storage capacity. J. Advanced marketing and logistics systems. K. Chains operating under international brands that are well-recognized in Benelux (Texaco) and France (BP). L. Economic conditions, which affect, inter alia, fuel consumption and convenience store turnover, as well as the prices of the products on offer.

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M. Market penetration of premium fuel products, in order to increase retail margins. 1.9.9 Changes in suppliers and raw materials A. Fuel product suppliers In the Netherlands and Belgium, there is a relatively large number of refineries centered around Rotterdam and Antwerp that are able to supply fuel products, resulting in fuel supply exceeding local demand. Therefore, local refineries export to other countries in the European Union (mainly to Germany) and North America. In the the Netherlands, most fuel products are purchased by Delek Benelux from the BP-owned refinery. Fuel products not bought from BP are purchased from the Shell, Total and Vitol refineries, and from other companies, inter alia under swap agreements. There are also storage and trading supply contracts with international companies such as Vitol, and North Sea Holdings. Most of the fuel in Belgium is supplied from the Total refinery and its distribution facilities. In Luxembourg, most fuel products are supplied from a terminal in Belgium, jointly owned by Delek Benelux and Q8, which stores fuels from refineries in Antwerp and Flushing, and which also distributes fuels to east Belgium. As part of the agreement to acquire the Benelux marketing operations, a supply agreement was signed between Delek Benelux and BP-owned Nerefco, which includes an option for Delek Benelux to extend the agreement for one additional year upon the parties' mutual consent to be given no later than September 30 of each year. This agreement is still valid, though Delek Europe is expected to decrease the quantities of fuel received from the Terminal and switch to other suppliers. Secondary supply, from the terminal or depot to the gas stations, is carried out mainly by road tankers operated by a third party transportation company. In France, fuel products are bought from refineries centered in the north-west and south of France, as well as from imports. Delek France has signed an agreement with BP for the purchase and storage of fuels (for details concerning the agreement with BP, see Section 1.9.21 below). Fuels are supplied via pipelines, barges and trains, and stored in a number of terminals throughout France. 55% of the fuel marketed by Delek France is stored in three terminals in which Delek France maintains ownership interest (for details concerning these terminals, see Section 1.9.18(d) below). The remaining fuel is stored in terminals owned by BP and third parties. Fuels are transported from the terminals via road tankers to the various gas stations according to agreements signed with three leading logistics service providers. As part of the agreement for acquiring the marketing opertions in France, a supply agreement was signed by Delek Europe and BP, for the supply of fuels to Delek France-owned terminals until the end of 2011, as well as an agreement for the supply of fuels from various terminals not owned by Delek France for a period running through the end of 2013. These agreements include an option for extension for an additional period by the parties' mutual agreement to be given no later than November of the year prior to the end of the agreement period. Furthermore, Delek France has contracted leading third parties supplying tanker transportation services for fuels distributed by Delek France from the terminals to the gas stations. Fuel prices are stated in USD, and so the EUR-USD exchange rate may affect Delek Europe's buying prices. For more information concerning the supply agreements, see Section 1.9.21 below. B. Convenience store suppliers In Benelux and in France, there is a large selection of convenience store suppliers, and Delek Europe has contracted various suppliers for the supply of tobacco products, light beverages and alcohol. In France, the 14-year long cooperation continues with French retail giant Carrefour, which distributes the products to gas stations throughout the country. This cooperation is based on a number of agreements, which include a global agreement, a license agreement, a representation agreement, and a supply agreeent. These agreements were signed for various periods (between 5 years and an indefinite period) and include various exclusivity clauses (in some of the agreements exclusivity is mutual, in others exclusivity applies to Delek France only, while in others no exclusivity is applied to Delek France). Under these agreements, Delek France pays Carrefour various commissions.

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1.9.10 Entry and exit barriers The following material entry barriers are typical of the Benelux and French markets: A. Size of current market players and country size - Market characteristics in France and Benelux make it difficult for new competitors to enter the market other than through the acquisition of an existing player. This is due to the fact that the various Benelux markets have few companies, each with a market share in excess of 10%, while France is a vast country saturated with gas stations. B. Material investments requiring considerable capital - Investment in gas stations requires considerable capital, for various reasons, including the price of land (due, inter alia, to limited availability of suitable free land) and the cost of acquiring or constructing gas stations. C. Environmental protection and planning regulation - Strict standards set by environmental protection and planning authorities limit market entry, or increase entry costs. D. Limited availability of suitable free land for the operating segment (primarily along motorways) in Benelux - Leads to higher land prices and deters the entry of competitors interested in expanding gas station complexes into major commercial areas (hypermarkets). E. Furthermore, the Netherlands, Belgium and France require a tender process for operating gas stations on motorway sites, which increases prices at such locations to levels only affordable to major players, and requiring complex planning capabilities and collaboration with restaurant chains. The major exit barriers are the existence of rent/lease/operating contracts with land/station owners. 1.9.11 Structure of competition in the market A. General Recent years have been characterized by increased departure of the major international oil companies from the gas station segment. This is mainly due to the following factors: high oil prices lead to higher returns on investments; oil exploration and production have become more complicated, requiring the allocation of more resources; competition-increasing regulation is changing the traditional market shares and requiring CAPEX investments, which are needed in exploration and production operations; the gas station market has expanded to include convenience stores, fresh food, and retail products which are "distant" for oil companies; oil is a commodity and no gas station holdings are required to sell it. In 2010, the above trend became more pronounced, with numerous transactions taking place in the European market, whereby oil companies sold their gas station operations. This trend includes Delek Benelux's acquisition of Chevron's operations, and Delek France's acquisition of BP's operations. Delek Europe aims to continue exploiting this trend in light of the following characteristics: its growth strategy; infrastructure supporting expansion of the gas station chain; financial resources supporting acquisitions; flexible and dynamic operating models; local management; ability to act on opportunities, and fast response times to changes in the market and in customer needs. B. Structure of competition in Benelux: The fuel market in Benelux is relatively concentrated, with five or six major fuel companies holding 80% to 90% of the market. According to Wood Mckenzie data, the six largest fuel marketing companies in the Netherlands comprise 80% of the market. The three companies with the largest market share are Shell, BP and Delek Benelux (Texaco). The six largest fuel marketing companies in Belgium comprise 80% of the market. The three companies with the largest market share include Total, Q8, and Shell. Delek Benelux (Texaco) holds the fifth largest market share in Belgium. The six largest fuel marketing companies in Luxembourg comprise 90% of the market. The company with the largest market share is BP, followed by Shell, Exxon, and Total with similar market shares. Delek Benelux (Texaco) holds the sixth largest market share in Luxembourg. Competition in the fuel market is focused on gaining an advantage in the deployment of gas stations, gas station branding so as to attract customers, and expansion of additional services provided within gas station compounds (convenience stores, carwash services, restaurants, etc.)

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C. Structure of competition in France: Competition in the fuel market in France is extremely fierce, Due to the presence of a large number of competitors and the existence of a large number of gas stations. The market is primarily comprised of gas stations situated within hypermarket complexes and operated by hypermarket chains. The hypermarket chains hold a share of approximatley 50% of the total fuel market in France. The market is further comprised of five major international fuel companies (Total; Esso; BP, whose operations were acquired as aforesaid by Delek France; Shell; and Agip), which together hold a share of approximatley 40% of the French fuel market. Of the international fuel companies, According to data from Wood Mckenzie, Total holds the greatest market share - approximatley 37% in 2009. Total also holds the largest number of gas stations (approximately 4,600). As of 2009, BP held a market share of 3.3%. The stiff competition in the fuel market is reflected in price competition, in differentiation between the various companies (each as per its own strategy) in the deployment of gas stations, inthe branding of gas stations so as to attract customers, and in the expansion of additional services offered in the gas station complexes (such as convenience stores and carwash services). Delek France handles the competitiveness of the fuel market on four levels: 1) Focusing on high fuel consumption areas - Delek France seeks to establish and develop gas stations in the greater Paris area, which benefits from high levels of vehicle traffic by vacationers and commuters. Delek France also focuses on establishing and developing gas stations alongside motorways throughout France, where in addition to vehicle traffic, Delek France benefits from lighter competition as compared to inner-city areas; 2) Differentiation and uniqueness - Delek France markets both its fuel products and its convenience store products as premium products which, the Company believes, offer a higher quality relative the market, and benefits from long-term commercial ties with well-known food chains (Autogrill, and Elior), and with French hypermarket giant Carrefour; 3) Pricing - Prices on regular (non-premium) fuels in Delek Grance's gas stations are average. However, Delek France's premium fuel offering is more competitively priced relative the premium fuels offered by Total, the current market leader. 4) Establishing a loyal customer base - Delek France establishes a loyal base of return customers by marketing BP Plus refueling careds (together with refueling card company Routex), which are accepted in 36 countries throughout Europe and offer various benefits upon payment during refueling; and by marketing of Carte Bienvenue loyalty cards, which offer benefits based on customer loyalty; 5) Improvements to convenience stores. 1.9.12 Products and services A. Fuel and oil products Diesel - Mainly for diesel-powered vehicles, as well as for heating and industrial use. Marketed both at gas stations and to industrial customers through joint ventures and independent distributors. Diesel sales comprise 75% of Delek Benelux's total fuel sales, and 70% of Delek France's total fuel sales. Various types of gasoline - For gasoline-powered vehicles and marketed mainly at gas stations. In 2010, gasoline sales accounted for 25% of Delek Benelux's total fuel sales, and 30% of Delek France's total fuel sales. There are no material differences in profits from the sale of diesel and the sale of gasoline. Premium fuels - The main objectives in marketing premium fuel products is to supply an innovative product which meets current customer expectations, and penetrate the premium fuel market which offers greater profitability. In 2007, Delek Benelux began marketing a premium fuel product under the XL brand in the Netherlands. Delek France markets premium fuel products (diesel and gasoline) in France under the Ultimate brand. B. Convenience store products Convenience stores in Benelux - Delek Benelux sells various retail products in its convenience stores, including food products (sandwiches, baked goods, snacks, etc..), various beverages, cigarettes, car maintenance products, basic hygiene products, and other products. As of the reporting date, there are 605 convenience stores of which 590 are branded convenience stores. As part of its strategic plan, Delek Benelux decided to develop a new concept for the operation of its convenience stores, in order to increase its revenues and profit margin, giving them makeovers and increasing their visibility while emphasizing freshness and convenience on the road. Delek Benelux is offering a range of products suited to the needs of customers in their

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stores. The new concept has been given the Company's private-label name "GO the fresh way". In 2009, Delek Benelux carried out a successful pilot in three gas stations, and subsequently expanded the concept into another seven stores. In 2010, Deek Benelux completed the rebranding of 85 additional convenience stores, so that as of the end of 2010, 100 convenient stores are operating under the "GO the fresh way" brand. In 2011, Delek Europe intends to convert another 100 stores in Benelux, and start roing out the brand in France as well. It is noted, that the transition to the own-label brand has resulted in increased profits and an expansion of the product offering, including Segafredo - Delek Benelux's coffee brand. As part of its current budget for the next few years, Delek Benelux plans to convert convenience stores to the house brand in all its operational formats, including distributers and francisees. As of the date of this report, the various aspects of the chain are managed by Delek Benelux's in-house staff, who are working to refresh the customer experience and improve overall service. Convenience stores in France - In its convenience stores, Delek France sells various retail product such as food products (sandwiches, baked goods, snacks, etc.), various beverages, cigarettes (only in motorway locations), car maintenance products, basic hygiene products, and other products. As of 2009, the sale of alcohol in gas stations is forbidden in France between 6 pm and 8 am, and it is forbidden to sell refrigerated alcoholic beverages. It is noted that alcoholic beverage sales can account for up to 50% of non-fuel sales in gas stations.1 As of the reporting date, the chain includes 364 convenience stores, of which 54 are Proxi- branded stores (mainly in COCO and CODO locations alongside motorways), and 48 are 8 a Huit-branded stores (mainly in COFO locations, located in urban locations). The use of these two brands is the result of a 14-year strategic collaboration with French retail giant Carrefour. In Proxi stores, and in the 8 a Huit stores in COFO locations, Delek France receives fixed rentals as well as part of the convenience store's revenues. In return for use of the brand, Delek France buys the majority of the products from Carrefour and also pays usage fees for the brand. C. Rental of commercial space and carwash facilities As of the reporting date, Delek France rets out commercial space to suppliers and provides carwash services in its gas station complexes, through a chain of 237 carwash facilities. Delek Benelux's gas station complexes include a chain of 182 carwash facilities. D. Bakeries Marketing operations in Benelux include a chain of bakeries operating under the "store within a store" concept. As of the reporting date, the chain included 231 bakeries. Until the first half of 2009, the bakeries were Baker Street franchise stores. In August 2009, Delek Benelux's franchise to operate Baker Street branches in its gas stations expired and Delek Benelux opted not to extend the franchise. Instead, as part of Delek Europe's strategy to establish an own-label convenience store chain, in the last quarter of 2009, Delek Benelux replaced the franchise with bakeries developed for its new concept of convenience stores under the house brand "GO the fresh way" operating in its gas stations in the Netherlands and Belgium. The chain sells fresh fast food such as baked goods and salads, which are often prepared on site. The Go Bakery chain operates primarily in the Netherlands. E. Restaurants and hotel As of 2010, Delek Benelux operates seven restaurants and a hotel in motorway service areas in Belgium. F. Terminals Delek France maintains holdings in three terminals storing approximtley 45% of all fuel marketed by Delek France. For more information concerning these terminals, see Section 1.9.18(d) below.

1 Sales of alcoholic beverages account for 1% of non-fuel sales in motorway service areas, between 15% and 20% in 8aHuit, and 30% to 35% in CODO locations.

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G. The following table details Delek Europe's products and services by country and site type:

Gas Convenience Carwash Country Site type stations stores facilities Terminals1 Bakeries Restaurants Hotels Belgium COCO 38 38 4 27 7 1 CORO/RO RO 226 198 25 1 58 - -

Netherlands COCO 246 116 42 96 - - COFO/R ORO 197 157 68 33 - - Partnershi ps and dealers 124 82 42 4 - -

Luxembourg COCO 12 12 1 12 - - CORO /RORO 2 2 1 1 - -

France COCO 28 28 1 - -

COFO 75 74 49 - -

CORO 186 186 156 - -

RORO 116 66 31 3 - - Total 1,250 959 419 5 7 1

In COCO sites, Delek Benelux and Delek France bear the full costs of operating the gas stations complexes and enjoy full profitability. In the CORO sites, gas stations are operated by a third party and Delek Benelux and Delek France are entitled to payment in accordance with a rental agreement signed with the third party for use of the site's facilities. Such payment is based on a fixed payment and a variable payment deriving in some cases from the sales turnover on the premises, excluding convenience store sales. In COFO sites, gas stations are operated by a franchisee and Delek Benelux and Delek France are entitled to payment according to a rental agreement signed with the third party for use of the site's facilities. Such payment is based on a fixed payment and a variable payment deriving in some cases from the sales turnover on the premises, with Delek Benelux and Delek France additionally being entitled to payment deriving from convenience store turnover. In RORO sites, gas station complexes are operated by a third party and Delek Benelux and Delek France receive revenues from the sale of fuel to these stations.

1 Various holdings by Delek Benelux and Delek France, and separate from gas station operations.

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1.9.13 Segmentation of revenues and profitability from products and services Below are the amounts and percentage of revenue from the sale of fuel and services in the operating segment in 2009 and 2010:

2010 2009 % of % of % of % of EUR segment Group EUR segment Group millions revenues revenues millions revenues revenues Benelux Fuel 2,160 81.4% 24% 1,718 88.0% 24.3% Convenience stores and other operations1 276 10.4% 3.1% 232 11.9% 3.3% Other - - - 2 0.1% 0.0% Total Benelux 2,436 91.8% 27.1% 1,952 100% 27.6% France Fuel 203 7.7% 2.3% - - - Convenience stores and other operaitons2 14 0.5% 0.2% - - - Other 0.4 0.0% 0.0% - - - Total France 218 8.2% 2.4% - - - Total for operating segment 2,654 100% 29.5% 1,952 100% 27.6%

Below are the amounts and gross margins from the sale of fuel and services in the operating segment in 2009 and 2010:

2010 2009 % of % of % of % of EUR segment Group EUR segment Group millions revenues revenues millions revenues revenues Benelux Fuel 167.4 7.7% 12.6% 161.4 9.4% 15.0% Convenience 78.3 28.4% 5.9% 66.8 28.8% 6.2% stores and other operations3 Other - - 0.0% 1.5 100% 0.1% Total Benelux 245.7 10.1% 18.5% 229.7 11.8% 21.3% France Fuel 21.8 10.7% 1.6% - - - Convenience 11.6 80.6% 0.9% - - - stores and other operaitons4 Other 0.4 100% 0.0% - - - Total France 33.8 15.5% 2.5% - - - Total for operating segment 279.5 10.5% 21% 229.7 11.8% 21.3%

In 2010, Delek Benelux recorded an increase in gross profits, mainly due to improved retai margins, increased sales to other businesses (B2B), and an increase in convenience store sales in COCO gas stations. The latter was due to the impementation of the company-operation strategy,

1 Including carwash facilities, bakeries, restaurants, and hotels. 2 Including carwash facilities and terminals. 3 Including carwash facilities, bakeries, restaurants, and hotels. 4 Including carwash facilities and terminals.

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particularly in motorway locations, upgrades made to convenience stores, and implementation of the own-label brand. It is noted that there are considerable differences in sales across gas stations, influenced by the stations' location. For example, Delek Benelux and Delek France's gas stations include 42 and 52 motorway sites, respectively, with a large volume of vehicle traffic using their services. In Benelux, sales volume in these sites may reach dozens of millions of liters annually, as compared to 1-2 million liters annually at small, non-central stations. In France (according to 2009 data), average annual fuel consumption for motorway stations totaled 4.6 million liters per station, as compared to 3.4 million liters per station in the north of France, and 2.8 million liters per station in southern France. It is further noted that the CAPELLEN station in Luxembourg, one of Delek Benelux's COCO stations, boasts one of the largest sales volume in Europe and is responsible for the majority of fuels sold by Delek Benelux in Luxembourg. 1.9.14 Customers Customers in the fuel products in Europe segment are divided into several major groups: Private customers: Private customers who buy fuel in Delek Benelux and Delek France COCO stations pay the fixed price for fuel products at each station. In addition, private customers also purchase complementary products, food, or other products in the convenience stores, as well as food in the Go Bakery outlets in Benelux. Customers also use the carwash facilities offered in the gas station complexes. Payment is usually made in cash or by credit card. In Delek Europe- operated gas stations, prices on the sale of fuel products to end customers are determined by Delek Europe. Customers who are station operators: CORO, COFO, and RORO station operators, whose contractual terms are anchored in separate agreements signed with each operator, and where payment is made by bank transfer to Delek Benelux or Delek France's account with an average of 7 days' credit. Fuel card customers: Delek Benelux and Delek France have signed agreements with specialist companies that issue fuel cards and market them to international transportation companies. Average credit for these customers is 30 days. Some of these customers account for a significant portion of all sales in the chain and their loss may adversely affect operations. Furthermore, in Benelux Delek Benelux issues fuel cards to companies and businesses which signe fuel purchasing agreements, and receive 14 days' credit. In France, Delek France issues the BP Plus card, which is to be converted into a Delek Europe card. This card is issued to companies and businesses who sign agreements for purchasing fuel using this card. On average, these customers receive 35 days' credit. Additional customers in Benelux: • Joint venture: The joint venture in which Delek Benelux holds 40% is another type of customer, that purchases fuel from Delek Benelux. This customer enjoys an average of 8 days' credit. • Customers from industrial and commercial sectors / authorized dealers: Delek Benelux provides fuel to customers from industrial and commercial sectors, not through the gas stations, subject to contracts signed with these customers. These customers are granted an average credit of 40 days. 1.9.15 Marketing and distribution Marketing channels employed in Europe are as follows: A. Marketing in gas stations - Delek Europe promotes its products and services by various means: sales in operating regions, local sales in specific stations, and use of promotions. Furthermore, advertising campaigns are occasionally conducted using various media. In 2008 and 2009, Delek Benelux sponsored the first football division in the Netherlands and made extensive use of this fact in its marketing operations. In 2010, Delek Benelux discontinued its aforesaid sponsorship. B. Agreements to purchase brand fuels - Fuel products sold in gas stations are marketed under the Texaco brand in Benelux and under the BP brand in France. Premium fuel products are marketed under the XL brand in Benelux, and under the Ultimate brand in France. For more information, see Section 1.9.19 below.

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C. Additional marketing and distribution channels in France 1. Loyalty cards - Delek Europe operates a loyalty card program entitled Carte Bienvenue. The card allows loyal customers to accumulate points, which can then be used to buy discounted products in the gas stations, and particularly in the convenience stores. The card has been issued to approximately 2 million customers, who carry out approximately 30 million transactions annually using the card. 2. Convenience store branding agreements - Delek France has a long-standing collaboration with French retail giant Carrefour, whereby Delek France uses the Proxi and 8 a Huit brands in some of its convenience stores. All other convenience stores operate under the BP brand. 3. Collaboration agreement for the issue of international fuel cards - Delek France has signed a collaboration agreement with Routex, whereby customers using Routex cards can buy fuel in Delek France gas stations. It is noted that Delek France's fuel cards use fuel cards issued by Routex. As aforesaid, under the agreement for acquiring the operations in France, these cards will be replaced with Delek Europe fuel cards in the second half of 2011. For the avoidance of doubt, fuel cards held by Routex customers from outside of France will be able to continue refueling in Delek France's gas stations. 4. Agreements for distributing fuels to gas stations - Delek France enters fuel distribution and branding agreements with RORO station owners. These agreements are valid for up to 5 years. 1.9.16 Backlog Not appicable. Orders in the gas station segment are place mainly by passing customers. Neither does Delek Europe have an order backlog in the terminals segment. 1.9.17 Seasonality In general, the fuel products in Europe segment is not affected by any significant seasonality, although adverse winter weather and shorter daylight hours are liable to affect turnover in winter. Furthermore, the first and final quarters of the year are usually characterized by slower sales of fuel and convenience store products.

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1.9.18 Property, plant and equipment and facilities A. The following table details the breakdown of gas stations by type and Delek Benelux ownership rights as of December 31, 2010:

Stations owned or leased by Stations owned or leased Stations owned or leased Delek Benelux or Delek by third parties, for which and operated by Delek France and operated by third Delek Benelux or Delek Authorized Benelux or Delek France parties or franchisees France is an exclusive Joint venture distributor Country (COCO) (COFO/CORO)1 fuel supplier (RORO)2 stations (ED) stations (AD) Total stations Netherlands 246 54 143 95 29 567 Belgium 38 123 87 -- 16 264 Luxembourg 12 1 1 -- -- 14 Total Benelux 296 178 231 95 45 845 France 28 261 116 - - 405 Segment total 324 439 347 95 45 1,250 Holding statns Benelux France Benelux France Benelux France Benelux Benelux Benelux Stations under ownership 57 - 58 104 1 ------Stations with remaining rental period of less than 3 36 16 16 105 3 ------years Stations with remaining rental period of 3 to 10 146 9 81 35 ------years Stations with remaining remtal period of more than 57 3 23 17 ------10 years Stations without ownership rights to which Delek ------227 116 ------Benelux and Delek France supply fuel

1 This group includes Delek Benelux's CORO+ stations, which are now termed COFO stations, and Delek France's CODO stations, which are now termed CORO stations. 2 This group includes Delek France's DODO stations which are now termed RORO stations.

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COCO stations are owned or leased for the long term, as well as operated by Delek Benelux or Delek France. The long-term leases of these stations average between 5 and 20 years, and their renewal dates are spread relatively evenly over the years. In these stations, Delek Benelux or Delek France own the inventory, and have direct control over pricing, supply, management and maintenance. Therefore, Delek Benelux and Delek France receive all profits from these stations, as they serve as both owner and operator. COFO stations (including former CORO+ stations) are owned or leased for the long term by Delek Benelux and Delek France, respectively, and operated by franchisees. The long-term leases on these stations average between 5 to 25 years, with the renewal dates spread relatively evenly over the years. In these stations, Delek Benelux and Delek France own the equipment and in some cases the fuel inventory, and rent the stations to franchisees, who are also responsible for the stations' operation. Delek Benelux and Delek France provide full support as regards, sales, buying power, training, supply, marketing and merchandising in return for franchise fees, and also receive the net profit from fuel sales less of the franchisee's commission, as well as a percentage of the on-site convenience store revenues. This method allows franchisees to focus on station operation and on improving service to customers, and on maximizing turnover. CORO stations (including former CODO stations) are owned or leased for the long term by Delek Benelux and Delek France, respectively, and operated by third parties. The long term leases on these stations average between 5 and 25 years, with the renewal dates spread relatively evenly over the years. In these stations, Delek Benelux and Delek France own the equipment and in some cases, the fuel inventory. Furthermore, in these stations all fuel product marketing, retail and other operations are carried out by the third party operator. The operator signs a rental agreement with Delek Benelux or Delek France, as relevant, for the use of the site, and pays for the supply of products and for the use of brand names. Delek Benelux and Delek France receive a percentage of the sales in the stores and facilities. RORO stations (including former DODO stations) are owned or leased, as well as operated, by third parties. In these stations, all fuel product marketing, retail, and other operations are carried out by the third party. Delek Benelux or Delek France, respectively, sign exclusive agreements with the stations for the supply of fuel, and are not entitled to rent or profits. Therefore, RORO stations are less profitable for Delek Benelux and Delek France. The aforesaid exclusive agreements are limited to a maximum term of five years, due to applicable antitrust laws. Therefore, a bidding process is generally held at the end of the period with potential suppliers (competitors). This process entails a possible loss of some of the stations or damage to profitability due to competition. On the other hand, there is a chance to win new stations from competitors. It is noted that branding costs upon transfer constitute a significant exit barrier. The joint venture in Benelux, in which Delek Benelux holds a 40% interest, is a company that operates independently in the fuel segment. Joint venture operations are not consolidated in the financial statements. Authorized distributors in Benelux are mainly for supplying Delek Benelux fuel to 16 stations in Belgium and for the independent sale of fuel to SMEs, residential customers, and service stations. In the Netherlands, Van der Sluijs operates a network of 25 complexes under the Texaco brand, for which it pays Delek Benelux licensing fees to use the brand in each complex. B. Delek Europe owns structures and equipment in most stations in which it has ownership rights. These structures and equipment form a part of Delek Europe's property, plant and equipment. In addition, Delek Europe owns equipment in all stations in which it has no ownership rights or in which it has short-term rental agreements. In some of these stations, Delek Benelux and Delek France have property, plant and equipment in station structures that were constructed many years ago, when the seller had ownership rights (including long-term lease/rental contracts) in those stations. This equipment includes tanks, pipes, pumps, computer and communications systems, office equipment, power supply systems and power generators if required, fire extinguishing systems and public restrooms. It is noted, that in 2010 Delek Benelux made material investments of approximatley EUR 15 million in property, plant and equipment, primarily a planned investment in Delek Europe's new store concept and another investment in a fuel card project. Other material investments include the acquisition of rights to operate stations along motorways in the Netherlands and Belgium, and the upgrading of on-site convenience stores. In 2011, Delek Europe is expected to invest in regular maintenance of its gas stations, and in the upgrading the on-site facilities and convenience stores.

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C. As of the reporting date, Delek Netherlands holds a 40% interest in a company (joint venture) operating independently in the retail and commercial marketing of fuel (equity distributors), whose operations include 95 gas stations. The results of the joint venture's operations were not consolidated in Delek Netherlands' statements, and the contribution of its fuel sales is immaterial for the operating segment. However, Delek Benelux regards this venture as important, inter alia, as it expands Delek Benelux's Texaco brand presence, and provides an additional customer base for the fuel card program. It is noted that until October 1, 2010, Delek Benelux maintained holdings in two additional joint ventures. At that date, Delek Benelux acquired the full holdings in one of these joint ventures (POST), which then became a subsidiary of Delek Benelux, and sold its holdings in the other joint venture. In light of the above, starting October 1, 2010, POST's results are consolidated in Delek Benelux's financial statements. D. Holdings in terminals - Delek France maintains holdings in three terminals, as detailed below: 1. The Vitry terminal in Paris, which is fully-owned by Delek France. This terminal is located on an area of 37,000 square meters, owned/leased by Delek France, and operated by Delek France. The fuel stored in this terminal is supplied via a pipeline supplying fuel to the Paris and northern France region (Trapil pipeline), which is jointly owned by several companies, including BP. The Vitry terminal has a maximum capacity of 70 million liters. 2. The Lyon DPL terminal, located in Lyon and held by Delek France (50%) jointly with Carrefuel (50%), through a private company incorporated in France ("DPL"). This terminal is located on an area of 26,700 square meters, leased by DPL from Lyon port authorities (Compagnie Nationale du Rhone) until January 1, 2023, and operated by Delek France. The fuel stored in this terminal is supplied via the pipeline supplying the southwest region of France (SPMR pipeline), which is jointly owned by several companies, including BP. The Lyon DPL terminal has a maximum capacity of 70 million liters. 3. The Bastia terminal includes two sites, located on Corsica, and is held by Delek France (21.5%) jointly with a number of other companies through a private company incorporated in France ("DPLC"). This terminal is located on land leased by DPLC from private entities. The terminal is operated by a local operating company specializing in terminal operation. The fuel stored in this terminal is supplied via ships by refineries in the FOS region. The terminal has a total maximum capacity of 33 million liters. Delek Benelux maintains holdings in two terminals, as detailed below: 1. The Wandre terminal - Delek Benelux and Q8 are joint holders (in equal parts) of a terminal located in Wandre, Belgium. This terminal almost exclusively serves the needs of Delek Benelux and Q8 in the Wandre port area. The terminal is the almost exclusive supplier of fuel in southern Belgium and Luxembourg. The terminal has a maximum capacity of 18 million liters, and is located on an area of 13,500 square meters. 2. The Hollerich terminal - A terminal in Luxembourg, under full ownership of Delek Benelux. The terminal mostly serves to store Delek Benelux's compulsory obligation, as detailed in Section 1.9.27(a) below. The terminal has a maximum capacity of 17 million liters, and is located on an area of 11,500 square meters. 1.9.19 Intangible assets A. The Texaco trademark - On August 8, 2007, Delek Benelux entered into a contract with companies of the Chevron Group ("the License Holders") for obtaining a license to use the Texaco trademark and additional trademarks (primarily Star Market and Star Mart) in Benelux. The Texaco trademark with the star ("Texaco Star") is one of the best known trademarks n the fuel world, and has been in use in Benelux for many years. Pursuant to the contract, Delek Benelux was granted a non-exclusive license to use the trademarks in Benelux, with no royalty payments, for seven years commencing August 8, 2007. The contract includes guidelines on how to use the trademark, terms to ensure proper use of the trademarks, as well as control and supervision mechanisms by the license holders. Delek Benelux has the right to sub- license during the first six years of the license term. Delek Benelux has committed to rebrand all stations no later than three months prior to the end of the license term, and if it fails to do so, it will be liable for such penalties as prescribed in the contract. Delek Benelux has met its obligation as aforesaid. The contract includes provisions whereby the license holders may terminate the contract at short notice due to a material breach which Delek Benelux fails to remedy. As of the reporting date, Delek Benelux is in compliance with the terms of the license.

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B. The BP trademark - On October 1, 2010, Delek Europe entered an agreement with BP for obtaining an exclusive usage license to the "BP" trademark and additional trademarks (primarily "Proxi" and "8 a Huit", deriving from BP's collaboration with French retail giant Carrefour) in all its gas stations in France. The agreement is valid for 5 years, with an option for an extension for an additional 5 years. Under the agreement, Delek France may grant sub- licenses. According to the agreement, Delek France is obligated to use the brand in accordance with the rules set forth in the agreement, as was generally accepted prior to the acquisition of the acquired operations and as is generally accepted with BP operations worldwide. Delek France is obligated to market fuels conforming to BP's quality specifications. In the extension period, Delek France is obligated to purchase half the quantity of fuel sold in the stations from BP. In consideration for the license, Delek France pays a fixed amount and a variable amount depending on the quantity of fuel sold in the BP-brand stations. 1.9.20 Human capital A. General Delek Europe's operations are managed from its central headquarters in Breda, the Netherlands, and from the headquarters in Cergy, near Paris. Delek Europe is managed through seven major divisions. The managers of these divisions are members of Delek Europe's management and report directly to the CEO of Delek Europe. The divisions are: retail operations in Benelux; retail operations in France; sales support; commercial operations; logistics operations; finance; human resources; and information technology (IT). There are also departments reporting directly to the CEO. Following changes made in 2009 in Delek Benelux's workforce due to the merging of Delek Benelux's Rotterdam and Brussels offices into one central headquarters in Breda, Delek Europe is currently integrating marketing operations in France, acquired on October 1, 2010, with marketing operations in Benelux. This integration is designed to leverage the manpower, knowhow, systems, and resources developed through marketing operations in Benelux, towards marketing operations in France. This process is expected to be completed by the end of 2011, after which all units of Delek Europe will serve both marketing operations in France and in Benelux, except for the retail units, which will remain separate due to the need for proximity to the gas station locations. The following tabe details Delek Europe's workforce as of December 31, 2009 and 2010:

Department Employees 2010 2009

Delek Belgium 46 47 Delek Luxembourg 7 8 Delek Netherlands 159 151 Delek France 111 - Total Company headquarters 323 206 DGV 45 35 Salland 53 53 Schreurs 25 25 Post 31 - Total subsidiaries 154 113 COCO stations in Belgium 368 261 COCO stations in Luxembourg 123 92 COCO stations in the Netherlands1 936 701 COCO stations in France 417 - Gesmin management 15 - Total COCO gas stations 1,859 1054 Segment Total 2,336 1,373

1 Including DGV, Schreurs, Salland and Post's COCO stations.

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Most of the growth in the Company's workforce in 2010 is attributable to the acquisition of marketing operations in France. B. Benefits and employment terms: In Benelux and in France, labor relations are governed by extensive legislation, with which Delek Europe complies. Most employees are covered by collective agreements, are represented by unions, and benefit from medical insurance, including work disability insurance, seniority and retirement bonuses. Delek Europe's liabilities for employee bonuses are insured by leading insurers. C. Officers and senior management in Delek Benelux and Delek France

Country Position Employees 2010 2009 Europe CEO 1 1 VP Commercial - 1 Operations CFO 1 1 CIO 1 1 VP HR 1 1 VP Logistics Operations 1 1 VP Sales Support 1 - Benelux VP Retail 1 - France VP Retail 1 - VP Operations in France 1 -

1.9.21 Benefits and employment terms: A. Senior officers in Delek Benelux and Delek France are employed under standard individual employment agreements, which include provisions concerning salaries, provisions to pension plans, personal days, sick days, and additional benefits as required by law. B. Mr. Hod Gibso, CEO of Delek Europe, was granted, free of charge, options to purchase shares constituting 2.5% of Delek Europe's share capital. These options are exercisable in six portions in the exercise period beginning on the grant date (June 1, 2008) and ending in 2012 (as of the balance sheet date, there remain 2 entitlement dates: June 1, 2011, and June 1, 2012). Exercise is possible from any date on which the exercise right comes into effect and until the end of the exercise period or until 90 days after Mr. Gibso leaves the company, the earlier of the two. The exercise price will be based on an enterprise value for Delek Benelux of EUR 129 million (EUR 4,300 per share) for the first portion, and thereafter the price will contain an annual addition of 5% from portion to portion. If Delek Europe, Delek Benelux or Delek Europe BV or any other company associated with Delek Benelux's operations issues shares on any stock exchange, Mr. Gibso will be entitled to convert the shares allocated to him into shares of the issuing company, while retaining the benefit component. If Delek Europe is a private company when Mr. Gibso's employment with the company ends, then in respect of the options exercised for shares, Delek Europe will purchase the shares at the exercise price plus the difference between that price and a share price based on an external valuation, and in respect of options which have not been exercised but are exercisable, Delek Europe will purchase them at the aforesaid enterprise value, offset against the exercise price. If Delek Europe is a public company, blocking provisions and a right of first refusal will apply to the underlying shares. Mr. Gibso may receive a non-recourse loan from Delek Europe (CPI- linked plus 4% annual interest) in order to finance the exercise. C. Delek Benelux granted Mr. Zion Ginat, CEO of Delek Benelux, free of charge, 45,000 warrants exercisable into Delek Benelux shares, which at the date of their issue constituted 2.5% of the issued and paid-up share capital of Delek Benelux. These options were granted and issued to Mr. Ginat in unequal installments, as follows: on April 30, 2008 - 11,250 warrants, and on each of October 31, 2008, April 30, 2009, October 31, 2009, April 30, 2010, October 31, 2010 and April 30, 2011 - 5,625 warrants. The warrants are exercisable subject to their grant date, from

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the date of their allotment until October 31, 2011, or until 90 days from the date of termination of the consultancy agreement and the end of the notice period ("the End of the Exercise Period"). The exercise price for each share is based on a Delek Benelux value of EUR 129 million for the first portion, and thereafter, the exercise price of each additional portion will be the price of the first portion plus 5% annual interest which will accrue until the relevant purchase date. As long as Delek Benelux is a private company and Mr. Ginat holds shares, the warrants may not be sold to a third party. If Delek Benelux or Delek Europe or Delek Europe Holdings or any other company from the Delek Group operating in Benelux implements an issue in any market, Mr. Ginat will be entitled to convert the shares allotted to him as aforesaid into shares of the issuing company in such a way that the benefit component deriving from the shares is preserved. Upon termination of the consultancy agreement for any reason whatsoever and conclusion of the notice period ("the Final Date"), if Delek Benelux is a private company it will purchase all the warrants which have not been exercised and which could have been exercised by the final date ("Exercisable Warrants") and all the shares held by Mr. Ginat as set forth in the agreement. If Delek Benelux is a public company, the shares underlying the exercise will be blocked for the period required for compliance with the provisions of the relevant legislation, and thereafter they may be sold subject to a right of first refusal of Delek Benelux as set forth in the agreement. In order to exercise the options, Mr. Ginat will be entitled to a loan bearing 5% annual interest, secured only by a non-recourse lien on the shares. In February 2011, Mr. Ginat announced his intention to end his term as CEO of Delek Benelux at the end of April 2011. Upon termination of his tenure, as aforesaid, the above options mechanism will be exercised. D. On March 14, 2011, Mr. Boaz Chechik assumed the position of CEO of Delek Europe B.V. The terms of Mr. Chechik's employment are as follows. Under the terms of the management agreement which is to be signed with a management company owned by Mr. Chechik, the management company will be entitled, inter alia, to monthly management fees of EUR 30,000 (linked to the Dutch CPI), to an annual bonus, to be determined by Delek Europe's Board of Directors, a company car (including maintenance and use expenses), a mobile phone, and reimbursement for expenses. Mr. Chechik will further be entitled to an options package of 2.5% of Delek Europe's issued capital as at the agreement execution date. These options will vest in four installments over a five-year period (with individual installments of 0.5%, except for the first installment of 1% which will vest two years after the grant date). The exercise price (base price) is to be calculated according to Delek Europe's "Normalized EBITDA" value for 2010 (including Delek France's operations) multiplied by a factor of 8.25, less of external debt plus shareholders loans and plus imputed interest, divided by the number of shares issued at the time of signing the agreement. The exercise price will increase by 5% starting from the second installment, and will be subject to various adjustments. 1.9.22 Raw materials and suppliers For details regarding raw materials and suppliers in Delek Europe's operations, see Section 1.9.9 above. 1.9.23 Working capital A. Finished goods inventory policy Average inventory days for Delek Benelux is five days for fuel products. The carrying amount of inventories for Delek Benelux as of December 31, 2010 is EUR 55.7 million. Average inventory days for Delek France is 10 days. The carrying amount of inventories for Delek France as of December 31, 2010 is EUR 35.4 million. B. Credit policy Customer credit: see Section 1.9.14 above. Supplier credit: The average credit period in Benelux, including the credit period pursuant to the supply agreement with Nerefco, Total, and Shellm ranges from 5-20 days. In France, the average credit period, including the credit period pursuant to the supply agreement with BP, is 10 days. 1.9.24 Investments For details of Delek Benelux's holdings in joint ventures, see Section 1.9.18(c) above; for details of Delek France's holdings in fuel storage terminals, see Section 1.9.18(d) above.

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1.9.25 Financing In the acquisition of the marketing operations in Benelux and France, Delek Europe employed both external funding and funding provided by its controlling shareholders, Delek Petroleum and Delek Israel. A. Financing for the acquisition of marketing operations in Benelux: On August 8, 2007, the transaction for acquisition of marketing operations in Benelux was completed. The consideration for the acquisition totaled EUR 404 million. Approximatley EUR 240 million of this amount was financed by a bank loan taken by Delek Benelux, while the remainder was financed by an equity investment in Delek Benelux and shareholders loans provided by Delek Petroleum and Delek Israel ("Shareholders Loans") to a total amount of EUR 144 million (of which EUR 15 million were received as shareholders loans). The shareholders loans carry an annual, CPI-linked interest of 5% plus VAT on CPI linkage differences. It was further determined that, subject to any surplus for payment in Delek Europe, interest, CPI-linkage differences and VAT will be paid in annual installments starting August 6, 2008. Lacking any surplus in Delek Europe, payment of the linkage differences and interest will be postponed, and they will be payable upon repayment of the loans. In October 2010, Delek Petroleum and Delek Israel, after obtaining such approvals as required by law, extended the loan repayment date from the original date of August 6, 2010 to December 31, 2012, with the principal of the shareholders loan bearing an annual interest of 5.5% starting August 7, 2010 and until the loan repayment date. The loans (principal and interest) will be linked to the Consumer Price Index (the base index is the known CPI at the original repayment date, i.e. - August 6, 2010). The principal and interest payments will be subject to VAT as required by law. It was further agreed, that in the event that Delek Europe raise capital and/or loans during the loan period, these moneys will serve to repay the loans, unless Delek Petroleum and Delek Israel provide written notice that they waive such early repayment. The aforesaid notwithstanding, transfer of control in Delek Europe to a legal entity outside the Company's control, is subject to early repayment of the loans. The outstanding balance of the shareholders loans as of December 31, 2010 totals EUR 15 million. For details concerning the bank loans and their terms, see sub-sections (C) and (D) below It is noted, that in 2008 Delek Benelux received an additional bank loan of EUR 45 million out of the facilities extended it under its agreement with the bank for acquiring the partners' shares in 3 joint ventures. B. Financing for the acquisition of marketing operations in France: On June 23, 2010, Delek Europe signed an agreement for the acquisition of marketing operations in France. The consideration for acquiring the marketing operations in France amounted to EUR 209 million (after working capital adjustments), and was financed by bank loans and shareholders loans provided, pro rata, by Delek Petroleum and Delek Israel, as detailed below: 1. An amount of EUR 80 million was financed through a loan from a bank in Israel to Delek France B.V. ("Borrower"). The loan is for a period of 7 years at variable interest equivalent to the three-month LIBOR rate, plus an additional margin. As of December 31, 2010, the outstanding balance of this loan is EUR 80 million. 2. An amount of EUR 40 million was financed by a short-term loan from another bank in Israel, with an interest of LIBOR plus a margin, guaranteed by Delek Petroleum. After completion of the required paperwork, the bank undertook to provide the loan for a period of 8 years. The said loan was repaid at the end of November 2010, and in was replaced by a Company loan extended to Delek Europe. This loan carries an interest of 5.5% and is linked to the CPI. 3. The balance of the consideration was financed through shareholders loans extended by Delek Petroleum (EUR 44 million) and Delek Israel (EUR 11 million). The shareholders loans are repayable on December 31, 2012, will be linked to the CPI and will bear annual interest of 5.5%. As of December 31, 2010, the outstanding balance of the said loans amounts to EUR 44 million for Delek Petrleum's loan and EUR 11 million for Delek Israel's loan. 4. The balance of the consideration was financed through cash flows from working capital involved in the acquisition.

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5. Moreover, the Company (with cross-guarantees of Delek Petroleum and Delek Israel) extended further guarantees to third parties in the amount of EUR 97 million in favor of the acquired operations for financing working capital for the benefit of the VAT and excise authorities and for purchasing fuel from BP. 6. In addition, guarantees in the amount of EUR 63 million were extended for a period of two months to secure the payment of working capital adjustments to Delek France. As of the reporting date, the guarantees have been released due to the payment of adjusted working capital during the said period, which was financed from the independent sources of the acquired operations, and are no longer valid. In consideration for these guarantees, Delek Petroleum and Delek Israel charged guarantee commissions at an annual rate of 1.5% 7. Delek Petroleum and Delek Israel will be entitled to annual management fees amounting to EUR 1.2 million, pro rata to their share in the transaction. C. The following table details the average interest rate on bank and off-bank loans in effect during 2009 and 2010, which are not designated for specific use by Delek Benelux or Delek France. The table distinguishes between short term and long term loans, as well as bank and off-bank loans:

Average interest rate in 2010 Average interest rate in 2009 Short term Long term Short term Long term borrowing borrowing borrowing borrowing Benelux Banks 2.53% 3.77% 3.69% 5.3% Off-bank - 3.06% 4.5% - France Banks 2.91% 5.08% - - Off-bank - 5.50% - -

D. Limitations on credit facilities: 1. Limitations for acquisition of marketing operations in Benelux - As part of the financing agreement for receiving the bank loan as aforesaid in Section 1.9.24(a), credit facilities for the future, financial covenants and other conditions were determined, and they bind Delek Benelux under the financing agreement. The loan agreements require compliance with covenants relating primarily to the ratio of debt to EBITDA (as defined in the agreement), variable ratios depending on the different periods throughout the lifetime of the loan, ratios of EBITDA to financing expenses throughout the loan period, and compliance with a maximum threshold of CAPEX investments. As of December 31, 2010 and the reporting date, Delek Benelux is in compliance with all these covenants. 2. Limitations for acquisition of marketing operations in France - In order to secure repayment of the loan extended by an Israeli bank as detailed in Section 1.9.24(b)(1), shares in the borrowing company and in Delek France were encumbered, and various financial covenants were determined (based primarily to the ration of debt to EBITDA and coverage ratios). In addition, as part of the said guarantees, Delek Petroleum and Delek Israel provided separate guarantees, pro rata their respective interests. As of December 31, 2010 and the reporting date, Delek France is in compliance with all these financial covenants. E. Credit facilities: Delek France has credit facilities for working capital purposes, extended by Bank ING and guaranteed by the Delek Group, in the amount of EUR 30 million (of the total amount of EUR 97 million) for a period of one year at an interest rate of LIBOR plus a margin.

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F. Variable interest: The following table details credit at variable interest in Delek Benelux and Delek France, as of December 31, 2010:

Country Type of loan Variance Principal Interest Interest rate Loan / facility mechanism repayment date / payment at completion amount (EUR Euribor+ facility term date millions) First Lien 2.25%- In one installment Monthly 5.7%-6.7% 245 Facilities1 3.25% at the end of 8-9 (from Sep. year terms (2015- 28, 2009) 2016)

Benelux Second Lien 5.125% In one installment Monthly 8.875% 40 Facilities after 9.5 years (by (from 2009) 2017) Revolver Credit 1.75% 7 years (by 2015) Monthly 5.03% 50 2 Facility (from 2009) Bank Loan 4.25% EUR 40 million in Quarterly 5.45% 80 one lump (from 2010) installment after 7 years (2017) EUR 40 million in fixed quarterly installments over 5 France years from 2012 to 2017 Revolver Credit 1.85% One year (until Daily-weekly 2.95% 28 Facility ** Q4/2011)

1.9.26 Taxation A. Tax laws applicable on Delek Benelux - The tax reports of Delek Benelux (a Dutch company) are consolidated for tax purposes with those of its Dutch subsidiaries in which it holds 95% or more. The future tax liability will be determined based on the value of Delek Benelux's assets, volume of operations and equity. In general, the Dutch corporate tax rate in 2010 is 25.5%. Companies operating in Belgium and Luxembourg are taxed at the applicable rates in those countries. In 2010, the tax rate in Belgium was 33.99% and in Luxembourg was 29.63%. Taxes on capital gains, interest and dividends are affected by the tax treaty between Israel and the Netherlands. Under this treaty for prevention of double taxation, a dividend distributed by a Dutch company to an Israeli company holding at least 25% of its share capital is subject to a 5% tax withholding in the Netherlands. B. Tax laws applicable on Delek France - In general, corporate tax in France as of 2010 is 34%. For further information pertaining to taxation, including business losses carried forward, see Note 42 to the financial statements. 1.9.27 Environmental Protection Delek Europe is subject to various regulations relating to environmental protection, including fuel handling, prevention of soil and water pollution, and waste treatment. In the 1990s, environmental protection requirements for gas stations in Benelux were made more stringent. This raised the level of environmental protection at existing stations, and also created an entry barrier to the establishment of new gas stations. Environmental protection requirements vary from country to country:

1 Loan with preferred repayment over second lien facilities. 2 Credit facilities for current working capital, from which Delek Benelux may withdraw amounts as per its needs and discretion.

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In the Netherlands, fuel station operators require a license under the Dutch Environmental Control Act, and must comply with its terms. Furthermore, station operators must comply with requirements laid down in numerous orders, including a duty to analyze soil quality at specified intervals, to remedy any pollution caused in the period when the station operated under license, and to obtain a special license if any activity other than fuel sales takes place at the fuel station and which has environmental protection implications (such as above-ground fuel tank storage). The Dutch Provincial Executive is authorized to order soil pollution tests and to take action. The obligations can be imposed on owners as well as on the lease-holders of the complex, and may apply to Delek Benelux, primarily with regard to COCO or CORO stations. In Belgium, environmental protection requirements vary according to the exact location of each station, since the country is divided into three regions with different regulatory requirements. Each region has a separate authority for issues relating to environmental protection, including licensing and pollution. The state remains responsible for certain matters involving health and safety. Fuel station operators must obtain an environmental protection license which includes operating conditions, quality-Related conditions and conditions related to the pgrading of staiton equipment. In addition, various requirements are impoesd on the operator for matters of cleanliness and testing for soil pollution, which apply both to the operator and to whoever holds rights in the station. In Luxembourg, fuel station operation requires a license from the Ministry of Labor and Ministry of Environmental Protection. Licenses are granted to operators for a limited term (usually 15 years). In general, a station operator is not required to deal with any defects unless the license expires or is revoked, or if any environmental damage is caused during the term of the license. In France, operations are subject to various environmental provisions covering, inter alia, the handling of fuels, preventing damage to soil and water, handling of waste, etc. In recent years, and as part of the global efforts towards environmental protection, environmental protection requirements in France have become more strict in general, and particularly as regards gas station operations. Furthermore, the government set a mandatory minimum quota for bio fuel out of the total fuel consumption for fuel-marketing companies, calculated as a percentage of total fuel sales, which as of the reporting date, is 7%. In France, government encouragement to increase use of bio fuels is more aggressive than in other European Union countries, and consequently the quotas are higher than those set by the European Union (the target set by the EU for 2010 is 5.7%), and fines were prescribed in the event of failure to comply with these quotas. To the best of Delek France's knowledge, no changes are expected in the bio fuel quotas until 2015. Furthermore, two of Delek France's terminals (Vitry and Lyon DPL) have equipment and capacity for producing bio fuel mixtures. To the best of Delek France's knowledge, new legislature is expected in France concerning air pollution and conditions for operating gas stations, the safety of pumps and fixed minimum distances between pumps and motorways. As of the reporting date, Delek Europe cannot estimate the effects of this new legislation, if enacted. The Company's total provisions for Delek Europe's environmental protection investments, as of the end of 2010, amounted to EUR 23 million. Investments in 2010 and 2011 are immaterial and are included in the general investment budget. This information concerning Delek Benelux and Delek France's assessment of the need for additional investments in environment-related items constitutes forward-looking information. It is possible that it will fail to materialize, inter alia in the event that material deviations are found in Delek Benelux and Delek France operations, or that new environmental requirements come into force, requiring additional material expenses. It is noted that Delek France and Delek Benelux regularly allocate 10%-15% of all CAPEX investments for regulatory and environmental adjustments.

1.9.28 Restrictions and supervision of company operations Delek Europe operations are subject to laws and regulations including, inter alia, labor laws, regulations for the sale of alcohol and tobacco products, minimum wage, work conditions, public access roads, and additional laws, including: A. Storage obligation - Benelux countries and France are obligated to comply with a Compulsory Storage Obligation (CSO) for fuel, based on the volume of sales in the preceding year. In previous years, the storage obligation was significantly higher than required, due to the seller's ties with Nerefco and the seller's marketing operations in other sectors. The annual storage

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obligation in Belgium, Luxembourg and France is 90 days' storage. In the Netherlands, the annual storage obligation is 15 days. The Belgian government established a separate agency for managing fuel obligation requirements. Payment is per liter to the government agency and is almost completely refunded by the maximum retail margin set by the State. The government agency covers 75 days of the required obligation, and Delek Benelux is required to make up a quota of 9 storage days in 2010, which will be reduced by three storage days every year. In 2010, Delek Benelux's storage obligation in Luxembourg was 90 days. Companies failing to meet storage obligation requirements may purchase "tickets" for up to 90% of the compulsory obligation from a government agency ("CPSSP") and hold 10% of the balance as actual inventory. Alternatively, they may buy "tickets" from other entities in the fuel industry that have inventory balances. The annual costs involved in meeting the storage obligation are not material. It is noted that Delek France intends to maximize fuel storage using fuel storage tickets for up to 90% of its fuel, thus minimizing actual inventory at the terminals. B. Provisions to promote competition - 1) Benelux: In June 2006, a law was enacted in the Netherlands which requires a tender process for obtaining fuel station franchises along Dutch motorways. The law aims to increase the number of players in the market. This trend is also evident in agreements (unrelated to this law) signed between the Dutch government and the four largest fuel industry companies (including Texaco) in 2001, whereby the number of motorway stations belonging to these companies would be reduced by 50. Each of the companies is required to sell a number of motorway gas stations in a tender process. The number of stations for sale is based on market share in the Netherlands, and a tender is held every fifteen years. The process led to the publication of a list of all the sites held by all the companies and the date on which they were tendered. The list is for fifteen years from the date of its publication, so that n each year there is a tender in which stations whose identity is known in advance are offered. The tender mechanism contains a concession when a station is offered in the tender for the first time - if the station owner wins the tender, then he pays the state 30% of the price he offered or the difference between his bid and the next-lowest bid, the lesser of the two. If the station owner loses the tender he will receive its value based on the price in the winning bid. As noted below, a similar mechanism exists in Belgium - but without the concession component, and a list of the sites of all the companies and the dates on which they will be tendered is also published. In Belgium, BOT (Build, Operate, Transfer) tenders are customary for the construction of motorway gas stations, and there is legislation to regulate disclosure of full and fair information prior to entering into contracts. 2) France: A tender process is mandatory in France for obtaining franchises for gas stations, restaurants, and hotels along motorways in the country. This law is aimed at increasing the number of players in the market. As part of the tendering process, bidders must meet various planning requirement,s and propose attractive solutions in terms of customer service and offering, design and innovation. In addition, bidders must offer payment for use of the franchise. Sites are offered for periods of 10 to 15 years. Delek France believes this law to present both risks and opportunities, whereby during the next thre years, ten of its motorway stations will be offered in a tender, while 267 of Delek France's competitors' sites (gas stations, restaurants and hotels) will also be tendered in the same period and will be open to bids by Delek France. Despite BP's history of winning 38% of the tenders in which it bid, Delek France's base estimate is that in 2010-2014 the number of tenders that Delek France will win will be greater or at least equal tothe number of tenders that it will lose. This information pertaining to Delek France's estimates concerning the ratio of Delek France's tender wins and losses constitutes forward-looking information, which is based on Delek France's estimates concerning its operations in Benelux and its familiarity with the French market, including BP's historic operations in this market. Nonetheless, it is possible that this forward-looking information may fail to materialize, inter alia, if Delek France changes its bid strategy, if there will be regulatory changes which will affect the said ratio, etc. There is no restriction or obligation concerning the number of stations that may be offered in these tenders. 3) In addition, Benelux and France are subject to the 1999 European Regulation of Vertical Restraints, which limits the term of exclusive contracts (such as with suppliers and agents) to a maximum of five years, unless the supplier owns or rents the site. C. Gas station licensing and operations in the fuel sales segment - Delek Benelux and Delek France are required to comply with a range of municipal, regional and national regulations,

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including periodic testing of soil quality, licensing of station buildings and fire safety directives. Detailed directives also apply to the construction and operation of motorway gas stations. D. Environmental protection requirements - See Section 1.9.26. E. Convenience store licensing - Convenience stores are subject to regulation by the authorities in the various countries, as regards health and sanitation, safety, fire, and planning and construction. Among other factors, in 2009 France imposed a prohibition on the sale of alcohol between 6 pm and 8 am, and the sale of refrigerated alcoholic beverages is prohibited. It is noted, that alcohol sales may account for up to 50% of non-fuel sales in gas stations in France. Therefore, enforcement of this law may lead to the closing of gas stations, and affect the economic viability of additional stations. As of the end of 2010, the ban on selling alcoholic beverages has mainly impacted convenience store operations in CORO and COFO stations, with an estimated decrease of EUR 1 to 1.5 million in Delek Europe's profits. F. Fuel taxation - Tax rates on fuel sales in the Netherlands, Belgium and France are currently among the highest in Europe. Tax rates in Luxembourg are lower than in neighboring countries. G. Labor laws - Delek Benelux and Delek France are subject to legislation regarding wage protection, overtime, and work conditions. In addition, labor laws in Benelux and France restrict layoffs, and require various actions to be taken for premature termination of employment (such as applying for prior approval from a government agency,, or a relatively long notice period prior to actual termination of employment). It is noted that trade unions in Benelux and France are relatively powerful, and have the right to obtain information on significant issues, to be consulted on various processes (such as the sale of an operation, or liens) and are even able to prevent certain Delek Benelux and Delek France initiatives by applying to the courts. As of the reporting date, labor relations in Delek Benelux and Delek France are proper. H. Price control - In the Netherlands, there are no regulations prescribing maximum prices for fuel. In Belgium, legislation provides for maximum prices, and there is a price control arrangement based on this legislation, between the Belgian Ministry of Economics and the country's fuel association. In Luxembourg, there is a mechanism for setting maximum prices similar to the Belgian mechanism, although it is based on other laws. Furthermore, Benelux countries have limitations on price fixing between fuel companies, by virtue of antitrust laws. In France, there are no price controls, though there are limitations on price fixing between fuel companies by virtue of antitrust laws. I. 1.9.29 Material agreements Delek Benelux considers the franchise agreement with Texaco and the fuel supply agreement with Nerefco to be material agreements. Delek France considers the franchise agreements with BP and Carrefour, and the fuel supply agreement with BP, to be material agreements. For more information, see Sections 1.9.19 and 1.9.21. 1.9.30 Legal proceedings Delek Benelux is engaged in an arbitration proceeding with Chevron in connection with Delek Benelux's claim against Chevron for EUR 11 million. The claim pertains to Chevron's liability for erroneous historical reporting (to the authorities) about income from convenience stores at motorway gas stations in Belgium and the consequences of this reporting on representations given as part of the acquisition of fuel operations from Chevron. 1.9.31 Strategy and objectives Delek Europe periodically reviews its strategic plans and goals, and revises them according to developments in the fuel market, market competition, and macro-economic effects. Delek Europe's operations in the coming years are expected to focus on the following activities: A. Increased presence in the European gas station market through targeted acquisitions - Identification of opportunities for acquiring gas stations stemming, inter alia, from the international fuel companies' trend towards selling their gas station interests so as to increase Delek Europe's presence in the European gas station market and improve the gas station network. B. Strengthening Delek Europe's position in the European fuel market - Delek Europe believes that by seizing opportunities, increasing Delek Europe's fuel offering, strengthening

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ties with Delek Europe's customers, advertising activities, increasing fuel product marketing efforts, brand awareness, and convenience store sales, Delek Europe will be able to improve and establish its position as a leading player in the European fuel market. C. Optimization of operating methods - Optimizing gas station operating methods by minimizing low-profitability operating methods (such as CORO and CODO station management models) and expanding more profitable operations (such as COCO, RORO, and COFO models); closing low-revenue sites; achieving operational excellence through process and administrative automation, developing the sales mechanism for fuel cards targeting the commercial segment; identification of additional RORO or DODO retailers while retaining existing distributors; operational improvements and cost savings, inter alia by sourcing the maintenance systems and electronic invoice management. D. Increasing non-fuel activities - Profits from convenience store sales, and from the sale of additional non-fuel products sold in the gas stations, are greater than those on fuel sales. Delek Europe is renovating and re-designing its convenience store chain. These efforts include the offering of new products (focusing on fresh products), intelligent in-store product arrangement, and efficient inventory management aimed at reducing costs. Furthermore, Delek Europe seeks to increase the number of convenience stores in its gas station complexes and add additional products offered in these stores, so as to further increase its profits. These additional products include food products, baked goods, restaurants, own-brand products and carwash facilities. E. IT investments - Investing in Delek Benelux and Delek France's IT systems, including ERP and CRM systems, and the ENVOY store management system, so as to merge Delek Benelux and Delek France's price and work management system. Delek Europe expects this investment to amount to EUR 3-4 million in the period 2011-2012. F. Synergy - Generating synergies in Delek France, based on experience in Benelux, by improving growth and operational streamlining, and utilizing the geographic proximity between France and Benelux for expanding Delek France's market (and similarly, the operations in Benelux). 1.9.32 Risks Delek Europe estimates the following to be the major risks associated with its operations in Europe: A. Competition - The fuel market in Benelux and France includes numerous competitors which are constantly striving to increase their market share. Competition is manifested in the acquisition of gas stations, sales promotion, price reduction, etc. Increased competition, including the entry of hypermarkets, may affect segment margins and the business results of Delek Benelux and Delek France. Furthermore, existing and future regulatory restrictions aimed at limiting the power of major market players and increasing market competitiveness could affect the ability of Delek Benelux and Delek France to expand their operations or might restrict them in contracting with other parties. B. Exposure to fluctuations in global fuel prices - The price paid by Delek Benelux and Delek France for fuel product purchases is derived from the global oil prices, and therefore Delek Benelux and Delek France are exposed to changes in oil prices on these markets. The factors influencing fuel prices include changes in the state of the global and local economies; demand for fuel products in and outside Benelux and France; geopolitical conditions in general and in oil producing regions in particular (USA, the Middle East, former Soviet Union countries, West Africa and South America); production levels of crude oil and petroleum distillates around the world; development and marketing of fuel substitutes; disruption in supply lines; and local factors including market and weather conditions. The rise in fuel prices around the world causes a rise in prices of products sold by Delek Benelux and Delek France which can lead to a decrease in demand for these products, while impairing their profits on every product sold. At the same time, since fuel prices are stated in USD, and despite Delek Benelux and Delek France's strategy of hedging their open foreign currency positions, the EUR-USD exchange rate is also likely to affect Delek Benelux and Delek France's purchase prices. C. Environmental protection requirements - Although the statutory provisions for environmental protection in Benelux and France are relatively stringent, future regulations and orders due to increasing awareness of the dangers associated with uncontrolled operations by fuel companies in general and by Delek Benelux and Delek France in particular, could increase the monetary expenditure by Delek Benelux and Delek France. In addition, failure to

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comply with these regulations could lead to sanctions, expose Delek Benelux and Delek France to lawsuits, and impair the results of operations. D. Credit limits and financing needs - Delek Benelux and Delek France operate under financing and current credit agreements. As of December 31, 2010 and the prospectus date, Delek Benelux has loans and guarantees as detailed in Section 1.9.24. Delek France is party to the financing agreement detailed in Section 1.9.24, whereby it has undertaken to comply with various financial Covenants. These liabilities may increase Delek Benelux and Delek France's vulnerability to economic downturns, compel them to allocate a substantial part of their cash flows for debt repayment, limit their ability to plan, make changes and react quickly to changes in their operations, and curtail their ability to borrow additional funds. E. Alternative energy sources - Transition to the use of alternative energy sources, such as natural gas and electric-powered engines, could have an adverse effect on the volume of fuel sold by Delek Benelux and Delek France or, alternatively, might require them to adapt gas stations to new customer requirements which would involve significant investments. F. Biofuels - Government encouragement to increase the use of biofuels may lead to additional investments to allow for the blending and distribution of these products. G. Food product regulation - Food products and beverages sold in Delek Benelux and Delek France's convenience stores are subject to various regulatory requirements. Failure to comply with these requirements and incurring the consequent damages, or more stringent regulator requirements, could affect the results of Delek Benelux and Delek France's operations. H. Fuel taxation - An increase in the current fuel tax rates in Benelux and France may affect fuel consumption in these countries, and may also have an adverse effect on Delek Benelux and Delek France's operations. I. Economic slow-down in the local markets (Benelux and France) - A continuation of the global economic crisis may lead to a prolonged decline in fuel consumption and retail products purchased in Delek Benelux and Delek France's complexes, and adversely affect the results of their operations. J. Regulatory involvement - Delek Benelux and Delek France are subject to a range of regulatory provisions on matters such as gas station licensing, labor laws, environmental protection, price control and restrictive trade practices. Violation of regulatory requirements, or more stringent regulatory requirements applicable to Delek Benelux and Delek France may lead to increased expenditure, prohibit the expansion of operations or affect existing operations, and may have an adverse effect on Delek Benelux and Delek France's operations. K. Changes in consumer preferences - Changes in consumer preferences could adversely affect Delek Europe's profits on two levels: a) Environmental awareness could reduce vehicle usage, and consequently lead to a decrease in fuel consumption; b) changes in dietary preferences, such as the preference of Healthier food, could reduce consumption of various food types, such as fast food, and reduce Delek Europe's convenience store revenues. L. Discontinued operations in relatively high-turnover gas stations - Turnover varies from station to station, so that some gas stations account for larger operating volumes than others. Discontinuing operations in COCO gas stations, or in motorway gas stations with relatively high turnover, or a reduction in their turnover, for any reason whatsoever, would adversely affect Delek Europe's operations. M. Franchises used by Delek Benelux or Delek France in their operations - Delek Benelux and Delek France use several franchises for fuel and store branding. Discontinuing the use of these franchises for any reason whatsoever, could affect the results of Delek Benelux and Delek France's operations. N. Risks related to the integration of new / acquired operations - Possible transactions involving various new operations entail certain risks such as difficulties in integrating the acquired operations with existing Delek Europe operations, the results of the acquired operations failing to meet expectations, the need to obtain financing, and additional regulatory requirements pursuant to the acquisition. Completion of the acquisition of operations in France entails such risks as aforesaid, and also entails difficulties in integrating the marketing operations in France with existing operations in Benelux and an increase in Delek Europe's debt. O. Negative press and damage to goodwill - Marketing operations in France are carried out exclusively under the BP brand. BP's involvement in the Gulf of Mexico oil leak drew criticism

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in the press and even boycotting of BP by consumers around the world. Recurrence of similar incidents and increased consumer awareness of these incidents may draw negative press and damage BP's goodwill, thus adversely affecting Delek Europe's revenues. It is noted, that the above incident did not actually affect Delek France's operations. P. Risks related to the migration of BP's IT systems to Delek Europe's IT systems - In the coming year, Delek France plans to migrate BP's information systems to Delek Europe's information systems. As detailed above, this is a lengthy and complex process. Failures during this process could adversely affect proper operation of Delek France's gas stations and convenience stores. The following table summarizes the aforesaid risks by type (macro risks, industry-wide risks, and company-specific risks), rated according to Delek Europe management's estimates of their effect on operations: major, moderate or minor effect:

Degree of the risk's effect on Delek France's operations Major effect Moderate effect Minor effect Macro risks • Economic slowdown in the local markets (Benelux and France)

Industry-specific risks • Exposure to • Competition • Environmental global fuel price • Fuel taxation requirements fluctuations • Regulatory • Alternative • Changes in involvement energy sources consumer • Biofuels preferences • Food product regulations

Company-specific risks • Negative press • Discontinuing • Credit and damage to operations in restrictions and goodwill high-turnover financing needs stations • Migration of BP • Franchises used IT systems to by Delek Delek Europe IT Benelux and systems Delek France • Risks related to the integration of new / acquired operations

The effect of these risks on Delek Europe's operations is based solely on estimates, and actual effects may differ.

1.10 Motorway Service Areas in the UK

1.10.1 General A. On January 25, 2011, Delek Petroleum completed a transaction with Delek Belron International Ltd. ("Delek Belron") and Delek Real Estate, companies controlled by the Company's controlling shareholder, for the acquisition of 75% of the issued and paid up share capital of Delek Motorway Services Ltd. ("DMS"), a company that holds 100% of the share capital of MSA Acquisitions Co. Limited ("MSA"), whose sole activity is the holding of all the issued and paid up capital of Roadchef Limited ("Roadchef"). Subsequent to this transaction, Delek Petroleum, that from March 30, 20071 until the date of the transaction, held 25% of the issued and paid up capital of DMS, holds 100% of the issued and paid up capital of DMS at the reporting date. Consideration of the transaction is an amount in New Israel Shekels, equal to GBP 86.25 million, reflecting a value of GBP 115 million for Roadchef, which was

1 The date on which DMS acquired MSA.

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paid as follows: Delek Real Estate's debt in respect of various loans it received from the Company and the balance of Delek Real Estate's current debit and credit to the Company was offset and a direct payment was made to a bank in respect of Delek Real Estate's debt towards it. In addition, as part of the transaction, the Company acquired another of Delek Real Estate's debts towards it from the bank. The terms of the agreement signed in connection with the said transaction prescribe that Delek Real Estate and Delek Belron (together: "the Seller") will, in addition to the DMS shares, also transfer to the Company all their rights and obligations by virtue of the owners' loans to DMS (by way of assignment). Furthermore, the agreement stipulates that the Seller shall indemnify the Company in respect of parts of the tax payments made by DMS originating in the period prior to the completion of the transaction, subject to conditions prescribed in the agreement, and that the Seller shall indemnify the Buyer in respect of 75% of any amount that the Company is required to pay should a claim or request be submitted to DMS to pay the management company under the management agreement that was signed with Country Estate Management (Services) Ltd., and all subject to the conditions of the agreement. For further details of the aforementioned transaction and its conditions, see the Company's Immediate Report from January 5, 2011 (ref. 2011-01-006393), in which the relevant information is presented here by way of referral. The transaction was approved by AGMs of the Company and Delek Real Estate on January 10, 2011. The holdings in DMS, that were acquired as part of the transaction described above, were transferred to Delek Petroleum, so that subsequent to the completion of the transaction, Delek Petroleum holds all the share capital of DMS, whereas Delek Real Estate's debt arising from the acquisition of Delek Real Estate's debts from the banking corporation will be towards the Company. The proceeds of this transfer of holdings will be grossed up as a loan from the Company to Delek Petroleum in an amount that is the shekel equivalent of GBP 86.25 million. Whereas the sole activity of DMS is the holdings of the shares in MSA and the sole activity of MSA is the holding of Roadchef's shares, the following description relates principally to Roadchef. Roadchef was established in 1973. and since then its operations have centered on motorway service areas in the UK. Through wholly owned subsidiaries and second-tier subsidiaries, Roadchef operates 27 service sites at 19 different locations in England, Scotland and Wales (8 service stations are located on both sides of the motorway). The service stations are located on main highways including the M25, M5, M1 and M6.1 During the 1980s, Roadchef operated eight service stations. In 1998, Nikko Principal Investments Ltd. acquired the controlling interest in Roadchef. That same year Roadchef acquired two companies (Blue Boar and Take a Break) which themselves operated service stations, thus increasing the number of service areas that it operates. Moreover, that same year, Roadchef (through a subsidiary) completed a securitization process, in which context it raised GBP 210 million on the Luxembourg Stock Exchange that it used to invest in developing and enlarging the volume of Roadchef's operations.2 Thus, in 2000 and 2001 Roadchef opened three new motorway service areas and in the ensuing years it renovated and significantly expanded its existing stations. Over the last few years, Roadchef has concentrated on entering into franchise agreements with prominent chains such as Cost Coffee, WHSmith, Premier Inn (this agreement terminated in 2010), and more recently also with Days Inn (replacing the terminated agreement with Premier Inn), and McDonald's. Following is a diagram of the holding structure:

1 In November 2008, Roadchef sold service stations that were located on both sides of one highway. The sale was made for GBP 9.5 million. Excluding this sale and the sale of one other station more than 10 years ago, Roadchef has not sold any other stations. 2 For further details, see Section 1.10.15 below.

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B. The motorway services activity consists of the sale of retail products, including a variety of products for motorway travelers (food, newspapers and magazines, tobacco products, gifts and car accessories), catering services, including restaurants under Roadchef's private brand, fast food restaurants under franchise agreements, and the sale of fuel at the filling stations that are part of the service stations, some of which are operated by Roadchef itself and some of which are operated through rental and/or other operating agreements with the petroleum companies (BP, Esso and Texaco). At some of the motorway service areas, Roadchef operates hotels in the services area, under the Days Inn brand. Likewise, during the course of its business activity, Roadchef enters into agreement with commercial companies and various service providers for the sale of services and/or products on service station sites, as specified in Section 1.10.4 below ("Other Services"). C. Distribution of dividends and restrictions on their distribution During the two years preceding the reporting date, DMS and/or MSA and/or Roadchef did not distribute dividends. At December 31, 2010, DMS has no distributable surpluses. As part of a debt raised by a subsidiary of Roadchef in 1998 through the issuance of bonds (for details see Section 1.10.15 (C) (2) below), Roadchef and/or its subsidiaries made a commitment to preserve certain financial criteria that may in future prevent the distribution of a dividend. Likewise, a commitment was made to refrain from distributing a dividend in certain instances. For details, see Section 15.10.1 (E)(1) below. 1.10.2 Financial information about motorway services activity: Following are figures (in GBP thousands) about this operating segment in 2008-20101 2

2010 2009 2008 Revenue from externals (in GBP 000) 204,189 69,485 30,120 Total costs attributed Costs that form revenues of - - - (in GBP 000) another operating segment Other costs 11,466 34,458 32,182 Total 11,466 34,458 32,182 Fixed costs attributed to the 196,254 21,058 400 operating segment* Variable costs attributed to the 1,166 34,397 1,533 operating segment** Total 208,886 89,913 34,115 Operating profit Total (4,697) (20,428) (3,995)

* Fixed costs are costs that are usually not dependent on the turnover of operations, e.g.: maintenance charges, licensing fees, rental agreements, and fixed payments consistent with the contract for operating the hotels. ** Variable costs are costs that vary in line with operating turnover.

1 The information presented for the years 2008 and 2009 reflect the data consistent with the management agreement with CEM that was in force during those years. For details, see Section 1.10.19 (A) below. It is worth noting that the Company's assets and liabilities together are used by all the Company's operating segments, and they cannot be allocated specifically to any particular area of activity. The tables therefore do not show the information concerning total assets for each operating segment. 2 It is worth noting that assets and liabilities together are used by all the Company's operating segments, and they cannot be allocated specifically to any particular area of activity. The tables therefore do not show the information concerning total assets for each operating segment

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1.10.3 Structure of the operating segment and the applicable changes A. United Kingdom (UK) The UK comprises four countries – England, Wales, Scotland, and Northern Ireland – together governed by a constitutional monarchy. The UK is a member of the European Union (EU), although it has not joined the monetary union (Eurozone) and it retains its own domestic currency – the pound sterling (GBP). The UK has a population of more than 60 million and its economy is one of the largest in the world in terms of GNP (fifth largest in the world, and second largest in Europe). The UK was seriously affected by the global financial crisis that began in 2008, during which the British economy shrank sharply, the unemployment rate rose, property prices plummeted, and the rate of inflation declined, despite a devaluation of the pound. The UK authorities adopted an aggressive economic policy to contain the economic crisis, which proved to be effective in bringing the crisis to a halt, and there are now positive signs that confidence in the markets is returning. Nevertheless, despite the improved economic atmosphere and expectations that the slowdown will be reversed, Britain's macroeconomic data continue to present a negative picture, mainly due to the high level of debt in the public sector and in the households sector. For the first time after eighteen months of shrinking output, GDP rose by 0.3% in the first quarter of 2010, concurrent with an increase in the rates of activity in the different sectors of the economy. During the second quarter of 2010, GDP continued to rise, reaching 1.2%. Nevertheless, during the fourth quarter of 2010, GDP fell 0.6%, mainly due to severe weather conditions in December. It is worth noting that the improved economic parameters and growth of GDP are expected to increase gradually in coming years. B. Structure of the motorway service stations market in the UK As noted above, Roadchef holds 27 motorway service areas at 19 different locations in England, Scotland and Wales. Motorway service areas (including Roadchef's service stations) currently operate at 89 different locations throughout the UK. 88% of the market is divided among three key operators: Roadchef, Moto, and Welcome Break. The other service areas (11 in all) are run by small operators. Roachef accounts for 21% of the market (according to the number of locations that have service stations). As noted in Section 1.10.3(C) below, the government closely supervises the erection and operation of service stations, and various restrictions apply. In view of these restrictions, the chance of another significant competing entity entering the service station market is small. Most of the competition between the different operators relates to obtaining franchise agreements with recognized brands that will attract potential customers on the roads to enter the service areas. Overall, the retail and dining operations are the most profitable services offered by the service stations. Fuel products usually generate the highest revenues, however gross profit rates from petroleum are significantly lower than in the retail and catering sectors. C. Legislative restrictions, standardization, and special constraints that affect this area of activity The UK motorway service areas market is controlled by the Highways Agency in Britain's Ministry of Transport. The erection and operation of a new motorway service area is approved subject to significant legislative requirements, and even after construction, restrictions apply to permitted operations, as well as supervision of signage and traffic directions from the motorway to the service station. These restrictions are designed mainly to ensure that the service areas do not become an attraction in their own right, thus increasing the number of cars using the motorways. Control of the motorway service areas market is reflected principally in two areas: 1) Requirements for the erection of a service station (such as the number of parking spaces or the number of lavatories); 2) restrictions on the activity permitted in the service areas. The process of erecting services stations is long and costly and includes compliance with the requirements of government entities and local authority development plans in whose jurisdiction the motorway service areas are located. The main restrictions pertain to the distance between motorway service areas, and determine a distance of at least 28 miles or 30 minutes of travel time between the location proposed for erection of a new service area and the nearest existing service area. The restrictions concerning the operation of motorway service areas include, inter alia, restrictions on the types of services provided (catering services, accommodation services, retail services, fuel, entertainment and amusement, as well as long-term parking are

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permitted), as well as restrictions on the products that may be sold – the sale of alcohol is prohibited, including in restaurants and hotels. In addition, the service stations must be open 365 days a year and provide round-the-clock forecourt services, catering services and short- term parking. Restrictions also apply to the size of the areas that can be used for different types of services. Thus for example, the size of the area in each service area that can be used for retail trade is limited to 500 sq.m., the size of the areas used for slot machines is limited to 100 sq.m., and business lounges are limited to a maximum of 15 people. Restrictions also apply to the size and content of the signs positioned along the motorways directing drivers to the motorway service areas. It is worth noting that as part of their operations, and like other businesses in the UK, all service areas must be licensed by the UK authorities to run the various services and facilities at the service areas, such as: license to operate a petrol station, license to operate slot machines, etc. D. Changes in the volume of activity and profit in this segment As noted above, the process of erecting service stations is long and costly and extensive regulatory restrictions apply that impede their construction. As far as Roadchef is aware, only three additional motorway service areas are slated for construction over the next ten years. There are therefore few changes in number of operational service areas. Moreover, the variety of products that can be sold at the motorway service areas is also limited and in this area too, no significant changes are expected with respect to the categories of products sold. The volume of activity in the motorway service areas segment is influenced by the total number of drivers on the motorways on which the service areas are located and by the volume of their purchases. According to estimates prepared by the different companies in the industry, about 300 million people pass through the UK's motorway service areas every year. About 60 million people pass through Roadchef's sites every year, and it is estimated that 28% of them purchase catering services, and 27% make a retail purchase. Although the global financial crisis of 2008 had a negligible impact on Roadchef's activity, it should be noted that an economic crisis and/or change in the price of fuel that may affect the number of cars on the roads, may also affect the volume of activity and profitability of the service stations. E. Principal success factors in the motorway service areas market and the applicable changes Roadchef's principal success factors are: 1) the type and mix of the retail chains and food chains whose products and services are available at the service stations (known brands such as McDonald's, Costa Coffee, and WHSmith attract more customers); 2) effective signage, within the framework of the legal restrictions, that attract customers to the motorway service areas; 3) a broad range of available products and services, combined with new shops at the service stations; 4) constant improvement of the management and operation of the service areas so as to increase profits; 5) financial robustness that is required for investing in improving the products on offer at the existing stations and in the erection of the service areas; 6) finding suitable locations for the erection of motorway service areas that comply with the existing legislative restrictions; 7) conditions of the agreements with concessionaires and suppliers. F. Principal barriers to entering the motorway service areas market The UK's motorway service areas market has high entry barriers, principally for the following reasons: 1) the need to find suitable locations for the erection of service areas, particularly taking in to account the existing legislative restrictions as noted in Section (C) above; 2) prolonged, costly planning procedures for the erection of each service area; 3) considerable investment in the actual construction of each service area. The barriers to leaving the service station market are the high investment in entering the market and existing commitments towards third parties. G. Effect of external factors on Roadchef's activity The economic situation in the UK – may affect the number of vehicles on the roads, in part depending on the severity and duration of the period in which it continues. Changes in public transport arrangements – changes and improvements in public transportation arrangements, that may lead to the supply of means of transport that replace

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private cars may reduce the number of drivers on the motorways and adversely Roadchef's revenues. Legislative restrictions and changes – the existing legislative restrictions regarding the operation of motorway service stations in the UK may affect Roadchef at two levels: a) the abolition of legislative restrictions regarding the required distance between service areas may lead to the erection of more service areas, which will affect the revenues generated by Roadchef's existing service areas, but could also provide an opportunity for an expansion of Roadchef's activity; b) the failure to grant relief in existing legislative amendments with respect to the positioning of signs along the motorways and the sale of products at the service areas may make it difficult to increase revenues. The extent to which Roadchef is affected by these events, if at all, depends on their intensity, scope and duration, and on Roadchef's ability to address them in future. 1.10.4 Products and services The products and services marketed by Roadchef in this operating segment mostly include the following: A. Retail products – according to existing regulatory restrictions, the variety of retail products that can be sold at motorway service areas is restricted to products that drivers require when on the road. These include food products (snacks, sandwiches, etc.), books, newspapers and magazines, tobacco products, gifts, and in the convenience stores at the refueling stations, car accessories and cleaning products. Over the last thirty years, the variety of products that can be sold has changed very slightly, nevertheless, the volume of sales has grown substantially. It is worth noting that Roadchef's competitors have begun to operate branded grocery stores such as Marks & Spencer, Simply Food, and Waitrose at their motorway service areas. Roadchef believes that these stores, together with other categories of retail products (such pharmacies, mobile phones, and clothing stores) contain considerable potential for increasing retail revenues, insofar as the sale of these products is possible. B. Catering – Roadchef operates a large variety of self-service restaurants at its service stations, offering a range of hot and cold meals, fast food (hamburgers and chicken products), salads, snacks, hot and cold drinks, sandwiches, cakes and desserts. The catering services consist of restaurants under an external brand, or under Roadchef's own brand names (The Burger Company, RestBite, and Hot Food Company). In recent years, Roadchef has expanded the catering services it offers under leading, well-known brands such as McDonald's, Pizza Hut, Costa Coffee, and SOHO Coffee, through franchise agreements. It is worth noting that the prices of products sold at the service areas through the retail and dining activity are generally higher than the prices of these products in the cities. C. Fuel products -27 petrol stations operate at the service stations, and in accordance with regulatory provisions, petrol stations must be open 24 hours a day, 365 days a year. Convenience stores are located next to the petrol stations. The petrol stations operate in several forms: 1. Independently operated – the petrol stations that Roadchef operates according to agreements for the supply of fuel with external petroleum companies (Texaco, Esso, BP, and Shell). At the reporting date, there are 6 petrol stations that operate in this form. 2. Agency agreements – petrol stations in which the petroleum companies hold proprietary rights, and Roadchef serves as an agent and sells fuel and other products as per an agreement with the relevant petroleum company. At the reporting date, 6 petrol stations operate in this manner. 3. Licensing agreement1 – Roadchef receives a license to operate a petrol station where the proprietary right in the station is that of the petroleum company. At the reporting date, there are 2 petrol stations that operate in this manner. 4. Rental – Roadchef operates some stations in accordance with rental agreements with the petroleum companies. At the reporting date, there are 2 petrol stations that operate in this manner.

1 It should be noted that the operation of petrol stations through agency agreements and licensing agreements are essentially similar – the actual agreement is determined by the petroleum companies.

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5. Leasing to outside operators – in agreements of this kind, Roadchef holds the proprietary right to the petrol station, and gives one of the fuel supply companies exclusive rights to operate the station in return for a fixed rent, and the rent is derived from the quantity of petrol sold. At the reporting date, 6 stations are leased to BP Oil UK Ltd. 6. Petrol stations operated by the petroleum companies, that also hold the proprietary rights in the stations. These petrol stations do not generate any income for Roadchef. At the reporting date, there are 5 petrol stations that operate in this manner, 2 of which are run by BP. It is worth noting that in May 2009, Roadchef entered into an agreement with BP, whereby BP will gradually begin to rent from Roadchef the leasing rights, management and operating rights to 14 petrol station forecourts and adjacent convenience stores in the service areas (including two forecourts that it had already leased by virtue of agreements that were signed by the parties in the past). For further details about this agreement, see Section 1.10.18 below. D. Accommodation – Roadchef operates 15 hotels located in the motorway service areas. Until 2010, the hotels were run under the Premier Inn brand. During the course of 2010, Roadchef entered into 15 separate agreements with Days Inn (Wyndham Worldwide) to operate the hotels on Roadchef's motorway service areas, that hold 593 rooms in all, for a period of 20 years from September 2010, where Roadchef may end each of the agreements after 10 years. Roadchef runs and manages the hotels on an on-going daily basis. The hotel rooms are reasonably equipped, and provide various services of the type generally accepted at budget hotels. It should be noted that during 2008, 2009 and 2010, the average occupancy rate was 60%, 46% and 53.9%, respectively. 1 E. Other services – as part of the agreements that Roadchef reached with commercial companies and various service providers, the latter render services and/or provide different products at the service areas, such as: parking areas, cash points [ATMs], the sale of advertising space at the stations, slot machines, passport photo machines, massaging recliners, public telephones, and mobile phone accessories. These agreements create additional revenue for Roadchef in respect of rent, and amounts that are a certain percentage of the operator/service provider's profit, all as prescribed in the agreements. 1.10.5 Breakdown of revenues from products and services The following shows the distribution of Roadchef's revenues by category of product and service in 2008-2010 (in GBP thousands, as a % of the Group's net revenues, and % of revenues from motorway services):2

2010 2009 2008 As % of As % of As % of As % of As % of revenues Group's revenues As % of revenues Group's from revenues from Group's from GBP 000 revenues sector GBP 000 * sector GBP 000 revenues sector Retail products 46,273 0.6% 23.1% 51,652 0.8% 21.4% 57,281 0.9% 17.8% Dining 58,095 0.8% 29% 58,898 0.9% 24.4% 60,051 1.0% 18.6% Fuel products ** 81,624 1.1% 40.7% 117,494 1.9% 48.7% 190,307 3.0% 59.1% Accommodation 4,832 0.1% 2.4% 5,195 0.1% 2.2% 6,676 0.1% 2.1% Other Services 9,571 0.1% 4.8% 8,102 0.1% 3.3% 7,785 0.1% 2.4% Total 200,413 2.6% 100% 241,342 3..8% 100% 322,100 5.1% 100%

* The figures reflect revenues in respect of the holding of 25% of the issued and paid-up capital of DMS by Delek Petroleum for those years. ** After signing the BP agreement in May 2009, whereby petrol stations will be leased to BP (for details see Section 1.10.18 (B) below) and given that the leasing of the stations also includes the convenience stores, revenues from the convenience stores at the petrol stations run by BP do not belong to Roadchef thus reducing the revenues received from retail products and fuel products in 2009 and 2010. 1.10.6 Marketing and distribution

1 The occupancy rate for 2009 can be attributed, in part, to the strategy adopted by Premier Inn, not to lower prices despite the recession. 2 It should be noted that from May 2009, Roadchef presents the rent from the leasing of petrol stations to BP as part of the reduction of variable costs for each site, and they therefore do not appear in the table.

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Following is a concise description of Roadchef's marketing methods: A. General – motorway service area marketing activity, aimed at attracting customers to the service stations and helping to market all Roadchef's activity, is divided into two stages: marketing activity aimed at encouraging customers to stop at Roadchef's motorway service areas, and marketing activity to motivate travelers who have stopped at the service areas to make purchases while they are on site. Regarding the first stage – most of the effort focuses on signage directing travelers to the service areas. Strict regulatory restrictions apply to signage positioned along the motorways with respect to the service areas limiting the ability of the chains or companies that provide services at the service stations to advertise. Within the context of the existing restrictions, Roadchef (and the other companies that operate motorway service areas) lists the names of the most popular brands available at each service area on the wayfinding signs. In the second stage – most of the effort is invested in dominant brands to increase the amount of shopping that takes place at the service stations. In addition, Roadchef regularly conducts sales promotion campaigns (such as: business meals and benefits for bus drivers transporting tourists) to encourage repeat visits to the service areas, and it also works to cooperate with different companies in an effort to promote Roadchef among their employees and/or customers. B. Marketing of retail products – the branded retail shops are usually located in a central building on the service area. The convenience stores are located adjacent to the forecourts and set apart from the service area's main building. Retail products are sold mostly in two ways: 1. By shops run by Roadchef under the brand name WHSmith ("WHS"). These shops are managed and operated as part of a franchise agreement signed between Roadchef and WHS, that also stipulates the manner in which the WHS brand and its related trade names can be used, and the consideration that Roadchef pays for the franchise, through supply agreements between Roadchef and WHS regarding the supply of some of the products sold in the shops, and in agreements with additional product suppliers whose products are sold in these shops. It should be noted that under the signed agreement with WHS, WHS may enter into similar agreements with other companies that operate motorway services areas. (In practice, WHS has pre-existing agreements with two of Roadchef's competitors.) 2. Through convenience stores – convenience stores operate in the forecourts that are set apart from the main service station building and which sell various products, such as: car products and accessories, hot and cold drinks, fast food (pastries, sandwiches, etc.). The operation and management of the convenience stores is usually prescribed in the agreements for the sale of petrol that Roadchef enters into with the different petroleum companies. These agreements also determine the composition of the products to be sold in the convenience stores, display arrangements in the convenience stores, and their pricing method. Each agreement contains standard grounds for early termination of the agreement by the parties (including, inter alia, the operation of the petrol stations contrary to the agreement, the failure to pay the amounts stipulated in the agreement, fundamental violation of any of the conditions of the agreement, etc.). C. Marketing of catering products – Roadchef operates catering services under the Roadchef brand name (44 fast food outlets or restaurants) and where the dining services are operated under franchise brand names (e.g.: McDonald's, Costa Lt. and SOHO Coffee Shops Ltd. – 34 restaurants in all), the operations are dictated by the conditions of the franchise and the license prescribed with the franchise owner in the franchise agreement. It should be noted that there are several restaurants at each service area, operating under different brands, all of which are run by Roadchef. Close to the reporting date, Roadchef completed procedures to replace those restaurants operating under the Wimpy brand with The Burger Company, a brand owned independently by Roadchef, and under McDonald's, after Roadchef informed Wimpy that it would be terminating the agreement early and paid the agreed amount in respect of early termination of the agreement. For further details about the agreement with McDonald's, see Section 1.10.18 below. D. Marketing of the accommodation activity – in addition to the branding support that Roadchef receives from Days Inn, Roadchef uses a special consultant and manager to promote its

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accommodation activity and to increase occupancy through travel agents and direct marketing initiatives. 1.10.7 Order backlog In view of the nature of Roadchef's activity and the fact that most of its sales are made to random customers, Roadchef has no order backlog. 1.10.8 Customers Roadchef's target customers are all motorway travelers. Nevertheless, vehicles can be divided into several categories, such as private cars, buses, trucks (light and heavy load), and motorbikes. Some of the motorway service areas can be characterized by the class of vehicles that pass through them. Other categories of customer are families with children, business travelers, holidaymakers, groups and organized tours, who are more likely to visit the service stations and spend money at them. It should be noted that Roadchef maps its customers based on the reason for their journey – business or pleasure. Roadchef is not dependent on any single customer. 1.10.9 Seasonality Roadchef's activity is characterized by seasonality, with most activity taking place in the summer months (July to September) and the school holidays. There are differences between the various sites depending on their characteristics, so that at sites located on routes to leisure spots, levels of activity are higher during the holidays, and at sites located along routes leading to business centers, there is more activity during the week than at weekends. The following details Roadchef's revenues (in GBP thousands), by quarter in 2009 and 2010.

Year Q1 Q2 Q3 Q4 Total 2010 42,376 53,427 58,994 46,616 200,413 2009 61,414 73,934 59,968 46,026 241,342 The disparity between the data for the first and second quarters of 2009 and data for the corresponding quarters in 2010 can be attributed mainly to the transfer of the operation of some of the petrol stations to BP as part of the agreement mentioned in Section 1.10.18 (B) below. 1.10.10 Fixed assets and plant The following details the motorway service areas and real-estate assets on which the service stations operate: A. The service areas are at 19 different locations along the motorways in England, Scotland and Wales (8 service areas are located on both sides of the motorway, so that in all Roadchef operates 27 service stations). The motorway service areas occupy a land area of 2,400 dunam (240 hectares). The service areas house petrol stations, hotels, restaurants, retail shops and coffee stands, with total floor space of 60,000 sq.m. B. The land area on which each service area is built is usually quite large, to accommodate the range of services offered. The area varies for each station depending on the design features, date on which it was constructed, and the volume of traffic on the adjacent motorway. C. Each service area has an area on which the main building is located which contains the retail shops, restaurant services, slot machine halls and restrooms. There is a parking lot and a hotel (at some stations) next to the main building. The petrol station forecourt and adjacent convenient store are set several hundred meters away from the main building. D. The most prominent service areas operated by Roadchef are Strensham, located on the M5, Watford Gap on the M1, Clacket Lane on the M25, and Norton Canes on the M6 Toll. The difference in revenues generated by the service stations is generally the result of the volume of traffic on the adjacent roads, as well as the characteristics of the drivers who use those roads (for example, drivers who use the roads for traveling to work and back usually stop less than holiday travelers). E. Roadchef operates systems that provide information about the number of people visiting the service stations and how many people make purchases at the service stores, the types of

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products they buy and changes in this information at different times of day. Roadchef uses this information to increase the number of purchases made at the stations. F. The real estate assets on which the service stations operate are partly wholly owned by Roadchef (7 assets), partly leased for long periods of more than 70 years (4 assets), and the rest are on medium-term leases (less than 70 years. 1 All the assets are located in England, with the exception of 2 in Scotland and one in Wales. The offices of MSA and Roadchef's management are located at Roadchef House at the Norton Canes service station in Cannock. Roadchef holds this asset in accordance with a rental agreement that is in force until 2029. The following details the proprietary rights at the service stations operated by Roadchef.

Name of station Built in: Description of proprietary rights

Annandale Water 1995 Leasehold - 2093 Bothwell 1984 Leasehold– 2034 Chester 1998 Leasehold– 2148 Clacket Lane* 1993 Leasehold - 2043 Durham 1994 Owned Hamilton 1984 Leasehold - 2034 Killington Lake 1972 Owned Maidstone 1997 Leasehold - 2122 Northampton 1982 Leasehold - 2032 Norton Canes* 2004 Leasehold - 2029 Pont Abraham 1982 Owned Rownhams 1976 Owned Sandbach 1976 Leasehold - 2031 Sedgemoor 1986 Owned Stafford 1999 Leasehold - 2124 Strensham (North)* 2002 Leasehold - -2042 Strensham (South)* 1992 Leasehold - 2032 Taunton Deane 1977 Owned Tibshef 1999 Owned Watford Gap* 1959 Leasehold - 2032 * The site's EBITDA earnings account for more than 10% of Roadchef's total EBITDA profit. G. In addition to the foregoing, Roadchef has fixed assets that include equipment located at the service stations, including equipment required for operating the petrol stations, retail shops and restaurants, furniture and computers. H. The revenues from each of the service areas Strensham (north and south combined), Clacket Lane, Taunton Deane, Hamilton and Bothwell account for more than 10% of Roadchef's total revenues; discounting the fuel activity, the revenues from each of the service areas Strensham (north and south combined) and Clacket Lane, account for more than 10% of Roadchef's total revenues. 1.10.11 Intangible assets Roadchef holds the following intellectual property rights: a) Registered trademarks – Roadchef owns the registered trademark "Roadchef" and its logo. Roadchef and the companies it owns also hold several trademarks that are registered with the UK Registrar of Trademarks; b) trademarks that are not registered – Roadchef owns the rights to the Takeabreak trademark, which is not

1 Norton Canes that is leased until 2029, is owned by one of the owners of one of the service station chains in competition with the Company.

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registered. Likewise, Roadchef is entitled to trade under other trademarks, although it does not use them; c) domain names – Roadchef owns the domain names: roadchef.co.uk, roadchef.com. roadchef.net; d) copyright – Roadchef is the owner of all the copyright and intellectual property on its website content; e) permits to use trademarks – Roadchef has permits to use trademarks consistent with the franchise agreements signed with branded companies, such as: McDonald's, Costa Coffee, WHSmith, etc. It should be noted that the rights to use these trademarks do not confer proprietary rights on Roadchef; e) third-party permits – from time to time Roadchef's trademarks are used by third parties and suppliers for marketing and advertising purposes by obtaining unofficial permits from Roadchef. 1.10.12 Human capital A. At the reporting date, Roadchef (including its subsidiaries) has 1,936 employees, as detailed below, most of whom work at the motorway service areas that it operates:

No. of employees & No. of employees & No. of employees & service providers at service providers at service providers at Department December 31, 2010 December 31, 2010 December 31, 2010 Senior management 5 6 5 Management 49 49 48 Service station employees 1,946 1,997 2,116 Total 2,000 2,052 2,169

In 2010, the total number of service area employees consists of 1,075 workers employed in catering activity, 174 employed in retail activity and the petrol station forecourts, and 697 administrative and management employees. During the course of 2009 and 2010, there was no significant change in the number of Roadchef employees. The decline in the number of Roadchef employees in 2009 compared with 2008 can be attributed mainly to the transfer of the operation of 4 petrol stations to BP pursuant to the agreement with BP, and to the fact that Roadchef did not recruit any additional manpower. B. Benefits and the quality of employment agreements Roadchef's employees are divided into three categories, consistent with their employment agreements: Salaried employees – most workers at the service areas are paid on an hourly basis and are employed according to Roadchef's fixed employment agreements. Workers at the service areas work in shifts, sometimes including overtime, and most of them receive the minimum wage set in the UK, plus a wage for overtime and/or work on public holidays (where necessary), as prescribed in UK labor laws. As part of their employment agreements, all workers are entitled to annual vacation as well as a pension plan after a certain period of work. It should be noted that under UK labor regulations, salaried employees who are temporary, are entitled to the same rights as permanent employees. Support office managers – management employees at all service stations, as well as Roadchef's management employees, who work at Roadchef's offices, are entitled to a global salary and their employment is regulated by standard managerial agreements. It should be noted that the management structure is not fixed, and each service area has its own management format (usually, each service area is managed by a service area manager, and the operations manager, catering manager and forecourt manager are accountable to him). Under the management agreements, management employees are entitled to annual vacation, a pension plan (the payments into the pension plan are made by the employee and Roadchef), life assurance, medical insurance, reimbursement of expenses (in certain conditions), an annual bonus, and senior management employees are also entitled to use of a company car if they need to travel long distances for work. In addition, the management agreements include provisions concerning the severance of employment, confidentiality, and a non-competition clause. Senior management and the chief managers of the service areas – Roadchef's senior management and the chief managers of the service stations are entitled to a global salary and they are employed on personal employment contracts. As part of their employment agreements, these employees are also entitled to pension arrangements, medical insurance,

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annual vacation, a company car or the right to use a car, refund of expenses and an annual bonus. Roadchef has two pension plans and at the end of 2010 they have a deficit of GBP 5.1 million. Nevertheless, Roadchef has long-term payment arrangements that will wipe out the deficit and create a surplus in these plans. C. Employee compensation plans Hourly paid employees enjoy several bonus plans commensurate with their performance and with meeting sales targets. The management staff of the motorway service areas, Roadchef's managerial employees, chief managers of the service stations and Roadchef's senior management are entitled to an annual bonus, as follows: The service station management employees and the chief managers of the service stations are entitled to an annual bonus, fixed as a certain percentage of their wage based on the annual operating profit of the relevant service station before interest, tax and depreciation (EBITDA) as noted in their employment agreements. It should be noted that the service area managers are entitled to a higher bonus; Roadchef's management employees and senior management are entitled to an annual bonus fixed as a certain percent of their wage and based on Roadchef's annual operating profit before interest, tax, and depreciation (EBITDA) as noted in their employment agreements. It is worth noting that senior management employees are entitled to a higher bonus. D. The company's senior officers and senior executives 1. The following details the number of employees and service providers that form the company's senior officers and senior executives:

No. of employees CEO 1 Business development manager 1 CFO 1 Operations manager 1 Total 4

2. Benefits and quality of the employment agreements Roadchef's senior officers and senior executives are employment according to personal employment agreements that include pension arrangements on a variety of tracks, a bonus plan, and related benefits (such as a company car and insurance arrangements). Roadchef is not dependent on any particular employee. 1.10.13 Raw materials and suppliers Roadchef has agreements with several suppliers, consistent with its various operations. The main suppliers that Roadchef has agreements with as part of its retail activity are Palmer & Harvey and WHSmith; as part of its catering operations, Roadchef has franchise agreements with fast-food and coffee-shop chains such as McDonald's, SOHO Coffee, Costa Coffee, etc. (together in this section: "the Chains"), from which Roadchef is committed to purchase most of the raw materials it requires and/or from suppliers the chains have approved in advance. The raw materials for the restaurants that operate under Roadchef's independent brands are supplied mainly by the Brakes Group; for fuel sales, the petroleum companies that operate and/or lease the forecourts are also the suppliers of the fuel. Regarding the service areas that Roadchef operates independently, Roadchef has supplier agreements with the large petroleum companies. Roadchef is not dependent on any particular supplier. 1.10.14 Working capital A. Service station operating inventory – inventory is held so as to allow on-going sales without creating a shortage of products, at the same time maintaining reasonable levels of inventory. Inventories are monitored at all service stations, according to the type of inventory and amount of stock that can be held at any given time.

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B. Accounts receivable – customer credit that is usually created as a result of the use of credit cards at the service stations, accounting for 50% of Roadchef's total sales. This credit is usually paid within 3 or 4 days. C. Suppliers credit – is usually 30 – 45 days. The following details the average volume of credit and average number of credit days to suppliers (calculated on an annual basis) in 2008 – 2010.

Average volume of credit (in Year GBP 000) Average credit days (in days) 2010 13,035 42 2009 14,330 42 2008 16,653 31

D. Deficit in working capital – is due to short-term bank credit, taken by Roadchef and that Roadchef believes it will be able to renew. At December 31, 2010, DMS had a deficit in working capital of GBP 37 million (about NIS 266 million), including a balance of GBP 25 million (about NIS 152 million) of credit from banks. The credit limit can be renewed once a year. According to DMS' management, the credit limit will be renewed this year in view of past experience in each of the last three years. The balance of the deficit in working capital in the amount of GBP 12 million (about NIS 73 million) can be largely attributed to suppliers' credit given during the normal course of Roadchef's activity and it is expected that the availability of the credit will be preserved continuously in the foreseeable future. 1.10.15 Financing A. General Roadchef finances its on-going operations from the following sources: 1) current revenues from motorway service areas; 2) short-term bank credit; 3) suppliers' credit; 4) advances received from suppliers and/or franchise companies with which Roadchef has franchise agreements; 5) owners' loans. Roadchef's long-term investments were financed by raising debt during the course of 1998, in a securitization process, and through a loan of GBP 23.5 million received from Barclays Bank in 1999, of which the final repayment was made at the end of October 2010. B. Short-term credit Bank loans – Roadchef has short-term loans that it received from Barclays Bank in the amount of GBP 21.7 million. Roadchef also has a credit agreement with Barclays for development needs in the amount of GBP 3 million. Long-term loans 1. Owners' loans From 2007, MSA received loans from companies owned by its then controlling shareholders , Delek Belron and Delek Petroleum, with an overall value of GBP 162.1 million, of which one loan is in the amount of GBP 150 million and bears interest of 6.5% (linked to the CPI), and the balance is in GBP and bears interest of LIBOR + 2.65%. It should be noted that MSA received a commitment from the lending companies that repayment of the loans and the interest they accrue will not be requested before January 1, 2011. At December 31, 2010, the outstanding balance of the loans is GBP 208.9 million. 2. Capital raised in a securitization process In December 1998, Roadchef completed a securitization process in which context RoadChef Finance Ltd., a special purpose subsidiary ("the SPV") raised GBP 210 million on the Luxembourg stock exchange. The consideration received by the SPV was extended as loans to some of the companies in the Roadchef Group ("the Borrowers") for purposes prescribed in the issuance. The following bonds were issued in the securitization process: 1) Bonds (Series A1) in the amount of GBP 35 million bearing variable interest that were repaid in 2008; 2) bonds (series A2) in the amount of GBP 133 million bearing interest at a rate of 7.418 (paid once a year on October 31), to be repaid in pre-determined installments from 2009 through 2023; 3) bonds (Series B) in the amount of GBP 42 million, bearing interest at a rate of 8.015% (paid once a year on October 31), to

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be repaid in pre-arranged installments from 2023 until 2026. It should be noted that if the issuing company does not have enough capital to pay the interest and the principal in respect of the bonds (Series B), these payments shall be postponed to the payment date on which the issuing company has adequate capital for payment and they shall bear interest until that time. Payment of the principal and the interest in respect of the Series A2 bonds shall take preference over payment of the principal and interest in respect of the Series B bonds. 3. At the reporting date, the Series A2 bonds and Series B bonds have a rating from Fitch Ratings Ltd. of B+ and B- respectively, and are rated B and B- respectively by Standard & Poor's. The balance of the bond principal (excluding accrued interest and surplus cost attributed at the time of the MSA acquisition in 2007) at December 31, 2009 and December 31, 2010, was GBP 170 million and GBP 164 million, respectively. 4. Money received as part of the franchise agreements As part of some of the franchise agreements signed with the brand owners, Roadchef received loans from the brand owners for developing and improving the shops and services rendered under the franchise agreements. 5. Advance from BP on account of rent As part of the BP agreement, described in Section 1.10.18.(B) below, during the course of 2009 and at the beginning of 2010, Roadchef received GBP 10 million as a down payment for rent that BP will pay during the agreement period. D. Average interest The following shows the average interest rate on loans from banks and nonbanking sources of credit, that are in force on the reporting date and that are not for the exclusive use of Roadchef:1

Average interest rate during Effective interest rate during 2009 2009

Short-term Long-term Short-term Long-term loans loans loans loans From banks 6.66% - 6.66% - From nonbanking sources - 7.62% - 7.62%

Average interest rate during Effective interest rate during 2010 2010

Short-term Long-term Short-term Long-term loans loans loans loans From banks 6.34% - 6.34% - From nonbanking sources - 7.69% - 7.69%

E. Restrictions that apply to Roadchef in accepting credit 1. Financial criteria determined for the issuance of bonds by Roadchef: In addition to placing a lien on assets, as noted in Section (J)(1) below, the bond issuance agreement prescribes several financial criteria and covenants that the borrowers must comply with. The main points of these covenants are detailed below: A) The EBITDA ratio on the annual payment to the bond holders plus interest expenses ("Profit Ratio") shall not be less than 1:1.25. Compliance with this ratio is examined quarterly, in accordance with Roadchef's consolidated and unaudited financial statements for that quarter, to be submitted within 45 days of the end of the quarter. At the end of a quarter that ends the financial year, compliance with this ratio is examined in accordance with Roadchef's annual audited consolidated financial statements, to be submitted within 120 days of the end of the quarter.

1 The interest rates refer to actual interest payments, excluding accounting adjustments.

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It should be noted that under the conditions of the bond issuance agreement, a failure to comply with the aforesaid ratio can be remedied within 120 days of reviewing the ratio ("the Grace Period"), inter alia, by the owners or another entity providing the borrowers with additional equity. It should be noted that since the date on which Delek Belron acquired the controlling interest in Roadchef, there were instances in which DMS supplemented the necessary capital during the Grace Period (so that Roadchef was not in violation of the agreement) by injecting capital into the SPV, originating in DMS' activity and/or by injecting owners loans from DMS' shareholders. In 2007, to comply with the financial criteria, additional equity of GBP 1.5 million was extended for this purpose, and in 2008 and 2009, a total of GBP 6.5 million and GBP 5.9 million, respectively, was provided. At December 31, 2010 and close to the reporting date, the profit ratio was 1.25 and 1.28 respectively. B) An undertaking not to engage in any other activity besides the operation of the motorway service areas (including providing catering services, retail, leisure, and accommodation services, and the sale of fuel) and only to perform transactions that are the normal course of business of the Roadchef Group's companies. C) All the companies in the Roadchef Group (excluding MSA) may transfer their assets, areas of activity and property to the other companies in the Roadchef Group (including MSA) without the need to obtain prior permission from the bond trustee and provided that another asset with similar features is pledged in favor of the trustee. D) Restrictions on carrying out the following activities without obtaining the bond trustee's approval: exercising an unpledged asset with a value of more than GBP 5 million; entering into a leasehold contract or license for a period of more than 25 years; entering into a leasehold contract or license for a period of less than 25 years that is not during the normal course of business; granting loans to companies that are not part of the Roadchef Group or to any other third party, unless, when the loan is granted, Roadchef has profit ratio of 1:1.5 during the 4 quarters preceding the loan, and that the EBITDA in the quarter before the loan is at least 90%, or that the loan was given during the normal course of business and the amount that has yet to be repaid is at less than GBP 1 million at any time; distribution of a dividend, capital repayments, capital distribution and any other distribution, unless at the time of the distribution Roadchef has a profit ratio of more than 1:1.5 for the 4 quarters preceding the distribution and that the EBITDA in the quarter before the distribution is at least 90%, or that one of the rating companies has announced that the distribution will not affect the rating of the bonds, or that the bonds are rated, the profit ratio is 1:1.5 and the total value of the Roadchef Group's assets is more than 200% at least of the balance of the debts that have not been repaid under the bond agreement; granting loans to employees of any of the Roadchef Group's companies, unless the outstanding debt that has not yet been repaid is less than GBP 1 million at any time. Moreover, the bond agreement prescribes several alleviating conditions whereby the borrowers will be able to exercise pledged assets when certain conditions are met (some of which must be approved by the trustee), and they will also be able to acquire additional business activity, provided that the bond trustee give his approval that one of the conditions prescribed in the bond agreement, and pertaining to the manner of financing the acquisition, is met. In addition, pursuant to the provisions of the bond agreement, the borrowers are entitled to take action to develop the pledged assets, as they are defined in Section 18.10.1 below, without obtaining the bond trustee's prior approval under the conditions of the bonds, and including even to take loans of up to GBP 20 million. The trust deed in respect of the issued bonds prescribes various undertakings and restrictions on the SPV, such as negative lien, prohibition on other activities, prohibition on paying a dividend and other activities that may not be performed without first obtaining the bond trustee's approval. At the reporting date, Roadchef is in compliance with all the foregoing conditions.

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F. Credit received between the date of the financial statements and close to the date of the report. During the period between the reporting date and immediately prior to the date of the report, no additional credit was received. G. Credit limits At December 31, 2010 and close to the date of the report, Roadchef''s total credit limits are GBP 24,735 thousand, comprising GBP 10,500 thousand that is in force until October 31, 2011 and GBP 11,235 thousand, that is in force on December 31, 2010, GBP 3 million that is in force until October 2012, and GBP 11,235 thousand that is in force until December 3, 2011. Of these credit limits, at December 31, 2010 and close to the date of the report, GBP 19,770 thousand and GBP 21,735 thousand respectively have been utilized. H. Credit at variable interest The following details credit at variable interest:

Interest rate close to the Amt. of Amt. of date of the Range of Range of credit (in credit (in report Change interest 2009 interest 2010 GBP 000) GBP 000) at (at 1.3.2011) mechanism (in %) (in %) at 31.12.2009 31.12.2010 (in %) LIBOR + 4.0 4.0 - 7,000 4.87 Base interest + 3.5 – 4.0 3.5-4.0 3,996 2,771 4.50 Base interest + 2.1 2.1 3,018.5 - 2.60 LIBOR + 2.1 2.1 11,235 11,235 2.72 LIBOR + - 4.0-9.0 - 3,000 5.27

I. Other sources Roadchef estimates that, assuming that the credit limits and existing short-term loans are renewed by the bank, it will not need other sources of finance for its on-going operations in the coming year. J. The liens that apply to Roadchef's assets 1. The debt in respect of the securitization process was guaranteed by liens that, inter alia, include a fixed senior lien on 16 of the service stations that Roadchef operates ( "the Pledged Service Stations"),1 as well as several fixed liens on the borrowers' current and future rights in the pledged stations, on all their property and assets in England, Scotland and Wales, on the issued capital of all the subsidiaries owned by the borrowers, and on the intellectual property rights, rights by virtue of agreements and contracts, and licenses and permits owned by the borrowers. Likewise, a floating charge was placed on all the assets of the borrowers that were not pledged in a senior lien ("the Pledged Assets"). 2. The short-term loans and credit limits, as specified in sub-sections (B) and (G) above, were guaranteed by pledging three service stations that are not included in the pledged service stations defined above. A total of GBP 11.235 million was also guaranteed by placing a lien on the pledged assets to the bond owners. Furthermore, assets belonging to subsidiaries of Roadchef that hold the three aforementioned service areas, as well as Roadchef's holdings in these companies, were pledged to Barclays Bank 1.10.16 Taxation A. The applicable tax laws

1 It should be noted that the pledged stations also serve as collateral for part of the loan received from Barclays Banks, described in Section 18.4.2 above, as per the bond owners agreement that should the loan from Barclays Bank and the bonds be made available for repayment at the same time and there is a need to exercise the lien on the pledged stations, the repayment of the loan from Barclays Bank shall take precedence over repayment of the bonds.

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DMS, which holds Roadchef shares, is domiciled in the Jersey Islands. When Roadchef's shares are sold and when certain conditions are met, DMS will not be liable for capital gains tax. MSA and Roadchef are both incorporated in the UK. The following provides a brief description of the tax laws applicable in the UK: Corporate tax: At the reporting date, corporate tax in the UK is 28% for companies with profits of more GBP 1.5 million (for a limited group of companies, profits are divided among the number of companies in the group). Profits below this amount are liable for tax at lower rates. A company that is not domiciled in the UK for tax purposes, that generates revenues in the UK not by way of a Permanent Establishment, may be liable for corporate tax at a rate of 20%. In March 2011, the British Chancellor of the Exchequer, announced a reform of corporate tax commencing April 1, 2011. The following changes in the tax reform will affect Roadchef: a) change in the rate of corporate tax from 28% to 26% as of April 1, 2011. In addition, there is a proposal for a further reform of the corporate tax rate in which corporate tax will drop to 23% over a three-year period; b) ordinary and special depreciation rates on assets will be lowered to 18% and 8% respectively, from the accounting periods ending after April 2012. Capital gains tax: The ordinary corporate tax rates apply. Tax on dividends: Income from dividend received from a company domiciled in the UK is tax exempt. Dividend received from a company not domiciled in the UK is liable for tax in the UK, although a credit will be given if tax was withheld when the dividend was distributed. Under internal provisions of law, distribution of a dividend by a UK domiciled company is not subject to tax withholding at source. B. Final tax assessments: DMS has not issued final tax assessments since it was established. Roadchef and most of its subsidiaries that operate in the UK have final tax assessments up to 2007. C. Losses carried over for tax purposes DMS and Roadchef have business losses and capital losses for tax purposes that are carried over to the following years, which at December 31, 2010, amount to GBP 56 million (about NIS 342 million), in respect of which DMS created deferred tax assets in the amount of GBP 15 million (about NIS 91 million. 1.10.17 Environmental protection During the course of its activity, Roadchef is subject to the same environmental regulations as other companies and businesses, that are involved in activity similar to Roadchef's. Roadchef's activity exposes it to several environmental hazards, such as: carbon emissions and effluent from the petrol stations and parking areas, that may contaminate water sources, and the gas emitted from the air conditioning systems above the quantity permitted according to the regulations. The following details the significant regulations and special permits pertaining to environmental protection that particularly affect Roadchef: Delek's permits for operating petrol stations by companies that are not petroleum companies – to obtain a license, regulatory provisions and regulations must be complied with concerning safety on the forecourts, the method of storing the fuel at the station, fire prevention, operation of measures for detecting and treating leaks and malfunctions. At the reporting date, Roadchef is in compliance with all the provisions and regulations. It should be noted that Roadchef has several old petrol stations that will require considerable investment in coming years for renovation purposes and to bring them up to standard with the regulations. At the date of the report, Roadchef's management has yet to prepare estimates concerning the required financial investment. Waste supervision – in recent years, regulations have been introduced aimed at reducing the area occupied by landfill and encouraging the recycling of waste. At the date of the report, Roadchef is working to improve its waste recycling capacity, which is expected to reach 75% of all the waste to be recycled in the coming months. Food hygiene – extensive regulations apply to the manufacture and holding of food. The regulations are enforced by local environmental bureaus acting on behalf of local government in each area. Roadchef employs a health and safety manager who is responsible for compliance with all the food-related regulations. In addition, Roadchef cooperates fully with the Ministry of the Environment to advance and improve its compliance with the regulations.

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Reducing carbon emissions – over the last year, a plan to reduce carbon gas emissions has been introduced in the UK. Roadchef is a part of this plan according to which every year, as of 2012, each company will deposit a certain sum of money to be determined in line with the quantity of carbon gas emissions emitted from its sources (in Roadchef's case – from its petrol stations). Although no precise mechanism has yet been determined regarding the amount of the deposit, Roadchef is of the opinion that it will be required to deposit about GBP 300,000. The part of this deposit that will be refunded at the end of the year will also be determined in line with the rates of carbon gases emitted. It should be noted that at the date of this report, Roadchef is not party to any significant legal or administrative procedure in connection with the environment, no amounts have been ruled against it in proceedings pertaining to environmental quality, and it did not make any provision recognized in its financial statements in respect of such procedures. Protection of the environment by Roadchef – in addition to the foregoing regulations, Roadchef takes action at various levels to maintain a clean environment: Roadch works to promote energy- conservation measures. To this end, in 2010, Roadchef spent GBP 100,000 and intends to expend amounts of between GBP 200-300,000 over the next two years. In addition, Roadchef has developed a program for the protection and enforcement of environmental regulations at its plants, that includes: details of all the obligations applicable to Roadchef within the context of the regulatory provisions; quarterly follow-up of compliance with all the regulatory provisions pertaining to environmental quality, and a review of compliance with these conditions; identifying all the processes required to uphold the environmental provisions, including: reducing carbon dioxide emissions, the efficient use of water, monitoring waste output, operation of the petrol stations, as well as other general instructions; annual follow-up by management, supported by an external audit to ensure compliance with the program and procedures defined in the program, and more. In addition, all Roadchef employees are committed to protecting the environment and complying with the environmental regulations that apply to Roadchef. 1.10.18 Material agreements Roadchef is party to material agreements that are not part of the normal course of business: A. Concerning an agreement with the bond holders as part of the securitization process in 1998 (see Section 1.10.15 above). B. BP agreement – in May 2009, Roadchef entered into an agreement with the petroleum company, BP, whereby BP will rent from Roadchef the leasehold rights, management and operating rights to 14 petrol stations and adjacent convenience stores in the motorway service areas (including two service areas that it had already leased by virtue of agreements that were signed by the parties in the past). In consideration of the management and operation of the service areas, BP paid Roadchef an initial amount and will make further payments to be collected during the agreement period and to be calculated in line with the sale of fuel (an amount to be set in advance for every liter of fuel sold multiplied by the quantity of fuel sold in a year) and sales in the convenience stores (a fixed percentage of all sales during the year). This agreement period is until 2032. Nevertheless, in those service areas for which the leasehold ends at an earlier date (for details of the leases on Roadchef's assets, see Section 1.10.10 above), the agreement period will end when the lease ends (it should be noted that the closest date for termination of a lease is 2029). Management and operation of forecourts at 14 service areas (including two areas that were already being run by BP when the agreement was signed) is to be transferred to BP as follows: The management of two service areas that were already operated by BP was transferred to BP immediately after the agreement was signed; by the end of 2009 6 more service areas were transferred to BP; the management of 4 service areas, two of which at the reporting date were operated through licensing agreements and two through agency agreements, will be transferred to BP during the course of 2013, and the management of the last 2 service areas, that at the reporting date are operated through agency agreements, will be transferred to BP in 2017, after the existing operating and supply agreements between Roadchef and the different petroleum companies that currently operate them, for these areas have ended. The aforesaid agreement enabled Roadchef to transfer responsibility for environmental protection and the resulting monetary expenses at 14 petrol stations to BP, and to reduce its workforce, as the employees at the petrol stations and adjacent convenience stores will be employed by BP and not by Roadchef.

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C. Agreement with McDonald's – during 2010, Roadchef signed a franchise agreement with McDonald's for use of the McDonald's brand and to run restaurants under the McDonald's brand (in this section: "the Agreement"). The agreement is in force for 20 years from January 1, 2010 (with an option for early termination after 10 years), and includes, inter alia, a development plan whereby Roadchef opened 4 restaurants at various motorway service areas in 2010, and intends to open and a further 2 restaurants by June 2011. If the business performance of the aforementioned restaurants is consistent with the conditions specified in the agreement at the time of the review, to take place in August 2011, Roadchef will open 3 more McDonald's restaurants by the end of 2011, and 2 more by the end of March 2012.1 In September 2012, the business performance of the restaurants will be reviewed again, and accordingly a decision will be made whether to open more restaurants. The agreement stipulates that money will be invested in development of the restaurants according to McDonald's conditions and that Roadchef will give McDonald's guarantees to ensure that it meets its obligations under the agreement. Roadchef will pay McDonald's a fixed amount for opening each restaurant under the brand name, as well as additional amounts to be derived from sales. According to other conditions in the agreement, Roadchef will not enter into agreements with McDonald's competitors in the fast-food sector, excluding agreements that are in force when the agreement with McDonald's was signed. The agreement also stipulates that should there be a change in the control of Roadchef and/or in its management ( "the Change"), as a result of which there is concern that the operation of the restaurants will be affected, McDonald's may appoint a development manager of its own to oversee operation of the restaurants for 6 months from the date of the change. Furthermore, McDonald's shall be entitled to appoint a development manager of its own in the event that it announces the early termination of the agreement or should force majeure prevent Roadchef from meeting its obligations under the agreement. It should be noted that McDonald's did not take any of the aforementioned action subsequent to the acquisition of the DMS shares that were held by Delek Belron. D. Franchise agreements for the operation of the restaurant services - in addition to the foregoing agreement with McDonald's, Roadchef has agreements with other brand owners in the restaurant sector (e.g. Costa Coffee and SOHO Coffee). These agreements usually include provisions that regulate the use of the brands, method of managing the restaurants, design and operation of the restaurants, compliance with the franchise policy and standards, employee training, use of equipment, customer service, pricing of the products sold to customers, permitted raw materials, the supply of products and payment for them, as well as looking after the brand and its quality. In addition, each franchise agreement contains provisions concerning the protection of the brand owner's intellectual property, non-competition clauses and details of those instances in which either party may terminate the franchise agreement early by giving written notification. These instances are mainly cases of a failure to pay under the provisions of the franchise agreement, infringement of the concessionaire's trademarks and/or goodwill and/or intellectual property, situations of insolvency or liquidation or the appointment of a receiver or implementation of debt arrangements, the closing of branches by Roadchef without the franchise owner's prior approval, engaging in competing business, fundamental violation of one of the conditions of the franchise agreement that was not remedied within a certain number of days as specified in the franchise agreement. As soon as the franchise agreement ends, Roadchef must stop using the franchise owner's trademarks, must stop selling its products and the parties will pay one another the amounts specified in the franchise agreement in respect of the early termination of the agreement. Some of the agreements also include an undertaking for the parties to invest money to adapt the service areas to the criteria defined by the franchise brands. 1.10.19 Legal proceedings At the reporting date, Roadchef is not party to any significant litigation. The following details the proceedings that have yet to be formulated as a legal proceeding, but may affect Roadchef: A. Agreement with CEM – in January 2008, a management agreement from June 29, 2007 (and revised on May 15, 2008, and March 5, 2009) took effect between MSA and a third party,

1 At the date of the report, Roadchef and McDonald's are negotiating to speed up the opening of 2 of the restaurants that are scheduled for opening by the end of 2011, as well as to open 2 more restaurants that were not included in the agreement, by the end of August 2011.

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Country Estate Management (Services) Ltd. ("CEM" and "the Management Agreement" respectively). 1 Under the management agreement, CEM undertook to perform, in the name of MSA's Board of Directors, the duties and activities involved in exercising control over the operation and decision making in Roadchef and its subsidiaries for MSA. Likewise, CEM made an undertaking to maintain a minimum annual EBITDA for Roadchef and its subsidiaries of an amount that varies each year (where the annual average for five years is GBP 30 million). Under the management agreement, if and insofar as in a particular year the actual EBITDA is less than the EBITDA to which CEM is committed for that year, MSA shall be entitled to receive the difference. Pursuant to an appendix from March 5, 2009, it was determined that this difference, should it exist, will be paid at the end of the period of the management agreement (in lieu of an annual calculation mechanism that was included in the original agreement). In consideration of its services, CEM shall be entitled to GBP 400,000 a year (representing a refund of the expected amount of CEM's expenses and costs) as well as additional payments pertaining to the increase in Roadchef's EBITDA or value (should there be such). In practice, Roadchef's results were lower than guaranteed in the management agreement. In April 2010, the Board of Directors of MSA decided to terminate the agreement with CEM and from that date CEM ceased to manage and operate the group's assets. At the date of the report MSA is reviewing alternative options for collecting CEM's debt towards it, including negotiating with CEM. At this stage it is impossible to estimate the chances of collecting the debt and the outcome of the negotiations. It should be noted that in September 2009, the Board of Directors of MSA decided to make provision for the entire outstanding debt in the amount of GBP 14 million, created on account of the agreement with CEM in view of examining the possibility of terminating the agreement with CEM. B. Investigation by the Israel Securities Authority (ISA) – on December 3, 2009, the ISA initiated an open investigation into matters relating to reports that had been published in Israel by Delek Real Estate, which at that time was the controlling shareholder (through Delek Belron) in DMS. As far as DMS is aware, the ISA's investigation included, inter alia, an examination of the agreement between MSA and CEM. On August 31, 2010, the ISA announced that it had completed the investigation and submitted the file to the State Prosecutor's Office so that it can decide how to proceed with the case. Based on its knowledge at this stage, Delek Real Estate is of the opinion that this information will not affect DMS' financial statements. Nevertheless, DMS is unable to estimate what the decision of the prosecutor's office on this investigation will be and what (if any) repercussions there may be to the prosecutor's decisions. DMS is also unable to estimate what the results of the investigations that were carried out and/or may be carried by the ISA will be (if and insofar as there may be any) with respect to the accounting treatment on the aforementioned matters and what the repercussions are (if any) for DMS financial statements on these matters. For further details, See Note 14 to the financial statements. 1.10.20 Business goals and strategy The following includes business forecasts and forward-looking information: For a variety of reasons, Roadchef's business goals and strategy may not materialize and/or may be changed depending on the decisions made by Roadchef's Board of Directors. A. Improved profitability and supply of products – over the next few years, Roadchef's management intends to work to improving profitability by streamlining its operations. At the date of this report, about 40% of visitors to the motorway service areas do not make any purchases. Roadchef's management intends to introduce marketing measures in an effort to increase the percentage of visitors who make purchases. Likewise, Roadchef's management intends to expand supply in the branded chains, whose products are available in the service stations, and it is also looking into expanding the range of products on offer at the services areas (for example, by way of adding groceries). The following details the measures planned to help achieve the aforementioned goals: 1. Brands and services – Roadchef's management believes that the use of known brands and providing quality service will generate higher sales at the service areas, particularly in

1 As far as the company is aware, CEM is a special purpose vehicle established in connection with the management agreement, and as far as the company is aware it is owned by a third party that has knowledge and experience in managing and operating real estate assets and operating assets in England.

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the catering category. Roadchef works continuously to improve the branding of its products (thus, for example, Roadchef replaced Wimpy with McDonald's and a brand of its own) and the quality of the service it provides for its customers. Roadchef also works to renovate its restaurant and dining areas so as to attract and serve the public, based on the assumption that this will help increase its sales. 2. Speed of service – the success of the retail and restaurant activity relies on open areas, served by staff who are available and ready to serve customers, on the constant availability of products, and on sufficient check-out counters to help reduce waiting time. To meet its customers' needs, Roadchef's management tries to improve accessibility by increasing the number of check-out counters in the service areas, through employee training to improve their service capability and by extending opening hours at the retail and restaurant areas. 3. Increasing the number of products offered – with 60 million visitors a year, the range of products available at the service stations must be expanded. Thus for example, Roadchef's competitors have begun operating branches of Marks & Spencer and Waitrose at their service areas. In an effort to increase sales and meet the competition, Roadchef is working to increase the number of products on offer at the service stations and to introduce familiar retail products in different sectors. 4. Competitive pricing – as noted, the UK's motorway service area market has three principal competitors. To meet existing competition in the motorway service area market, Roadchef sets prices that are competitive with those offered by its competitors and are closer to the prices at which these products are sold in the ordinary markets. 5. Additional revenues – Roadchef's management also intends to examine improvements to revenues from slot machines, parking and revenues from long-term parking at the service areas. B. Acquisition of other sites – despite the low probability that more motorway service areas will be opened in the coming years due to strict regulations, several motorway service areas are run by small companies and if they are put up for sale Roadchef's management would consider acquiring them. 1.10.21 Expectations for development in the coming year During the course of 2010, Roadchef announced a two-year investment of GBP 12 million to develop restaurant activity at its 10 most profitable motorway service areas, including the opening of a branch of McDonald's, Costa Coffee, Hot Food Company, and the renovation of existing restaurants. Roadchef is of the opinion that this investment will be financed from the credit facilities provided by Barclays Bank and from partners, as well as from Roadchef's cash flow as noted above in Section 1.10.15 (B). It should be clarified that the information in this section is forward-looking information and that changes may be made in this plan pursuant to decisions made by Roadchef's management, as they may be from time to time, in part taking into account the availability of sources of capital to implement the investments. 1.10.22 Risk factors Several risk factors can be mentioned that MSA and Roadchef have to address during the course of their operations: A. Price of energy – Roadchef has considerable costs in respect of the consumption of energy (electricity and petrol). An increase in the prices of electricity and petrol may lead to higher operating expenses for Roadchef and reduce its profits. Likewise, an increase in the price of petrol may lead to fewer travelers on the motorways, thus reducing Roadchef's profits. B. Increase in the minimum wage – Roadchef employs a large number of workers at a salary based on the minimum wage applicable in the UK. An increase in the minimum wage in the UK would increase Roadchef's expenses and reduce profits. C. Changes in interest rates – some of MSA's loan agreements are at variable interest, so that MSA is exposed to changes in the interest rate. Likewise, changes in the interest rates may affect the business performance of MSA and its investees. D. Outsourcing – during 2005, Roadchef transferred its back-office operations and operation of its information system to IBM. During this transfer, several difficulties emerged relating to the transfer,

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most of which were dealt with. Nevertheless, at the reporting date, a number of outstanding issues remain pertaining to the services rendered by IBM that have yet to be resolved. E. Roadworks on the M1 and M6 – roadworks taking place as part of the government's program to widen the M1 and M6 motorways, may adversely affect activity at Roadchef's service stations on those roads. During the second half of 2010, the British Minister of Transport announced that the work would continue. F. Improvements in public transport – public transport services in the UK force many people to use their private cars and consequently the motorways. An improvement in public transport that could lead to an increase in the number of people who use public transportation would reduce the number of drivers on the roads thus affecting Roadchef's revenues. G. Legislative restrictions and the applicable changes – existing legislative restrictions pertaining to the operation of motorway service areas in the UK could affect Roadchef, so that an abolition of the restrictions pertaining to the requisite distance between service stations could result in the opening of more stations and this would affect revenues at Roadchef's existing service areas. H. Inability to obtain franchise agreements – at the date of the report, Roadchef has franchise agreements with different brands in connection with its retail activity, restaurant activity and the sale of fuel at its service stations. Thus for example, Roadchef's franchise agreements with Costa and McDonald's are for 10 and 20 years respectively. An inability to reach new franchise agreements, as well as the failure to extend existing franchise agreements may affect Roadchef's revenues and its ability to compete with other service station operators. I. Increase in the rate of VAT – an increase in the VAT rate by the authorities may affect Roadchef's activity due to the fact that prices on some of the products that it sells cannot be raised by the rate of the VAT increase. It should be noted that as of January 2011, VAT will rise by 2.5%, reaching 20%. J. Weakness of the UK economy – the UK's economy suffered considerably as a result of the global economic crisis in 2008and forecasts show that the economy will continue to be weak. Roadchef's activity relies mainly on the UK's economic environment. The growth of GDP leads to an increase in the number of travelers on the motorways and increases Roadchef's profit potential. Nevertheless, in view of the state of the UK economy, a slowdown in the growth of GDP in the UK and a reduction in the number of travelers on the roads could affect Roadchef's revenues and profit. The following table presents the aforementioned risk factors by quality – macro risks, Sectoral risks and risks that are special to MSA and Roadchef. The risks are rated according to estimates of Roadchef's management by the extent to which they affect Roadchef's business:

Extent to which the risk factor influences Roadchef's business Strong influence Moderate influence Small influence Macro risks • Increase in minimum • Changes in interest wage rates • Weakness of the UK • Increase in the VAT economy rate

Sectoral risks • Abolition of legislative • Price of energy restrictions • Roadworks on the M1 • Improvements in and M6 public transport

Risks special to the • Inability to obtain • Outsourcing company franchise agreements

The extent to which the risk factors affect MSA and Roadchef's activity is based on estimates only, and in practice the impact may differ.

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1.11 The Energy Sector

1.11.1 General information1 A. The Company’s operations in the energy field are coordinated under Delek Energy Systems Ltd., a public company whose shares have been registered for trade on the Tel-Aviv Stock Exchange Ltd. since 1982 (hereinafter: "Delek Energy"). B. Delek Energy is engaged in the field of activities of the exploration for and production of oil and natural gas – primarily in Israel and in the United States2. In addition, the Company holds shares in the company Matra Petroleum PLC (hereinafter: "Matra"), which operates in Russia and shares in an oil and natural gas exploration and production public company in Australia by the name of Nexus Energy Ltd. (hereinafter: "Nexus"). C. As of the time of this report. The project that is generating most of Delek Energy's income is "the Yam Tethys Project", which includes the "Mari-B" gas reservoir, which was discovered in February 2000 in the area of the I/10 Ashkelon lease, and from which natural gas is produced and sold to customers. Additional main projects are – a project for the development of the "Tamar" gas reservoir, which was discovered in the year 2009 in the area covered by the 349/ "Rachel" license, which was discovered in December 2010. In addition, Delek Energy is engaged in operations relation to exploration for other oil assets opposite the coast of Israel. D. Operations in Israel: The operations in Israel are carried out by Delek Energy through its holdings in the Delek Drilling limited partnership (hereinafter: the "Delek Drilling Partnership") and through Avner Oil Exploration (hereinafter: the "Avner Partnership") (the Delek Drilling Partnership and the Avner Partnership will hereinafter in this section 1.11 be jointly called "the partnerships" or "the limited partnerships"). The general partner in the Delek Drilling Partnership, Delek Drilling Management (1993) Ltd., is a subsidiary company (100%) of Delek Energy. The general partner in the Avner Partnership, Avner Oil and Gas Ltd., is a subsidiary company (50%) of Delek Energy, and the balance of its shares are held by the public company Cohen Development and Industrial Buildings Ltd. Apart from the management of the partnerships, as of the time of this report, Delek Energy holds participation units that have been issued by the limited partners in the following partnerships: o A direct and indirect holding of approximately 62.73% in participation units that were issued by the limited partner in the Delek Drilling Partnership (hereinafter: "the Delek units"). The limited partner and the trustee in this partnership is Delek Drilling Trusts Ltd., in which Delek Energy has a 100% shareholding. These holdings in the limited partner do not afford Delek Energy management rights or rights for the receipt of profits. o A direct and indirect holding of approximately 47.3% in participation units that were issued by the limited partner in the Avner Partnership (hereinafter: "the Avner units"). The limited partner and the trustee in this partnership is Avner Trusts Ltd., in which Delek Energy has a 50% shareholding. These holdings in the limited partner do not afford Delek Energy management rights or rights for the receipt of profits. It should be noted that as of the time of this report, the Company holds approximately 8.7% of the units in the Delek Drilling Partnership and approximately 14.23% of the units in the Avner Partnership. As aforesaid, the partnerships main activities concentrate as of today on the supply of natural gas from the Ashkelon lease (the "Mari –B" field), in the drilling in the development program for the "Tamar" lease, in activities relating to the evaluation of the Leviathan discovery and in exploratory activities in the licenses that are held by the partnerships. The Delek Drilling Partnership, the Avner Partnership and Delek Investments hold 25.5%, 23% and 4.441%, respectively, in the Yam Tethys project as well as in the company Yam Tethys Ltd., which holds a license for the construction and operation of a gas transportation pipeline. Moreover, the Delek Drilling Partnership, the Avner Partnership and Delek Investments hold 48.17%, 43.44% and 8.39%, respectively, in the Yam Tethys project as well as in the company Delek and Avner- Yam Tethys Ltd., which they set up for the purposes of the

1 For expanded definition of some of the professional terminology that is used in this chapter, see the Definitions Appendix, which appears at the end of the chapter. 2 As of the time of this report, Delek Energy is in the process of selling the oil assets in the USA.

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issuance of bonds to institutional investors in the USA. In addition, each of the limited partnerships has set up a special purposes company (SPC) for the purposes of the receipt of non-recourse interim financing for the Tamar project. For additional details in respect of the Yam Tethys project and the financing for Tamar see section 1.11.3 and 1.11.4 below. In the Tamar project, within the framework of which gas has been discovered in commercial quantities in the "Tamar" and "Dalit" discoveries, each of the partnerships has a holding of 15.625% (see section 1.11.4 below). In the Ratio Yam project, within the framework of which the "Leviathan" natural gas discovery was discovered, each of the partnerships has a 22.67% holding. In addition to the aforesaid, the limited partnerships are engages in additional oil and gas exploration activities in Israel, as detailed in section 1.11.6 below1. E. Overseas operations: The overseas operations are carried out through Delek Energy International Ltd., a wholly owned subsidiary company of Delek Energy, which is registered in Israel (hereinafter: "Delek Energy International") Delek Energy International holds the following companies and projects: (a) Delek Energy Systems US Inc., a wholly owned subsidiary of Delek International, which is registered in the USA (hereinafter: "Delek USA"), which coordinates the Company's operations in the USA, and through Delek Energy Systems (Rockies LLC), which holds the entire share capital of Elk Resources LLC (hereinafter: "Elk"), which holds exploration and production rights for oil and gas in the States of Utah and New Mexico in the United States. (b) 29.3% of the shares in Matra, a public company that is registered in England, which has rights in an exploration and production company in Russia. (c) 2.77% of the shares in the Australian energy company – Nexus. (d) Delek Energy Systems (Gibraltar) Limited, a company that is wholly owned by Delek Energy International, which is registered in Gibraltar (hereinafter: "Delek Gibraltar"), which has rights in an exploration project in the North Sea.

1 The partnerships are working to achieve a change in the Stock Exchange Rules that would enable limited partnerships whose field of operations is exploration for oil or gas, to also be able to participate in exploratory operations in Cyprus (see section 1.11.7 below).

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F. The following chart describes the holdings structure for the main companies in this field of operations1: * The holdings rates in the limited partnerships are in respect of participation units in the limited partner

1 The chart does not include Delek Drilling Trusts Ltd. , nor Avner Trusts Ltd., and neither does it include the subsidiary companies of Elk, Vogil or Matra, nor Delek Vietnam, which was wholly owned by Delek Energy prior to its sale on 20.7.2009 nor AriesOne, in respect of which an agreement for the transfer of the holding therein was completed on 26.2.2010.

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G. Summary of the data in respect of Delek Energy's operations 1. Rights in oil assets in Israel

Rights of the Rights of the Delek Drilling Avner Name of the Name of oil Partnership in Partnership in project asset Type of right the oil assets the Oil Asset Yam Tethys I/7 Noa Lease 25.50% 23% Project I/10 Ashkelon Tamar Project I/12 Tamar Lease 15.625% 15.625% I/13 Dalit Ratio Yam 349/Rachel License 22.67% 22.67% Project 350/Amit 351/Hannah 352/David 353/Eran Ruth Licenses 358/Ruth A License 27.835% 25.106% 359/Ruth B 360/Ruth C 361/Ruth D1 Alon Licenses 364/Alon A License 26.4705% 26.4705% 365/Alon B 366/Alon C 367/Alon D 368/Alon E2 369/Alon F Avia License3 337/Avia License 50% 50% Keren License 338/Keren License 50% 50% Tzuk Tamrur 321/ Zerach License 25% 25% Enclave (Tzuk Tamrur Enclave)4

The following is a summary of the reserves/ the contingent resources/ the prospective resources in which the partnerships have holdings, in accordance with reports that have been received from the company Netherland and Sewell & Associates (hereinafter: "NSAI"), and which have been prepared in accordance with the principles of the Petroleum Resources Management System (SPE-PRMS), in relation to the following assets, as of the time of the report: The Ashkelon Lease – The Mari B Gas Field

Category Total (100%) in Total (100%) in BCF BCM 1P Proved reserves 359.48 10.18 2P Proved + Probable Reserves 381.48 10.80 3P Proved + Probable + Possible Reserves) 403.48 11.43

1 See section 1.11.29.L below on the subject of an agreement for the sale of part of the rights in the license. 2 See section 1.11.29.L below on the subject of an agreement for the sale of part of the rights in the license. 3 See section 1.11.29.L below on the subject of an agreement for the sale of the rights in the license. 4 A zerach license, which expired on 31.12.2010. The partnership has presented an application for a lease instead of the license, however this application was rejected by the Commissioner. In the wake of this, the partnership presented an appeal on the decision by the Commissioner, as detailed in section 1.11.6 C (3) below.

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The Noa Lease – The Noa and Noa South Gas Fields

Category Total (100%) in Total (100%) in BCF BCM Contingent resources – the low estimate 115.2 3.26 (1C – Low Estimate) Contingent resources – the best estimate 124.4 3.52 (2C – Best Estimate) Contingent resources – the highest estimate 132.4 3.74 (3C – High Estimate)

The Tamar Lease – The Tamar Field

Category Total (100%) in Total (100%) in BCF BCM Contingent resources – the low estimate 6,479.4 183.49 (1C – Low Estimate) Contingent resources – the best estimate 8,699.1 246.35 (2C – Best Estimate) Contingent resources – the highest estimate 10,402.1 294.58 (3C – High Estimate)

The Dalit Lease – Contingent Resources

Category Total (100%) in Total (100%) in BCF BCM Contingent resources – the low estimate 216.9 6.14 (1C – Low Estimate) Contingent resources – the best estimate 270.7 7.66 (2C – Best Estimate) Contingent resources – the highest estimate 334.8 9.48 (3C – High Estimate)

The Dalit Lease – Prospective Resources

Category Total (100%) in Total (100%) in BCF BCM Contingent resources – the low estimate 212.2 6.01 (Low Estimate) Contingent resources – the best estimate 267.6 7.57 (Best Estimate) Contingent resources – the highest estimate 334.3 9.46 (High Estimate)

Rachel and Amit Licenses – The Leviathan Natural Gas Field

Category Total (100%) in Total (100%) in BCF BCM Contingent resources – the low estimate 11,356.2 321.61 (1C – Low Estimate) Contingent resources – the best estimate 15,899.30 450.26 (2C – Best Estimate) Contingent resources – the highest estimate 21,079.00 596.95 (3C – High Estimate)

Warning in respect of forward looking information – NSAI's evaluations as presented above, constitute forward looking information. The above evaluations are based, inter

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alia, on geological, geophysical and other information, which has been received from the drillings and from the operator of the oil assets in which the partnerships are partners, they lie solely within the bounds of professional estimates by NSAI and there can be no certainty in respect of them. The quantities of natural gas, which will actually be produced, may be different from the abovementioned estimates and evaluations, inter alia, as the result of the technical, operational conditions and/or as a result of regulatory changes and/or a as a result of the supply and demand conditions in the natural gas market and/or the actual performance of the field. The Company has not carried out an independent evaluation or check of the data that it has been provided with, as aforesaid, however in the light of NSAI's status, as one of the leaders in the field of the execution of the evaluations of resources and reserves in oil and natural gas fields, the Company has no reason to doubt the correctness of the conclusions in the report. The abovementioned evaluations and estimates may be updated in so far as additional information becomes available and/or as the result of a range of factors that are connected to projects in respect of the exploration for and production of oil and natural gas, including as the result of operations conducted to develop the field, of such are undertaken and as a result of the operational conditions and/or the conditions in the market and/or the regulatory conditions. 2. Rights in overseas oil assets As of the date of this report, companies that are held by Delek Energy hold rights in the following oil assets outside of Israel1:

Area in Name of the square On land holding Share in Additional The name kilometers /offshore company the asset partners Operator Elk Approx.215 On land Elk 32.5% - Vary from asset Elk3 (net) 100%2 to asset The North Sea Approx 22 Offshore Delek Energy 25% Noble Energy Noble Energy Block 21/20f4 Gibraltar (Oilex) Limited; (Oilex) Dana Petroleum Limited

H. Investments in capital and transaction in the securities of Delek Energy To the best of the Company’s knowledge, in the past two years no significant investments have been made in capital and/or in transactions by interested parties in Delek Energy in the shares of Delek Energy off the stock market, except as detailed below: 1. On November 23, 2009, Delek Investments sold 107,750 ordinary shares in Delek Energy, in transactions off the stock exchange, at an average price of NIS 872.40. As of the date of this report, the Company and Delek Investments hold approximately 75.3% (at full dilution) of the issued and paid-up share capital of Delek Energy and the voting rights. 2. On August 31, 2009 Delek Energy published a shelf prospectus, as amended on November 5, 2009. On November 5, 2009, Delek Energy published a shelf offer report and an exchange purchase offer (which was amended on November 17, 2009), for the purchase of participation units in the Avner Partnership. The offer was directed to all of the holders of the participation units (except for Delek Energy, Delek Investments and Avner Oil and Gas Ltd.). The quantity of participation units in respect of which notifications of acceptance have been given and which were purchased by Delek Energy was 247,926,781 participation units registered nominally of NIS 0.01 each, in consideration for which Delek Energy issued 393,535 regular shares of NIS 1 par value each in Delek Energy on November 23, 2009. The Company recorded a gain of approximately NIS 200 million following the completion of the purchase offer.

1 In addition to the aforesaid, the Company has shares in Matra, in Vogil and in Nexus. 2 Elk share varies from asset to asset and ranges between 32.5% to 100% of the rights (before royalties). 3 Elk serves as an operator in approximately 75% of the area covered by the assets and the balance of the assets are operated by two other operators. 4 See section 1.11.10 below above.

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1.11.2 General information on the operational field A. The structure of the field of operations and the changes that have occurred in it The oil and natural gas exploration and production operations are complex and dynamic operations, which involve significant costs and a larger degree of uncertainty in respect of the exploration costs, their timetables, the existence of oil or natural gas and the ability to produce them whilst maintaining economic feasibility. As a result of this, despite the very considerable investments, very often the drillings do not achieve positive results and they do not result in any income whatsoever, or they lead to the loss of most or all of the investment. The oil and natural gas exploration and production activities are generally carried out within the framework of joint transactions between a number of partners who sign on a joint operating agreement (“JOA”), in accordance with which one of the partners is appointed to be the operator of the joint business (for an example see the Yam Tethys operating agreement, which is described in section 1.11.3 G below). The exploration and production of oil and natural gas process in any area whatsoever, may, inter alia, include the following stages: 1. A preliminary analysis of the existing geological and geophysical data for the selection of the areas in which there is potential for exploring for oil and gas. 2. The crystallization of the preliminary idea for drilling (Lead). 3. The execution of seismic surveys, which are of assistance in locating geological structures that may contain hydrocarbons (oil and/or gas) and the processing and the interpretation of the data. 4. The examination of the geological structures and the preparation of prospects that are suitable for exploitation. 5. The decision on the performance of exploratory drilling, and the carrying out of the preparatory activities in advance of the drilling. 6. Entering into commitments with contractors for the performance of the drilling and the receipt of ancillary services. 7. The performance of exploratory drilling including the performance of logs and additional checks. 8. The performance of production testing (In certain cases). 9. The final analysis of the drilling results, and in the case of a discovery, on the basis of the preliminary evaluation of the characteristics of the field and of the quantity of the oil and/or natural gas reserves, an analysis is made of the economic data (including a market evaluation) as well as fiscal data and a preliminary evaluation of the format and the cost of the development is made. It is possible that additional seismic surveys will be conducted, as necessary, confirmation drillings and appraisal wells, and this is done for the purpose of crystallizing a better evaluation of the characteristics of the fields and of the quantity of the oil and/or natural gas reserves. 10. The crystallization of the development plan and the preparation of the detailed economic plan for the project. 11. The final analysis of the data and the making of a decision as to whether the discovery is commercial or not. 12. The performance of the development work and the commercial production of the discovery. 13. The production of the commercial discovery. The stages that are detailed above do not exhaust all of the stages in the exploration and production process for any specific project, which because of its nature and importance maybe only include some of the abovementioned stages and/or additional stages and/or stages in some other order1.

1 Thus, for example, in the event of the "Tamar" and the "Dalit" drillings, the operator announced the commercial nature of the discoveries before the execution of the evaluation drilling and the finalizing of the development plan.

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Sometimes no structures are found that are suitable for drilling and so it is not feasible to prepare a drilling prospect and accordingly the process is halted at an earlier stage. Similarly, sometimes it becomes apparent that an oil and/or natural gas discovery is not commercial and accordingly it is not appropriate for development and production. In addition, the length of time that is needed for the execution of each of the stages varies in accordance with the nature of the project and it is difficult to indicate an exploration, development and production project, in which all of the said stages are performed consecutively in the order that is described above and without changes being made and unexpected events occurring. It should be noted that the commerciality of oil and/or gas discoveries is a complex matter and is dependent upon many different factors. In this connection, there is a significant difference between a discovery at sea, which requires the expending of higher development costs, and a discovery on land, as well as between oil discoveries and gas discoveries, whose economics are dependent upon the ability to sell the gas to an attractive target market, and this is because of the fact that gas, to differentiate from oil, is not a commodity that is sold at similar prices worldwide. Moreover, it should be noted that the commerciality of an oil discovery is very much affected upon the global oil price, thus for example – a discovery, which is not commercial when the price of oil is 20 Dollars a barrel may well become commercial when the price of oil rises to 80 Dollars a barrel. In the light of the foregoing, it can be understood that oil and/or gas discoveries, which are not commercial under certain market conditions, can become so if significant changes occur in the conditions in the market, and vice-versa. B. Restrictions placed by legislation, regulations and special constraints – Oil and gas exploration and production are subject to extensive regulation by the host countries. For details in respect of the regulations that apply to Delek Energy's operations, see section 1.11.27 below. C. Significant technological changes – In recent decades technological changes have taken place in the field of the exploration for and the production of oil and natural gas, both in the field of testing and also in the drilling and production methods. These changes have improved the quality of the data that are available to those searching for oil and gas, and enable a more advanced identification of potential oil and gas fields which may also reduce the risks involved in drilling. Moreover, these changes will make drilling and production work more efficient and in the light of the technological improvements it is now possible to carry out operations under more difficult conditions than in the past and at greater depths under the sea. In accordance with the aforesaid, the oil exploration companies now have the ability to invest exploratory efforts in areas where it was not possible to drill in the past, or where it was possible to drill but only at very high cost and risks. D. The critical success factors in the field of activity – the location and receipt of exploration rights (purchase or participation) in areas in which there is the potential for a commercial discovery; the ability to recruit considerable financial resources; the use of advanced technology (such as 3D seismic surveys and advanced information processing processes), which are needed for the purpose of identifying and preparing prospects for drilling and also for the purpose of crystallizing the maritime development plan; joining up with bodies that have rich experience and who operate in the field in order to carry out complex drillings, obtaining assistance from the professional know-how that they possess, and their participation in the cost of the investments; the success of the exploration and development activities; in the event of finding natural gas – entering into commitments under agreements for the sale of the gas in quantities and at good prices. E. Barriers to entry and exit – The main barriers to entry in the field of operations are the need for permits and licenses in order to explore for and produce oil and natural gas, compliance with directives and criteria, which have been set by the Petroleum Commissioner for the transfer/ purchase of participation rights in oil assets, including proof of financial stability for the purpose of their receipt as well as large investments and a relatively high level of risk, which are involved in the performance of these activities. There are no significant barriers for exiting from the field of operations, except for long-term agreements for the supply of gas, under which the partnership has committed itself as well as a duty to dismantle the production facilities before abandoning the leasehold areas. Moreover, there are barriers to exiting in relation to the limited partnerships, which come both from directives issued by the Tel-Aviv Stock Exchange Ltd., and also from the limited partnership agreements for the partnerships, which restrict the partnership from carrying out activities other than exploration for oil and gas as defined in the agreements. F. Alternatives to the products in the field of operations – Natural gas and oil serve as fuels and they are sold to industrial and private customers. The partnerships primarily sell natural gas in

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Israel to the Israel Electric Corporation and to additional industrial customers (see below on this matter). There are alternatives to natural gas and oil, such as diesel, fuel oil, coal, hydro- electrical energy, solar energy, bio-fuels and similar. Each of the said materials has advantages and disadvantages, and is subject to price fluctuations. The transition from the use of one sort of energy to another sort of energy generally involves a large investment. The main advantages of natural gas, by comparison with coal and liquid fuels, are the high level of efficiency and the relatively low pollution rate. G. The structure of competition in the field – see section 1.11.17.A below. 1.11.3 The Yam Tethys project The operations of the limited partnerships in the field of the production of natural gas are carried on within the framework of the maritime oil assets that are known by the name "the Yam Tethys project". As of the time of this report, the Yam Tethys project consists primarily of the "I/10 Ashkelon" and the "I/7 Noa" leases. A. General The Ashkelon lease

General details in respect of the oil asset Name of the oil asset: I/10 Ashkelon1 Location: Approximately 25 km West of the Ashkelon shoreline Area: Approximately 250 square meters Type of the oil asset and description of the Lease permitted activities for that sort: The activities that are permitted under the Petroleum law – Exploration and Production Date of the original granting of the oil asset: June 11, 2002 Date of the original expiry of the oil asset: June 10, 2032 The dates on which decisions were taken to - extend the period of the oil asset: The current date on which the oil asset will June 10, 2032 expire: Note whether there is an additional possibility of Subject to the Petroleum law – 1952 extending the period of the oil asset: if there is (hereinafter: "The Petroleum law") – for an such a possibility – note the period of the additional 20 years possible extension: Note the name of the operator: Noble Note the names of the direct partners in the oil Noble energy Mediterranean Ltd. (hereinafter: asset and their direct shares in the oil asset, and "Noble") (47.059%). To the best of the also, to the best of the Company’s knowledge, Company’s knowledge, Noble is a wholly the names of the controlling interests in the said owned subsidiary of Nobel Energy Inc. partners (hereinafter: "Noble"), a public company whose shares are traded on the NYSE. In accordance with Noble's reports, there is no shareholder who holds more than 10% of its issued share capital; Delek Drilling Partnership (25.5%); Avner Partnership (23.00%); Delek Investments and Properties Ltd. (hereinafter: "Delek Investments") (4.441%).

General details in respect of the Company's share in the oil asset Note the date of the acquisition of the holding in -

1 The Mari gas reservoir was discovered in the area of the Ashkelon lease in February 2000.

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the oil asset that was acquired: Description of the nature and the manner of the Through its direct holdings and its holdings in Company’s holding in the oil asset: the participation units of the Delek Drilling Partnership and the Avner Partnership Note the effective share that is attributed to the 30.81% holders of the Company's capital rights in the oil asset: The overall share of the holders of the Company’s 87,774 thousand Dollars1 capital rights in the cumulative investment in the oil asset during the course of the five years that preceded the last day of the reporting year (whether recognized as an expense or as an asset in the financial statements):

The Noa lease

General details in respect of the oil asset Name of the oil asset: I/7 Noa2 Location: Approximately 25 km West of the Ashkelon shoreline Area: Approximately 250 square meters Type of the oil asset and description of the Lease permitted activities for that sort: The activities that are permitted under the Petroleum law – Exploration and Production Date of the original granting of the oil asset: February 1, 2000 Date of the original expiry of the oil asset: January 31, 2030 The dates on which decisions were taken to - extend the period of the oil asset: The current date on which the oil asset will expire: January 1, 2020 Note whether there is an additional possibility of Subject to the Petroleum law. extending the period of the oil asset: if there is such a possibility – note the period of the possible extension: Note the name of the operator: Noble Note the names of the direct partners in the oil (1) Noble3; asset and their direct shares in the oil asset, and (2) Delek Drilling Partnership; also, to the best of the Company’s knowledge, (3) Avner Partnership; the names of the controlling interests in the said (4) Delek Investments. partners

General details in respect of the Company's share in the oil asset Note the date of the acquisition of the holding in - the oil asset that was acquired: Description of the nature and the manner of the Through its direct holdings and its holdings in Company’s holding in the oil asset: the participation units of the Delek Drilling Partnership and the Avner Partnership Note the effective share that is attributed to the 30.81% holders of the Company's capital rights in the oil asset: The overall share of the holders of the 165 thousand Dollars1

1 Correct as of 31.12.2010. 2 The Noa gas reservoir was discovered within the area of the Noa Lease in June 1999. 3 For details in respect of the controlling interests see the details that appear above in respect of the Ashkelon Lease.

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Company’s capital rights in the cumulative investment in the oil asset during the course of the five years that preceded the last day of the reporting year (whether recognized as an expense or as an asset in the financial statements):

B. The main activities that have been carried out in the Yam Tethys Project and the activities that are planned The following is an abbreviated description of the main activities that have actually been performed in the Noa Lease and in the Ashkelon Lease since January 1, 2008 and up to the time of this report, as well as an abbreviated description of the planned activities:

The Yam Tethys Project – Ashkelon Lease Period Abbreviated description of The estimated overall The Company's the activities actually budget for operations at the effective share of performed for the period/ an level of the oil asset (in the cost/ budget (in abbreviated description of thousands of Dollars) thousands of the planned work program Dollars) 2008 The completion of the 22,713 6,998 construction of the permanent reception facility on the Ashdod coastline; the beginning of the execution of the preparatory works in advance of the instillation of the compression system 2009 Continuation of the 34,668 10,681 preparations for the instillation of the compression system 2010 The execution of two 108,936 33,563 production drillings "Mari B-9" and "Mari B- 10" and the continuation of the instillation of the compression system 2011 Planned activities that have 15,072 4,644 been approved – the completion of the instillation of the compression system * 2012 and There are no investments thereafter planned for this period * Of which an amount of approximately 5,377 thousand Dollars has been estimated (the entity's share of which is 1,657 thousand Dollars) which were invested from 1.1.2011 to 28.2.2011.

The Yam Tethys Project – Noa Lease Period Abbreviated description of The overall actual cost/ the The Company's the activities actually estimated overall budget for effective share of performed for the period/ an operations at the level of the the cost/ budget (in abbreviated description of oil asset (in thousands of thousands of the planned work program Dollars) Dollars) 2008 The examination of various 322 99 alternatives for developing the Noa field 2009 The examination of various 216 67

1 Correct as of 31.12.2010.

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alternatives for developing the Noa field 2010 No significant activities were - - performed during the course of this period 2011- The examination of various - - 2013 and alternatives for developing the thereafter field

Warning in respect of forward looking information – the Company’s evaluations as aforesaid on the subject of the costs and the timetables for the planned activities in the Yam Tethys Project, constitute forward looking information, which is based on preliminary evaluations by the general partners in the partnerships in respect of the costs of components of the project, which are based on evaluations that they received from the operator. The actual timetables and costs may be different from the abovementioned evaluations and they are conditional, inter alia, on the completion of the detailed planning of the components of the project that have not yet been executed, on the receipt of proposals from contractors, on changes in the suppliers' market and in the global market for raw materials, such as metals, and on the execution, if at all, of development jointly with additional parties and etcetera. Disclosure on the subject of the effective participation rate in the expenses and the income in the Yam Tethys Project The Ashkelon Lease

Rate grossed up to 100% after the return of the Participation rate Percentage investment Explanations The effective share of the oil 30.81% 100% asset that is attributed to the Company The effective share of the 27.55% 89.42% See the income from the oil asset that is calculation in attributed to the Company section C below The effective share expenses 31.07% - 31.12% 100.85%-101% See the involved in the exploration, calculation in development or production section D below expenses for the oil asset that is attributed to the Company

The Noa Lease

Rate grossed Rate grossed Percentage up to 100% up to 100% before-after the before the after the return return of the return of the of the Participation rate investment investment investment Explanations The effective share of the oil 30.81% 100% 100% asset that is attributed to the Company The effective share of the 26.91% - 27.52% 87.34% 89.32% See the income from the oil asset that is calculation in attributed to the Company section C' below The effective share expenses 31.07% - 31.12% 100.85%-101% 100.85%-101% See the involved in the exploration, calculation in development or production section D' below expenses for the oil asset that is attributed to the Company

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C. Note on the calculation of the effective share of the income in the Yam Tethys project that is attributed to the holders of the Capital rights in the Company

The Ashkelon Lease Abbreviated explanation as to how the royalties or the payments are calculated (including the deduction of expenses and other items) (as well as a reference Item Percentage to the description of the agreement) Theoretical annual income of the oil 100% asset after the discovery (%) Details of the royalties or the payments (which are derived from the income after the discovery) at the level of the oil asset * The state 11.21% Calculated in accordance with the wellhead price, in other words, expenses relating to the transportation from the platform and to the point where the gas is delivered on the Ashdod shoreline are deducted from the 12.5% The seller of the oil right - In accordance with the agreement between Delek Investments and RB, an overriding royalty is due of 0.7% from any oil or gas and the other hydro-carbons that are produced from new discoveries as defined in that agreement. The Avner Partnership and the Delek Drilling Partnership have acquired 1.89% and 1.61% respectively and Delek Investments has acquired 4.41% of the rights – 15% which were acquired from RB. Total 11.21% The income that is adjusted at the level 88.79% of the oil asset The share of the adjusted income from 30.81% the oil asset (in a chain) that is attributed to the holders of the capital rights in the reporting entity The holders of the capital rights in the 27.36% reporting entity's overall share of the effective income, at the level of the oil asset (and before the other payments at the level of the reporting entity The holders of capital rights in the 2.572% reporting entity's share of the income as the result of the receipt of additional royalties from the asset Details of the royalties or payments (which are derived from the income after the discovery) in connection with the oil asset at the level of the reporting entity At the level of the reporting entity: The holders of the capital rights in the 0.0407% An overriding royalty at a rate of 0.25% reporting entity's share of the payment from the share of the affiliated partnership to [other provider of services who in the project is paid to the owners of the collects the payment at the level of the royalty less wellhead expenses in reporting entity] accordance with the rate that is used in the calculation of the royalties for the state.

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The Ashkelon Lease Abbreviated explanation as to how the royalties or the payments are calculated (including the deduction of expenses and other items) (as well as a reference Item Percentage to the description of the agreement) The holders of the capital rights in the 2.3372% In the Delek Drilling Partnership – reporting entity's share of the payment overriding royalties at a rate of 3% until the to [a general partner- other provider of repayment of the investment and of 13% services who collects the payment at after the return of the investment is paid to the level of the reporting entity] the owners of the royalty and less wellhead expenses in accordance with the rate that is used in the calculation of the royalties for the state. The Avner Partnership – overriding royalties at a rate of 6% is paid to the owners of the royalty and less wellhead expenses in accordance with the rate that is used in the calculation of the royalties for the state. ======The effective share that is attributed to 27.55% the holders of the capital rights in the reporting entity in the income from the oil asset.

The Noa Lease Abbreviated explanation as to Percentage how the royalties or the payments up to the after the are calculated (including the return of return of deduction of expenses and other the the items) (as well as a reference to Item investment investment the description of the agreement) Theoretical annual income of 100% 100% the oil asset after discovery (%) Details of the royalties or payments (which are derived from the income after the discovery) at the level of the oil asset The State 11.21% 11.21% Calculated in accordance with the wellhead price, in other words, expenses relating to the transportation from the platform and to the point where the gas is delivered on the Ashdod shoreline are deducted from the 12.5% The seller of the oil right - - In accordance with the agreement between Delek Investments and RB, an overriding royalty is due of 0.7% from any oil or gas and the other hydro-carbons that are produced from new discoveries as defined in that agreement. The Avner Partnership and the Delek Drilling Partnership have acquired 1.89% and 1.61% respectively and Delek Investments has acquired 4.41% of the rights – 15% which were acquired from RB. Total 11.21% 11.21% The income that is adjusted at 88.79% 88.79% the level of the oil asset

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The Noa Lease Abbreviated explanation as to Percentage how the royalties or the payments up to the after the are calculated (including the return of return of deduction of expenses and other the the items) (as well as a reference to Item investment investment the description of the agreement) The share of the adjusted 30.81% 30.81% income from the oil asset (in a chain) that is attributed to the holders of the capital rights in the reporting entity The holders of the capital rights 27.36% 27.36% in the reporting entity's overall share of the effective income, at the level of the oil asset (and before the other payments at the level of the reporting entity) The holders of capital rights in the 0.5776% 2.503%% reporting entity's share of the income as the result of the receipt of additional royalties from the asset Details of the royalties or payments (which are derived from the income after the discovery) in connection with the oil asset at the level of the reporting entity At the level of the reporting entity: The holders of the capital rights 1.0258% 2.3359% In the Delek Drilling Partnership – in the reporting entity's share of overriding royalties at a rate of 3% the payment to [a general until the repayment of the investment partner/ other provider of and of 13% after the return of the services who collects the investment is paid to the owners of the payment at the level of the royalty and less wellhead expenses in reporting entity] accordance with the rate that is used in the calculation of the royalties for the state. In the Avner Partnership – overriding royalties at a rate of 6% is paid to the owners of the royalty and less wellhead expenses in accordance with the rate that is used in the calculation of the royalties for the state. ======The effective share that is 26.91% 27.52% attributed to the holders of the capital rights in the reporting entity in the income from the oil asset.

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D. Note on the calculation of the effective share of the exploration, development and production expenses in the Yam Tethys project that is attributed to the holders of the capital rights in the Company The Ashkelon lease

Abbreviated explanation as to how the royalties or the payments are calculated (as well as a reference to the description Item Percentage of the agreement) Theoretical expenses within the 100% framework of the oil asset's work plan (without the said royalties) Details of the payments (which are derived from the expenses) at the level of the oil asset The operator 0.85% - 1% These amounts are in respect of indirect expenses and they are in addition to the reimbursement of the direct expenses that are paid to the operator. The rate of the payment to the operator goes down as the development expenses increase, and it ranges between 0.85% and 1.0%. The rate that has been taken for the purposes of the calculation of the effective rate of the expenses is 1%. Total effective rate of the expenses at 100.85% - the level of the oil asset 101% The share of the expenses for the oil 30.81% asset (in a chain) that is attributed to the holders of the capital rights in the Company The holders of the capital rights in the 31.07% - Company's overall share of the 31.12% effective expenses rate, at the level of the oil asset (and before the other payments at the level of the Company) At the level of the Company Details of the payments (which are derived from the expenses) in connection with the oil asset and at the level of the Company: The general partner in the Avner In accordance with the Partnership Partnership Agreement, the general partner is entitled to the higher of 7.5% of the affiliated partnership's exploration expenses or 40 thousand Dollars a month on a quarterly calculation. The effective share of the expenses 31.07% - that are involved in the exploration and 31.12% development expenses for the oil asset that is attributed to the partnership

The Noa lease

Abbreviated explanation as to how the royalties or the payments are calculated Percentage (including the deduction of expenses and other items) (as well as a reference Item Min Max to the description of the agreement) Theoretical expenses within the 100% framework of the oil asset's work plan (without the said royalties) Details of the payments (which are derived from the expenses) at the level of the oil asset

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Abbreviated explanation as to how the royalties or the payments are calculated Percentage (including the deduction of expenses and other items) (as well as a reference Item Min Max to the description of the agreement) The operator 1% These amounts are in respect of indirect expenses and they are in addition to the reimbursement of the direct expenses that are paid to the operator. The rate of the payment to the operator goes down as the development expenses increase, and it ranges between 0.85% and 1.0%. The rate that has been taken for the purposes of the calculation of the effective rate of the expenses is 1%. Total effective rate of the expenses at 100.85% - the level of the oil asset 101% The share of the expenses for the oil 30.81% asset (in a chain) that is attributed to the holders of the capital rights in the Company The holders of the capital rights in the 31.07% - Company's overall share of the 31.12% effective expenses rate, at the level of the oil asset (and before the other payments at the level of the Company) At the level of the Company Details of the payments (which are derived from the expenses) in connection with the oil asset and at the level of the Company: The general partner in the Avner In accordance with the Partnership Partnership Agreement, the general partner is entitled to the higher of 7.5% of the affiliated partnership's exploration expenses or 40 thousand Dollars a month on a quarterly calculation. The effective share of the expenses 31.07% - that are involved in the exploration and 31.12% development expenses for the oil asset that is attributed to the partnership

E. Royalties and payments that have been paid in the course of the exploration, development and production activities for the oil asset

The Ashkelon Lease Item The holders of the Of which the holders Of which the holders capital rights in the of the capital rights of the capital rights in Company’s overall in the Company’s the Company’s share in the overall share of the overall share of the investment in the oil payments to the payments to the asset in the period1 general partner operator The budget that was 11,934 28 160 actually invested in the year 2008 (including the said payments) The budget that was 15,736 28 198 actually invested in the year 2009 (including the said payments)

1 Including costs (exploration, production and so on) in respect of which payments are paid to the operator.

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The budget that was 39,506 28 378 actually invested in the year 2010 (including the said payments)

The Noa Lease Item The holders of the Of which the holders Of which the holders capital rights in the of the capital rights of the capital rights in Company’s overall in the Company’s the Company’s share in the overall share of the overall share of the investment in the oil payments to the payments to the asset in the period general partner operator The budget that was 102 0 0 actually invested in the year 2008 (including the said payments) The budget that was 67 0 0 actually invested in the year 2009 (including the said payments) The budget that was 0 0 0 actually invested in the year 2010 (including the said payments)

F. Reserves in the Yam Tethys Project 1. The Mari –B field 2. Quantitative data In accordance with reports that have been received from the company Netherland and Sewell & Associates (hereinafter: "NSAI"), and which have been prepared in accordance with the principles of the Petroleum Resources Management System (SPE-PRMS), the natural gas reserves in the "Mari B" field, are classified as on production reserves and as of December 31, 2010, they are as detailed below:

Total (Gross) in the oil The Company’s net share in Categories of the reserves asset (MMCF) the chain1 (MMCF) Proved Reserves P1 359,481 110,720 Probable Reserves 22,000 6,766 P2 reserves (Proved and 381,481 117,450 Probable Reserves) Possible Reserves 22,000 6,766 P3 reserves (Proved + 403,481 124,272 Probable + Possible Reserves)

Possible reserves are the additional reserves that are not expected to be produced to the same degree as the probable reserves. There is a 10% chance that the quantities that will actually be produced will be equivalent to or higher than the proved reserves, with the addition of the quantity of the probable reserves and with the addition of the quantity of the possible reserves. Inter alia, the NSAI report note a number of assumptions and qualifications, including: (1) The evaluations

1 The calculation of the Company's share in the chain has not been included in the reserves report and it has been calculated in accordance with the share that is attributed to the holders of the capital rights of the Company in the oil asset – 30.81%, before the payment of royalties.

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have not been adjusted to the risk profile; (2) it did not carry out a visit to the oil field and neither did it check the mechanical operational state of the facilities and the wells; (3) it has not examined the possible exposure deriving from environmental matters and accordingly it has not included costs in connection with the said exposure in the evaluation; and (4) the evaluation does not take the value of the facilities as dismantled or the costs of abandoning the field into account. Moreover, in relation to the calculation of the discounted reserves, NSAI noted, inter alia, that (1) the calculation was prepared on the basis of prices that were provided to them by the partnership, based on the weighted average of the contractual gas prices, which were calculated on the basis of a formula with a ceiling and contractual prices that were calculated in accordance with a formula that does not include a ceiling, as they were on 31.12.2010. In the calculation of the weighted average, the partners have assumed that in contracts in which the price formula includes a ceiling on the price, that the price that will be received for the gas will be the ceiling price and in the contracts in which the price formula does not include a price ceiling, the price will be the price that is expected in a hedging transaction; (2) the operating costs that have been taken into account have been calculated on the basis of Noble's operating costs report, which only includes direct costs and does not include overhead expenses and Noble's administrative and general expenses; (3) investments have been included in accordance with the expectation that there will be a refurbishment of the wells and of the production equipment (work over); and (4) the quantities have been calculated on the basis of the same quantities that were sold in the year 2010, as follows: BCM 3.2 in each of the years 2011 – 2012, BCM 3 in the year 2013 and BCM 0.8 in the year 2014. Warning in respect of forward looking information – NSAI's evaluations in respect of the natural gas reserves, constitute forward looking information. The above evaluations are based, inter alia, on geological, geophysical and other information, which has been received from the drillings and from the operator of the lease and they lie solely within the bounds of professional estimates and evaluations by NSAI alone and there can be no certainty in respect of them. The quantities of natural gas, which will actually be produced, may be different from the abovementioned estimates and evaluations, inter alia, as the result of the technical, operational conditions and/or as a result of regulatory changes and/or a as a result of the supply and demand conditions in the natural gas market and/or the actual performance of the field. The Company has not carried out an independent evaluation or check of the data that it has been provided with, as aforesaid, however in the light of NSAI's status, as one of the leaders in the field of the execution of the evaluations of resources and reserves in oil and natural gas fields, the Company has no reason to doubt the correctness of the conclusions in the report. The abovementioned evaluations and estimates may be updated in so far as additional information becomes available and/or as the result of a range of factors that are connected to projects in respect of the exploration for and production of oil and natural gas, including as the result of the continuing production from the field and as a result of operational conditions and/or the conditions in the market and/or the regulatory conditions. The Company declares that all of the above date has been prepared in a manner that accords with the Petroleum Resources Management System (SPE- PRMS). Discounted cash flow data The following table presents the discounted cash flows in thousands of USD (after taxation), which are only attributed to Delek Drilling's share of the reserves in the "Mari B" field, for each of the categories of the reserves that are detailed above:

Discounted Discounted Discounted Discounted Discounted Discounted Categories of by 0% by 5% by 10% by 15% by 20% by 10% reserves before tax before tax before tax before tax before tax after tax Total P1 Proved 269,522.4 249,799.7 232,754.7 217,906.9 204,879.5 185,916.1 Reserves on production Probable Reserves 13,790.7 11,786.5 10,150.0 8,800.7 7,679.0 8,227.4

Total P2 type 283,313.1 261,586.2 242,904.7 226,707.6 212,558.5 194,143.5 reserves (Proved + Probable

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Reserves)

Possible Reserves 11,385.4 9,503.7 8,002.3 6,791.9 5,806.5 6,531.6

Total P3 reserves 294,698.5 271,089.9 250,907.0 233,499.5 218,365.0 200,675.1 (Proved + Probable+ Possible Reserves)

The following are details of the discounted cash flows (in thousands of USD) which is attributed to Delek Drilling alone for each of the categories of reserves that are detailed above at a discount rate of 10%:

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Total Discounted Cash Flows From Proved Reserves as of December 31, 2010 Components of the Cash Flows Abandonment Total Total and discounted discounted Operating Development rehabilitation cash flows cash flows Income Royalties costs costs costs before tax Taxes after tax Comments 2011 124,184.8 28,314.1 6,375.0 5,100 - 80,305.5 17,656.0 63,072.6 - 2012 124,935.2 28,485.2 6,375.1 - - 78,090.1 17,031.3 62,661.1 - 2013 114,540.0 26,115.1 6,374.8 - - 64,828.3 14,818.5 52,344.5 - 2014 22,891.1 5,219.2 4,670.0 - 1- 9,530 2,112.7 7,837.9 - Total 386,551.1 88,133.6 23,794.9 5,100 - 232,753.9 51,618.5 185,916.1 -

Total Discounted Cash Flows From Probable Reserves as of December 31, 2010 Components of the Cash Flows Abandonment Total Total and discounted discounted Operating Development rehabilitation cash flows cash flows Income Royalties costs costs costs before tax Taxes after tax Comments 2011 ------2012 ------2013 6,166.3 1,405.9 - - - 3,613.5 873.4 2,902.1 - 2014 13,487.2 3,073.7 1,377.1 - - 6,536.5 1,533.0 5,325.3 - Total 19,653.5 4,479.6 1,377.1 - - 10,150.0 2,406.4 8,227.4 -

1 The abandonment and rehabilitation costs have been calculated at zero since Tamar's development plan is based on the use of the Yam Tethys facilities, and therefore in those years no cash flows are expected in respect of abandonment.

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Total Discounted Cash Flows From Possible Reserves as of December 31, 2010 Components of the Cash Flows Abandonment Total Total and discounted discounted Operating Development rehabilitation cash flows cash flows Income Royalties costs costs costs before tax Taxes after tax Comments 2011 ------2012 ------2013 263.5 60.1 - - - 153.5 37.3 123.2 - 2014 10,892.2 2,483.4 327.8 - - 5,763.8 1,403.8 4,671.1 - 2015 7,109.2 1,620.9 2,387.5 - - 2,085.2 459.8 1,737.2 -

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Warning – It should be clarified that the discounted cash flow figures, whether they have been calculated at a specific discount rate or whether they have been calculated without a discount rate, represent the present value but not necessarily the fair value. Production data The following are production date for the "Mar- B" field, which are attributed to Delek Drilling alone1.

2010 2009 2008 Total production in the period (in MMCF) 22,400 19,600 23,900 Average price per unit of production 4.03 3.47 3.1 (which is attributed to the partnership's share)(in thousands of USD per MMCF) The average royalties (every payment 1.21 1.05 0.87 that is derived from the produce from the producing asset including from the gross income from the oil asset) that were paid per production unit (which are attributed to the partnership's share) (in thousands of USD per MMCF) Average production costs per unit of 0.33 0.30 0.23 production (which are attributed to the partnership's share) (in thousands of USD per MMCF) Net average receipts per unit of 5.27 3.99 4.07 production (which are attributed to the partnership's share) (in thousands of USD per MMCF) Exhaustion rate in the reporting period in 23.0 16.7 16.9 relation to the overall quantity of gas in the reserve (as a percentage)2

A reserves report as of December 31, 2010, which has been prepared by NSAI, is attached to this report by way of a referral to the reserves report that is attached as Appendix A' to the periodic report of the Delek Drilling Partnership for the year 2010, which was published on 31.3.2011 (Document No. 2011-01-101625). Contingent resources in the South Noa field In accordance with a report that has been received from the NSAI company, which have been prepared in accordance with the principles of the Petroleum Resources Management System (SPE-PRMS), the contingent resources in the Noa lease as of December 31, 2010, are as detailed below (The NSAI report differentiates between two reserves in the Noa lease, which are called "Noa" and "Noa South"):

1 Without depreciation, amortization and administrative and general expenses. 2 The exhaustion rate is the percentage of the gas that is produced in a year out of the overall proved and expected reserves as the beginning of that year.

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Noa

Total in the oil The Company’s net asset (Gross) share in a chain1 Category of the conditional resources (MMCF) (MMCF) The low quantitative estimate 77,500 23,870 (1C – Low Estimate) The best quantitative estimate 83,600 25,748 (2C – Best Estimate) The highest quantitative estimate 88,900 27,386 (3C – High Estimate)

Noa South Reserve

Total in the oil The Company’s net asset (Gross) share in a chain2 Category of the contingent resources (MMCF) (MMCF) The low quantitative estimate 37,700 11,396 (1C – Low Estimate) The best quantitative estimate 40,800 12,566 (2C – Best Estimate) The highest quantitative estimate 43,500 13,398 (3C – High Estimate)

The contingent resources that are detailed above are classified as being in the development on hold stage, and they are conditional upon the approval of the overall project, an approved development plan and on reasonable expectations in respect of the sale of the gas. It should be noted that since at there is no approved development plan for the Noa lease at this stage, in accordance with the principles of the Petroleum Resources Management System (SPE- PRMS), the resources are classified as conditional and not as reserves as they were classified in the reserves report, which was prepared in the year 2001. Moreover, it should be noted that the evaluation of the resources according to NSAI is lower than what appeared in the previous reserves report, and this is primarily because different assumptions were used in respect of the thickness of the layers and the overall size of the reserve. Warning – there can be no certainty that it will be possible from a commercial perspective to produce any part whatsoever of the contingent resources. Inter alia, the NSAI report notes a number of assumptions and qualifications, including that: (1) the evaluations have not been adjusted in order to reflect the commercial risks; (2) it did not visit the oil field; (3) it did not examine the possible exposure deriving from environmental matters; and also (4) the resources are in undeveloped areas and accordingly they are based on assessments in respect of the size of the reserve and the recovery efficiencies, with an analogy to reserves with similar geological characteristics as those of the reserve in question. Warning in respect of forward looking information – NSAI's evaluations in respect of the contingent resources of the Noa and Noa South natural gas reserves, constitute forward looking information. The above evaluations are based, inter alia, on geological, geophysical and other information, which has been received from the drillings and from the operator of the lease and they lie solely within the bounds of professional estimates

1 The calculation of the Company's share in the chain is not included in the reserves report and it has been calculated in accordance with the share that is attributed to the holders of the Company's capital rights in the oil asset- 30.81%, before the payment of royalties. 2 The calculation of the Company's share in the chain is not included in the reserves report and it has been calculated in accordance with the share that is attributed to the holders of the Company's capital rights in the oil asset- 30.81%, before the payment of royalties.

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and evaluations by NSAI alone and there can be no certainty in respect of them. The quantities of natural gas, which will actually be produced, may be different from the abovementioned estimates and evaluations, inter alia, as the result of the technical, operational conditions and/or as a result of regulatory changes and/or a as a result of the supply and demand conditions in the natural gas market and/or the actual performance of the field. The Company has not carried out an independent evaluation or check of the data that it has been provided with, as aforesaid, however in the light of NSAI's status, as one of the leaders in the field of the execution of the evaluations of resources and reserves in oil and natural gas fields, the Company has no reason to doubt the correctness of the conclusions in the report. The abovementioned evaluations and estimates may be updated in so far as additional information becomes available and/or as the result of a range of factors that are connected to projects in respect of the exploration for and production of oil and natural gas, including as the result of activities directed at the development of the field, if any are carried out and as a result of operational conditions and/or the conditions in the market and/or the regulatory conditions. The partnership in the Noa lease is examining the possibility of developing the Noa and Noa South gas fields with the objective of enabling the supply of additional natural gas for the Israeli economy until such time as the production of the natural gas from Tamar is commenced. In the Delek Drilling Partnership's assessment, development, as aforesaid, is expected to include the sub-sea completion of Noa and Noa South and their connection to Yam Tethys' production platform, involving an overall cost (in respect of 100% of the rights) that could amount to approximately USD 200 million (on the assumption that there will be no participation in the costs on the part of additional bodies). The partners in the Yam Tethys project are examining the possibility of cooperation with the BG Group, in connection with the joint development of the "Noa South" field, part of which apparently stretches over the maritime border of the Gaza Strip and for which BG is the operator in that field1. Warning in respect of forward looking information – the Delek Drilling Partnership's evaluations as aforesaid on the subject of the costs and the timetables, constitute forward looking information, which is based on preliminary evaluations by the partnership in respect of the costs of components of the project, which are based on evaluations that the partnership received from the operator. The actual timetables and costs may be different from the abovementioned evaluations and they are conditional, inter alia, on the completion of the detailed planning of the components of the project that have not yet been executed, on the receipt of proposals from contractors, on changes in the suppliers' market and in the global market for raw materials, such as metals, and on the execution, if at all, of development jointly with other parties, as aforesaid, and etcetera. The Company declares that all of the above date has been prepared in a manner that accords with the Petroleum Resources Management System (SPE- PRMS). A reserves report as of December 31, 2010, which has been prepared by NSAI, is attached to this report by way of a referral to the reserves report that is attached as Appendix B' to the periodic report of the Delek Drilling Partnership for the year 2010, which was published on March 31, 2011 (Document No. 2011-01-101625). G. The joint operating agreement: The exploration and production operations within the framework of the leases in the Yam Tethys project are conducted within the framework of a joint operating agreement or JOA dated February 24, 1999, the parties to which are the limited partnerships and the other partners in the Yam Tethys project, as detailed below. In accordance with the joint operating agreement, Noble was appointed as the operator of the Yam Tethys project. Noble is a (non-direct) subsidiary company of Noble Energy Inc., which is an American oil corporation that operates in the field of the exploration for and the production of oil and natural gas. Nobel Energy Inc. is a public company whose shares are traded on the New York Stock Exchange (NYSE) under the symbol "NBL".

1 Moreover, it is possible that the possibility of connecting the "Or" field to the production system that will connect Noa and Noa South to the production platform will be examined, in the event that the owners of the field reach the conclusion that there is economic justification for its development.

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H. The provisions of the joint operating agreement deal, inter alia, with the following subjects: 1. Noble will be the operator in accordance with the joint operating agreement and it will be solely responsible for the management of the joint operations. Duties are placed on Noble in respect, inter alia, of the compliance with the directives issued by the operations committee, agreements, licenses and the law, in the management of the joint operations. 2. The operator will determine the number of employees, it will select them and it will determine their working hours and the consideration that will be paid to them in connection with the joint operations. 3. Provisions have been determined in connection with the indemnification and the restriction of the responsibility of the operator, its office holders and its related companies, in respect of the fulfillment of its role as operator, in accordance with which the operator is entitled to indemnification for any damage, expense or responsibility that is placed upon it in connection with the fulfillment of its role as operator (except in exceptional cases of multiple negligence by its senior employees, in which the indemnification will apply for any damages, expenses or responsibility in excess of USD one million as detailed in the joint operating agreement. 4. The operator is entitled to be reimbursed for any direct expenses that have been expended in connection with the fulfillment of its role as operator as well as to a reimbursement of its indirect expenses, which are derived as a percentage of the joint venture, ranging between 1% of the expenses of the venture, where the expenses relating to the venture are in excess of USD12 million on an annual based calculation and up to 4% of the expenses of the venture, where the expenses relating to the venture are up to USD 4 million on an annual based calculation. In connection with expenses that are related to the development and production activities for the Yam Tethys project, it has been agreed between the parties that in respect of development and production expenses in the period from January 1, 2004, the operator will be paid an amount that is equivalent to 1% for a volume of expenses of USD 20 million and it will be paid 0.85% in respect of expenses over and above that amount in respect of indirect expenses. 5. A duty of protection and indemnification has been determined for the operator from the part of the parties to the joint operating agreement in accordance with their participation rates in the Yam Tethys licenses. The operator's responsibility is qualified in certain cases such as cases in which it operated in a manner that demonstrate multiple negligence. 6. Avner Oil and Gas Ltd. has been appointed as the Israeli operator for the fulfillment of tasks, functions, roles and services in Israel for the benefit of the joint operations, and this is to be subject to and in coordination with Noble. The consideration in respect of these services is immaterial. 7. The operations committee: the parties have set up an operations committee within the framework of the agreement, whose authorities and role is to approve and to supervise the joint operations, which are required or necessary for the fulfillment of the terms of the licenses that the joint operating agreement applies to. The operations committee is comprised of representatives of the parties, with each representative having voting rights in accordance with the rights of the party that they represent. Unless it is determined otherwise in the joint operating agreement, all of the decisions, approvals and other activities of the operations committee in respect of any proposal that is presented to it, will be decided by a positive vote of two or more parties (who are not related/ affiliated parties) who together hole at least 51% of the overall participation rights in the area covered by the license to which the decision applies, at the time of the vote.

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1.11.4 The Tamar project A. General The Tamar Lease

General details in respect of the oil asset Name of the oil asset: I/12 Tamar1 Location: Maritime asset approximately 100 km West of the Haifa shoreline Area: Approximately 250 square meters Type of the oil asset and description of the Lease permitted activities for that sort: The activities that are permitted under the Petroleum law – Exploration and Production Date of the original granting of the oil December 2, 2009 asset: Date of the original expiry of the oil asset: December 1, 2038 The dates on which decisions were taken - to extend the period of the oil asset: The current date on which the oil asset will December 1, 2038 expire: Note whether there is an additional Subject to the Petroleum law for an additional 20 possibility of extending the period of the years oil asset: if there is such a possibility – note the period of the possible extension: Note the name of the operator: Noble 2 Note the names of the direct partners in (1) Noble (36%) . the oil asset and their direct shares in the (2) Isramco Negev 2, Limited Partnership oil asset, and also, to the best of Delek ("Isramco") (28.75%). To the best of the Energy's knowledge, the names of the Company's knowledge, the general partner in controlling interests in the said partners Isramco, Isramco Oil and Gas Ltd., is a private company that is directly controlled by Mr. Haim Tsuff3. (3) Delek Drilling Partnership (15.625%)4; (4) Avner Partnership (15.625%)5; (5) Dor Gas Exploration, Limited Partnership (4%). To the best of the Company's knowledge, the general partner in Dor Gas Exploration, Alon Natural Gas Exploration Ltd. is a private company the controlling interest in which is the Alon Israel Oil Company Ltd.

1 The Tamar gas reservoir was discovered in the area covered by the Tamar Lease in the year 2009. 2 See section 1.11.3 (A) for the names of the controlling interests. 3 As of 10.1.2011 the entities that are controlled by Mr. Chaim Tsuff hold 3,670,628,344 participation units in Isramco, constituting 32.35% of the overall quantity of participation units that have been issued. Moreover, it should be noted that Mr. Haim Tsuff has a direct holding of 49,102,115 participation units in Isramco, constituting 0.43% of the overall quantity of participation units that have been issued. 4 See section 1.11.1 (D) above for the names of the controlling interests. 5 See section 1.11.1 (D) above for the names of the controlling interests.

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General details in respect of the Company's share in the oil asset Note the date of the acquisition of the holding -1 in the oil asset that was acquired: Description of the nature and the manner Through its direct holdings and its holdings in the of the Company’s holding in the oil asset: participation units of the Delek Drilling Partnership and the Avner Partnership Note the effective share that is attributed 16.941% to the holders of the Company's capital rights in the oil asset: The overall share of the holders of the USD 116,055 thousand2 Company’s capital rights in the cumulative investment in the oil asset during the course of the five years that preceded the last day of the reporting year (whether recognized as an expense or as an asset in the financial statements):

Dalit

General details in respect of the oil asset Name of the oil asset: I/13 Dalit3 Location: Approximately 50 km West of the Haifa shoreline Area: Approximately 250 square meters Type of the oil asset and description of the Lease permitted activities for that sort: The activities that are permitted under the Petroleum law – Exploration and Production Date of the original granting of the oil December 2, 2009 asset: Date of the original expiry of the oil asset: December 1, 2038 The dates on which decisions were taken - to extend the period of the oil asset: The current date on which the oil asset will December 1, 2038 expire: Note whether there is an additional Subject to the Petroleum law – for an additional 20 possibility of extending the period of the years. oil asset: if there is such a possibility – note the period of the possible extension: Note the name of the operator: Noble Note the names of the direct partners in (1) Noble (36%)4. the oil asset and their direct shares in the (2) Isramco5. oil asset, and also, to the best of the (3) Avner (15.625%)6; Company’s knowledge, the names of the (4) Delek Drilling Partnership (15.625%)7; controlling interests in the said partners (5) Dor Gas Exploration, Limited Partnership(4%)8

1 The leases were granted to the partnership on 2.12.2009 following the "Tamar" and "Dalit" natural gas discoveries that were discovered in 2009 in the 309/ "Matan" and 308/ "Michal" licenses. Most of the licenses were acquired by the partnership in the year 2006 from third parties for no consideration. 2 Correct as of December 31, 2010. 3 The Dalit gas reservoir was discovered within the area of the Dalit Lease in 2009. 4 See section 1.11.3 (A) for the names of the controlling interests. 5 See the details that appear above in respect of the Tamar lease for the names of the controlling interests 6 See section 1.11.1 (D) above for the names of the controlling interests. 7 See section 1.11.1 (D) above for the names of the controlling interests. 8 See section 1.11.4 (A) (the Tamar Lease) above for the names of the controlling interests.

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General details in respect of the Company's share in the oil asset Note the date of the acquisition of the -1 holding in the oil asset that was acquired: Description of the nature and the manner Through its direct holdings and its holdings in the of the Company’s holding in the oil asset: participation units of the Delek Drilling Partnership and the Avner Partnership Note the effective share that is attributed 16.941% to the holders of the Company's capital rights in the oil asset: The overall share of the holders of the USD 9,726 thousand2 Company’s capital rights in the cumulative investment in the oil asset during the course of the five years that preceded the last day of the reporting year (whether recognized as an expense or as an asset in the financial statements):

B. The terms that were set in the Tamar and Dalit leases are almost identical, and they include, inter alia, provisions on the following main subjects: The holders of the leases and their holding rates in each of the leases, as detailed above; a determination that the holders of the leases are not to replace the operator except by a company that has been approved by the Commissioner, in advance and in writing; the area of each of the leases is 250 square kilometers, which has been selected out of the areas covered by the licenses in which the leases have been given; the extent of the lease and the duties of the holder of the lease; the period of the lease is from 2.12.2009 and until 1.12.2038, and is divided into the development period, during the course of which the holder of the lease is to carry out all of the activities that are required for the purpose of reaching the commercial production stage, and the commercial production stage, which is the period from the end of the development and until the end of the period of the lease, during the course of which the holder of the lease is to carry out the commercial production from the area covered by the lease subject to the provisions of the lease documentation; sale to consumers in Israel; duties on the part of the holder of the lease in respect of the construction of the production system and the transportation system, in a manner that will enable an overall commercial production capacity from the area covered by both of the leases, which is not to fall below 7 billion cubic meters of natural gas a year from the beginning of the commercial production period and subject to the provisions of the lease documentation; a duty in the part of the holder of the lease to operate in accordance with timetables in respect of the achievement of the development plan for the production system, for the construction of the transportation system and for the construction of the reception facility, and in respect of the commencement of the construction of all of the aforesaid; a commitment with a supervision company that is to supervise the planning and the construction of the production system; conditions relating to commercial production' the storage of natural gas; provisions in respect of the cancellation or the restriction of the lease' provisions in respect of the abandonment of the production system facilities; the presentation of bank guarantees as collateral for the compliance with the lease documents, which is to be in force for the length of the entire period of the lease and for a period of two years after the time at which the period of the lease ends for any reason whatsoever, and terms for their exercise. C. The main activities that have been carried out in the Tamar Project and the activities that are planned The following is an abbreviated description of the main activities that have actually been performed in the Tamar project since 1.1.2008 and up to the time of this report, as well as an abbreviated description of the planned activities:

1 The leases were granted to the partnership on 2.12.2009 following the "Tamar" and "Dalit" natural gas discoveries that were discovered in 2009 in the 309/ "Matan" and 308/ "Michal" licenses. Most of the licenses were acquired by the partnership in the year 2006 from third parties for no consideration. 2 Correct as of 31.12.2010.

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The Tamar Lease The overall actual cost/ the estimated The Company's overall budget for effective share Abbreviated description of the activities operations at the of the cost/ actually performed for the period/ an level of the oil budget (in abbreviated description of the planned asset (in thousands of Period work program thousands of USD)1 USD) 2008 On 18.11.2008 the drilling works on the 70,340 11,916 "Tamar 1" drilling were started. 2009 On 12.1.2009 the "Tamar 1" drilling 175,724 29,769 reached a final depth of approximately 4,900 meters and ended in the discovery of the Tamar reserve. On 27.4.2009 the drilling work on the "Tamar 2" drilling began, approximately 5.5 kilometers to the North of the "Tamar 1" drilling and which was performed in the lower part of the Tamar structure, the objective of which was, inter alia, the verification of the data in respect of the qualities of the reserve and the continuation of the structure. On 1.7.2009 the drilling reached a final depth of approximately 5,145 meters. On 6.3.2009 the drilling works on the "Dalit 1" drilling were started. On 25.3.2009 the "Dalit 1" drilling reached a final depth of approximately 3,660 meters and ended in the discovery of the "Dalit" reserve. 2010 The planning works and the purchase of 434,221 73,561 the equipment for the development of the Tamar reserve (for additional details in respect of the development of the natural gas field in the Tamar project, see the section that follows. 2011 The development of the Tamar reserve on 1,393,000 235,988 an outline of five production drillings, a double 16" pipeline, in which the natural gas will flow from the field to the production platform, which will be built close to the location of the existing platform of the "Yam Tethys" project, from which it will be transported in the existing pipeline to Yam Tethys' reception facility in Ashdod, which will be upgraded.* For additional details in respect of the planned development program for the Tamar project, see section 1.11.4 C below. 2012 Ditto 957,000 162,125 2013 and Ditto 69,000 11,689 thereafter * Of which an amount of approximately USD 40,440 thousand has been estimated (the entity's share of which is 6,806 thousand Dollars) which were invested from 1.1.2011 to 28.2.2011.

1 The amounts for the years 2008 – 2010 are amounts that have actually been expended.

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The Tamar Lease The overall actual cost/ the estimated The Company's overall budget for effective share Abbreviated description of the activities operations at the of the cost/ actually performed for the period/ an level of the oil budget (in abbreviated description of the planned asset (in thousands of Period work program thousands of USD)1 USD) 2008 - - 2009 On 6.3.2009 the drilling works on the "Dalit Approximately 1" drilling were started. On 25.3.2009 the 57,208 9,692 "Dalit 1" drilling reached a final depth of approximately 3,660 meters and ended in the discovery of the "Dalit" reserve. 2010 - - - 2011-2013 No work plan has yet been set for this period

The planned development program in the Tamar project On August 10, 2010 the Ministry of National Infrastructure announced that the Minster of National Infrastructure had given approval for the partners in the Tamar project to develop the "Tamar" gas field on an outline of a double pipeline, in which the natural gas will flow from the field to the production platform, which will be built adjacent to the "Yam Tethys" project's existing platform and from which the gas will flow in the existing pipeline to the "Yam Tethys" project's existing reception facility at Ashdod, which will be expanded so as to be able to handle the gas. On August 18, 2010 the Commissioner informed Noble that he was approving its application for the development of the "Tamar" reservoir in accordance with the outline that is detailed above. The Commissioner made a further request that Noble should present a program for the development of the reservoir, including the arrangements between the partners in the "Tamar" lease and the holders of the rights in the "Ashkelon" lease, in relation to the use of the pipeline and the reception facilities as well as the on-shore treatment, including the arrangements in respect of storage. During the course of the month of October 2010 a program for the development of the Tamar field was presented to the Commissioner, which was then updated in February 2011 (hereinafter: "the development program"). The development program primarily covers the completion of the Tamar 2 Drilling and the execution of 4 additional drillings (in addition to the existing drillings – "Tamar 1" and "Tamar 2"), and their completion such that all five of the production wells in the Tamar field will be able to produce approximately 200 – 250 million cubic feet of natural gas a day. The gas will flow from the Tamar field through two 16" (sixteen inch) diameter pipelines to the new handling platform which will be constructed opposite the coastline at Ashdod, close to the location of the existing platform for the "Mari-B" reservoir. The natural gas will flow in the existing 30" pipeline from this platform to the "Yam Tethys" project's reception facility in Ashdod, which will be upgraded, such that an initial processing capacity of approximately 1.2 billion cubic feet a day will become possible. The development program will also enable the penetration and the storage of natural gas from the Tamar reserve in the "Mari-B" reservoir and also the expansion of the capacity for supplying the gas, if necessary, and in accordance with the needs of the economy. The overall cost of the development (100%) is estimated at an amount of approximately USD 3 billion. The execution of the development drillings is planned to start after the completion of the drilling works at "Leviathan 1", and will be done using the Sedco Express drilling rig, which is performing the drilling. The running in of the system for the project is expected to start during the course of the fourth quarter of the year 2012, with the objective of starting the commercial supply of gas in the first half of the year 2013. After the completion of the development plan, the pace of the production that is possible from the project is planned to stand at approximately 1,200 million cubic feet a day.

1 The amounts for the years 2008 – 2010 are amounts that have actually been expended.

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It should be clarified that the said development plan (including the overall budget and the timetables) have not yet been presented by Noble for formal approval by the other partners in the Tamar project, and accordingly they have not yet been approved by them. Despite the aforesaid, the partnerships have decided to approve commitments for the purchase of equipment from time to time, as may be required in order to enable the completion on time of the development plan, when it is approved. Out of the overall estimate development cost, as aforesaid, as for the time of this report the limited partnerships have approved commitments for the purchase of equipment and services in an amount of approximately USD 2.2 billion (in respect of 100% of the project). The equipment and the services that have been approved include, inter alia: (1) the planning works; (2) the drilling works and the completion of the five production wells; (3) the development works for the sub-sea systems in the gas field; (4) the ordering of equipment and pipelines for the sub-sea production system; (5) the ordering of contractors services for the construction of the sub-sea systems; (6) the ordering of the pipeline that will connect the gas field to the platform: a 16 inch pipeline; a service pipeline; a command and control pipeline; (7) the ordering of the service pipeline that will connect the platform to the reception facility at Ashdod; (8) a contractor who will lay the pipeline; (9) the planning and the production of the marine platform and the equipment that will be installed on it; (10) the ordering of the transportation services for the platform and its instillation. Warning in respect of forward looking information – the Company’s evaluations as aforesaid on the subject of the costs and the timetables for the planned activities in the Tamar Project, constitute forward looking information, which is based on preliminary evaluations by the general partners in the limited partnerships in respect of the costs of components of the project and the timetables, which are based on evaluations that the general partners received from the operator. The actual timetables and costs may be different from the abovementioned evaluations and they are conditional, inter alia, on the progress of the detailed planning of the components of the project that have not yet been executed, on the receipt of proposals from contractors, on changes in the suppliers' market and in the global market for raw materials, such as metals, and on the execution, of this complex project and etcetera. In continuation of the aforesaid in this section (B), it should be noted that as of the date of this report, negotiations are being conducted between the partners in the Tamar project and the partners in the Yam Tethys project in respect of the commercial arrangements between the partners in all matters relating to the use by the Tamar project of the pipeline and the reception facility in Ashdod, which belong to the Yam Tethys project as well as in respect of the arrangement on the subject of the storage of natural gas by the Tamar project in the "Mari-B" reservoir.

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D. Disclosure on the subject of the effective participation rate in the expenses and the income in the Tamar Project Tamar

Percentage Percentage Rate grossed up Rate grossed up before the after the return to 100% before to 100% after the return of the of the the return of the return of the Participation rate investment investment investment investment Explanations The effective share of the oil asset that is attributed to the 16.941% 16.941% 100% 100% holders of the capital rights of the entity The effective share of the income from the oil asset that 14.67% 15.05% 86.61% 88.84% See the calculation is attributed to the holders of the capital rights of the entity in section E' below The effective share expenses involved in the exploration, 16.941% 16.941% 100% 100% See the calculation development or production expenses for the oil asset that in section F' below is attributed to the holders of the capital rights of the entity

Dalit

Percentage Percentage Rate grossed up Rate grossed up before the after the return to 100% before to 100% after the return of the of the the return of the return of the Participation rate investment investment investment investment Explanations The effective share of the oil asset that is attributed to the 16.941% 16.941% 100% 100% holders of the capital rights of the entity The effective share of the income from the oil asset that is 14.67% 15.05% 86.61% 88.84% See the calculation attributed to the holders of the capital rights of the entity in section E' below The effective share expenses involved in the exploration, 16.941% 16.941% 100% 100% See the calculation development or production expenses for the oil asset that in section F' below is attributed to the holders of the capital rights of the entity

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E. Note on the calculation of the effective share of the income from the Tamar project that is attributed to the holders of the capital rights of the Company

The Tamar Lease Abbreviated explanation as to Percentage Percentage how the royalties or the payments up to the after the are calculated (including the return of return of deduction of expenses and other the the items) (as well as a reference to Item investment investment the description of the agreement) Theoretical annual income of 100% 100% the oil asset after discovery (%) Details of the royalties or payments (which are derived from the income after the discovery) at the level of the oil asset The State 11.21% 11.21% Calculated in accordance with the wellhead price as calculated for the year 2010 (in other words, expenses relating to the transportation from the platform and to the point where the gas is delivered on the Ashdod shoreline are deducted from the 12.5%) ======The income that is adjusted at 88.79% 88.79% the level of the oil asset The share of the adjusted 16.941% 16.941% income from the oil asset (in a chain) that is attributed to the holders of the capital rights in the Company The holders of the capital rights 15.04% 15.04% in the Company's overall share of the effective income, at the level of the oil asset (and before the other payments at the level of the Company) The holders of capital rights in 0.35% 1.53% the Company's share of the income as the result of the receipt of additional royalties from the asset Details of the royalties or payments (which are derived from the income after the discovery) in connection with the oil asset at the level of the Company: At the level of the Company: The holders of the capital rights 0.05% 0.05% Overriding royalties at a rate of in the Company's share of the 1.25% out of 6% is paid to the payment to [a provider of other owners of the royalty after the services who collects the reduction of the royalty to the State payment at the level of the in accordance with the Petroleum Company] Law and less the quantity of the oil that was used for production and less wellhead expenses in accordance with the rate that is used in the calculation of the royalties for the state, the royalty for each partnership (affiliated and consolidated) is at a rate of 0.06%.

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The Tamar Lease Abbreviated explanation as to Percentage Percentage how the royalties or the payments up to the after the are calculated (including the return of return of deduction of expenses and other the the items) (as well as a reference to Item investment investment the description of the agreement) The holders of the capital rights 0.67% 1.47% In the consolidated partnership – in the Company's share of the overriding royalties at a rate of 13% payment to [a general partner/ after the return of the investment is other provider of services who paid to the owners of the royalty less collects the payment at the level less wellhead expenses in of the Company] accordance with the rate that is used in the calculation of the royalties for the state. In the affiliated partnership – overriding royalties at a rate of 6% is paid to the owners of the royalty less wellhead expenses in accordance with the rate that is used in the calculation of the royalties for the state. ======The effective share that is 14.67% 15.05% attributed to the holders of the capital rights in the Company in the income from the oil asset.

The Dalit Lease Abbreviated explanation as to Percentage Percentage how the royalties or the payments up to the after the are calculated (including the return of return of deduction of expenses and other the the items) (as well as a reference to Item investment investment the description of the agreement) Theoretical annual income of 100% 100% the oil asset after discovery (%) Details of the royalties or payments (which are derived from the income after the discovery) at the level of the oil asset The State 11.21% 11.21% Calculated in accordance with the wellhead price as calculated for the year 2010 (in other words, expenses relating to the transportation from the platform and to the point where the gas is delivered on the Ashdod shoreline are deducted from the 12.5%) ======The income that is adjusted at 88.79% 88.79% the level of the oil asset The share of the adjusted 16.941% 16.941% income from the oil asset (in a chain) that is attributed to the holders of the capital rights in the Company

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The Dalit Lease Abbreviated explanation as to Percentage Percentage how the royalties or the payments up to the after the are calculated (including the return of return of deduction of expenses and other the the items) (as well as a reference to Item investment investment the description of the agreement) The holders of the capital rights 15.04% 15.04% in the Company's overall share of the effective income, at the level of the oil asset (and before the other payments at the level of the Company) The holders of capital rights in 0.35% 1.53% the Company's share of the income as the result of the receipt of additional royalties from the asset Details of the royalties or payments (which are derived from the income after the discovery) in connection with the oil asset at the level of the Company At the level of the Company: The holders of the capital rights 0.05% 0.05% Overriding royalties at a rate of in the Company's share of the 1.25% out of 6% is paid to the payment to [a provider of other owners of the royalty after the services who collects the reduction of the royalty to the State payment at the level of the in accordance with the Petroleum Company] law and less the quantity of the oil that was used for production and less wellhead expenses in accordance with the rate that is used in the calculation of the royalties for the state, the royalty for each partner (affiliated and consolidated) is at a rate of 0.06%. The holders of the capital rights 0.67% 1.47% In the consolidated partnership – in the Company's share of the Overriding royalties at a rate of 13% payment to [a general partner/ after the return of the investment is paid other provider of services who to the owners of the royalty less collects the payment at the level wellhead expenses in accordance with of the Company] the rate that is used in the calculation of the royalties for the state. In the affiliated partnership – overriding royalties at a rate of 6% is paid to the owners of the royalty less wellhead expenses in accordance with the rate that is used in the calculation of the royalties for the state. ======The effective share that is 14.67% 15.05% attributed to the holders of the capital rights in the Company in the income from the oil asset.

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F. Note on the calculation of the effective share of the expenses in the Tamar project that is attributed to the holders of the Capital rights in the Company The Tamar lease

Abbreviated explanation as to how the royalties or the payments are calculated (as well as a reference to the description Item Percentage of the agreement) Theoretical expenses within the 100% framework of the oil asset's work plan (without the said royalties) Details of the payments (which are derived from the expenses) at the level of the oil asset The operator 0% The partners have not yet reached agreement with the operator on the rate of the operators fees in respect of the indirect expenses that are paid in addition to the reimbursement of the direct expenses, which is paid to the operator Total effective rate of the expenses at 100% the level of the oil asset The share of the expenses for the oil 16.941% asset (in a chain) that is attributed to the holders of the capital rights in the Company The holders of the capital rights in the 16.941% Company's overall share of the effective expenses rate, at the level of the oil asset (and before the other payments at the level of the Company) At the level of the Company Details of the payments (which are derived from the expenses) in connection with the oil asset and at the level of the Company. (The following percentages will be calculated in accordance with the entity's share in the oil asset). The general partner in the Avner In accordance with the Partnership Partnership Agreement, the general partner is entitled to the higher of 7.5% of the Avner partnership's exploration expenses or USD 40 thousand a month on a quarterly calculation. Since searches are taking place in the area covered by the license during this period, the operator's fees are at the level that was determined in the partnership agreement. The effective share of the expenses 16.941% that are involved in the exploration and development expenses for the oil asset that is attributed to the holders of the capital rights in the entity.

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The Dalit lease

Abbreviated explanation as to how the royalties or the payments are calculated (including the deduction of expenses and other items) (as well as a reference Item Percentage to the description of the agreement) Theoretical expenses within the 100% framework of the oil asset's work plan (without the said royalties) Details of the payments (which are derived from the expenses) at the level of the oil asset The operator 0% The partners have not yet reached agreement with the operator on the rate of the operators fees in respect of the indirect expenses that are paid in addition to the reimbursement of the direct expenses, which is paid to the operator. Total effective rate of the expenses at 100% the level of the oil asset The share of the expenses for the oil 16.941% asset (in a chain) that is attributed to the holders of the capital rights in the Company The holders of the capital rights in the 16.941% Company's overall share of the effective expenses rate, at the level of the oil asset (and before the other payments at the level of the Company) At the level of the Company Details of the payments (which are derived from the expenses) in connection with the oil asset and at the level of the Company. (The following percentages will be calculated in accordance with the entity's share in the oil asset). The general partner in the Avner In accordance with the Partnership Partnership Agreement, the general partner is entitled to the higher of 7.5% of the Avner partnership's exploration expenses or USD 40 thousand a month on a quarterly calculation. Since searches are taking place in the area covered by the license during this period, the operator's fees are at the level that was determined in the partnership agreement. The effective share of the expenses 16.941% that are involved in the exploration and development expenses for the oil asset that is attributed to the holders of the capital rights in the entity.

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G. Royalties and payments that have been paid in the course of the exploration, development and production activities for the oil asset

The Tamar Lease Item The holders of the Of which the holders Of which the holders capital rights in the of the capital rights of the capital rights in Company’s overall in the Company’s the Company’s share in the overall share of the overall share of the investment in the oil payments to the payments to the asset in the period1 general partner operator The budget that was 11,993 424 0 actually invested in the year 2008 (including the said payments) The budget that was 29,805 850 0 actually invested in the year 2009 (including the said payments) The budget that was 73,577 0 0 actually invested in the year 2010 (including the said payments)

The Dalit Lease Item The holders of the Of which the holders Of which the holders capital rights in the of the capital rights of the capital rights in Company’s overall in the Company’s the Company’s share in the overall share of the overall share of the investment in the oil payments to the payments to the asset in the period2 general partner operator The budget that was 35 0 0 actually invested in the year 2008 (including the said payments) The budget that was 9,691 343 0 actually invested in the year 2009 (including the said payments) The budget that was 0 0 0 actually invested in the year 2010 (including the said payments)

H. Contingent resources and prospective resources in the "Tamar" project3. 1. Contingent resources in the Tamar Lease In accordance with a report that has been received from the NSAI company, which was prepared in accordance with the which have been prepared in accordance with the principles of the Petroleum Resources Management System (SPE-PRMS), the contingent resources in the "Tamar" lease, which are classified as being at the justification of development stage (Development Pending) as of 31.12.12.2010, are as detailed below:

1 Including costs (exploration, production and so on) in respect of which payments are paid to the operator. 2 Including costs (exploration, production and so on) in respect of which payments are paid to the operator. 3 At the partners' request, NSAI evaluated the average economic potential (Gross Mean Resources) of the reserve on the basis of a probability model, and it is estimated at 8,400,000 MMCF. It should be noted that the average economic potential (Gross Mean Resources) is not a category in accordance with the PRMS definition, however the partnership has asked to permit comments in the earlier reports that included this category to be included on the basis of Noble's evaluation. A letter from NSAI on this subject is attached.

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Total in the oil The Company’s net asset (Gross) share in a chain1 Category of the contingent resources (MMCF) (MMCF) The low quantitative estimate 6,479,400 1,097,675 (1C – Low Estimate) The best quantitative estimate 8,699,100 1,473,714 (2C – Best Estimate) The highest quantitative estimate 10,402,100 1,762,219 (3C – High Estimate)

In accordance with what is determined in the abovementioned report, after the development program and the budget for the Tamar project are approved by the partners other than the operator, the contingent resources will be classified as reserves. It was further determined in the report that NSAI's evaluation, after the abovementioned conditions are met, the discovery will be economically feasible for production. See section 1.11.4 C above for the estimated budget for the development of the Tamar project. See above on the subject of the existence of a potential market for the aforesaid resources. Warning – there can be no certainty that it will be possible from a commercial perspective to produce any part whatsoever of the contingent resources. Inter alia, the NSAI report notes a number of assumptions and qualifications, including that: (1) the evaluations have not been adjusted in order to reflect the risks; (2) it did not visit the oil field; (3) it did not examine the possible exposure deriving from environmental matters; and also (4) the resources are in undeveloped areas and accordingly they are based on assessments in respect of the size of the reserve and the recovery efficiencies, with an analogy to reservoirs with similar geological characteristics as those of the reservoir in question. Warning in respect of forward looking information – NSAI's evaluations in respect of the contingent resources in the Tamar Lease, constitute forward looking information. The above evaluations are based, inter alia, on geological, geophysical and other information, which has been received from the drillings and from the operator of the lease and they lie solely within the bounds of professional estimates and evaluations by NSAI alone and there can be no certainty in respect of them. The quantities of natural gas, which will actually be produced, may be different from the abovementioned estimates and evaluations, inter alia, as the result of the technical, operational conditions and/or as a result of regulatory changes and/or a as a result of the supply and demand conditions in the natural gas market and/or the actual performance of the field. The Company has not carried out an independent evaluation or check of the data that it has been provided with, as aforesaid, however in the light of NSAI's status, as one of the leaders in the field of the execution of the evaluations of resources and reserves in oil and natural gas fields, the Company has no reason to doubt the correctness of the conclusions in the report. The abovementioned evaluations and estimates may be updated in so far as additional information becomes available and/or as the result of a range of factors that are connected to projects in respect of the exploration for and production of oil and natural gas, including as the result of activities directed at the development of the field, if any are carried out and as a result of operational conditions and/or the conditions in the market and/or the regulatory conditions. The Company declares that all of the above date has been prepared in a manner that accords with the Petroleum Resources Management System (SPE- PRMS). A reserves report as December 31, 2010, which has been prepared by NSAI, is attached to this report by way of a referral to the reserves report that is attached as Appendix C' to the periodic report of the Delek Drilling Partnership for the year 2010, which was published on March 31, 2011(Document No. 2011-01-101625).

1 The calculation of the Company's share in the chain is not included in the reserves report and it has been calculated in accordance with the share that is attributed to the holders of the Company's capital rights in the oil asset- 30.81%, before the payment of royalties.

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2. Conditional and perspective resources in the Dalit Lease After the completion of the "Dalit 1" drilling in the Dalit Lease, The operator for the project announced that it estimates that the Gross Mean Resources (average economic potential) in the prospect of the natural gas reserves in the Dalit structure is approximately 500 BCF (approximately 14.2 BCM). In accordance with the NSAI report that is detailed below, NSAI is of the opinion that the Dalit structure is separated into a number of fault blocks and that it is possible that the blocks that are not connected to the main block, which is where the Dalit 1 drilling was made, will have a different quality of reserves than the quality that was discovered in the main block and that there is also a very small chance that no hydrocarbons whatsoever will be found in those blocks. In the light of the aforesaid, NSAI has classified part of the gas resources in the Dalit Lease as contingent resources, at the justification of development stage (development pending), and they are conditional upon the approval of the project, which will include the approval of the development program and the expectations for the reasonability of the sale of gas, and some of the prospective resources, as detailed below. A) Contingent resources In accordance with a report that has been received from the NSAI company, which was prepared in accordance with the principles of the Petroleum Resources Management System (SPE-PRMS), the contingent resources in the "Dalit" lease, as of December 31, 2010, are as detailed below:

Total in the oil The Company’s net asset (Gross) share in a chain1 Category of the contingent resources (MMCF) (MMCF) The low quantitative estimate 216,900 36,745 (1C – Low Estimate) The best quantitative estimate 270,700 45,859 (2C – Best Estimate) The highest quantitative estimate 334,800 56,718 (3C – High Estimate)

In accordance with what is determined in the abovementioned report, after the approval of the project, which is to include a development program and expectations for the probability of the sale of the gas, the contingent resources will be classified as reserves. Warning – there can be no certainty that it will be possible from a commercial perspective to produce any part whatsoever of the contingent resources. Inter alia, the NSAI report notes a number of assumptions and qualifications, including that: (1) the evaluations have not been adjusted in order to reflect the risks; (2) it did not visit the oil field; (3) it did not examine the possible exposure deriving from environmental matters; and also (4) the resources are in undeveloped areas and accordingly they are based on assessments in respect of the size of the reserve and the recovery efficiencies, with an analogy to reserves with similar geological characteristics as those of the reserve in question. Warning in respect of forward looking information – NSAI's evaluations in respect of the contingent resources in the Dalit Lease, constitute forward looking information. The above evaluations are based, inter alia, on geological, geophysical and other information, which has been received from the drillings and from the operator of the lease and they lie solely within the bounds of professional estimates and evaluations by NSAI alone and there can be no certainty in respect of them. The quantities of natural gas, which will actually be produced, may be different from the abovementioned estimates and evaluations, inter alia, as the result of the technical, operational conditions and/or as a result of regulatory changes and/or a as a result

1 The calculation of the Company's share in the chain is not included in the reserves report and it has been calculated in accordance with the share that is attributed to the holders of the Company's capital rights in the oil asset- 30.81%, before the payment of royalties.

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of the supply and demand conditions in the natural gas market and/or the actual performance of the field. The Company has not carried out an independent evaluation or check of the data that it has been provided with, as aforesaid, however in the light of NSAI's status, as one of the leaders in the field of the execution of the evaluations of resources and reserves in oil and natural gas fields, the Company has no reason to doubt the correctness of the conclusions in the report. The abovementioned evaluations and estimates may be updated in so far as additional information becomes available and/or as the result of a range of factors that are connected to projects in respect of the exploration for and production of oil and natural gas, including as the result of activities directed at the development of the field, if any are carried out and as a result of the continued analysis of the findings of drillings and as the result of operational conditions and/or the conditions in the market and/or the regulatory conditions. The Company declares that all of the above date has been prepared in a manner that accords with the Petroleum Resources Management System (SPE- PRMS). B) Prospective resources In accordance with a report that has been received from the NSAI company, and which was prepared in accordance with the principles for the Petroleum Resources Management System (SPE- PRMS), the prospective (undiscovered) resources that are located in six blocks in the "Dalit" structure, which are adjacent to the block in which the "Dalit" discovery was made, as of December 31, 2010 are as detailed below (the prospects are comprised of six fault blocks:

Total in the oil The Company’s net asset (Gross) share in a chain1 Category of the contingent resources (MMCF) (MMCF) The low quantitative estimate 212,000 35,914 (1C – Low Estimate) The best quantitative estimate 267,700 45,351 (2C – Best Estimate) The highest quantitative estimate 334,300 56,633 (3C – High Estimate)

It is noted in the report that based on the development of similar fields, on the assumption that there will be a discovery, the prospective resources in the best estimate category, have a reasonable chance of becoming commercial. The Company declares that all of the above date has been prepared in a manner that accords with the Petroleum Resources Management System (SPE- PRMS). Warning in respect of forward looking information – NSAI's evaluations in respect of the prospective resources in the Dalit Lease, constitute forward looking information. The above evaluations are based, inter alia, on geological, geophysical and other information, which has been received from the drillings and from the operator of the lease and they lie solely within the bounds of professional estimates and evaluations by NSAI alone and there can be no certainty in respect of them. The quantities of natural gas, which will actually be produced, may be different from the abovementioned estimates and evaluations, inter alia, as the result of the technical, operational conditions and/or as a result of regulatory changes and/or a as a result of the supply and demand conditions in the natural gas market and/or the actual performance of the field. The Company has not carried out an independent evaluation or check of the data that it has been provided with, as aforesaid, however in the light of NSAI's status, as one of the leaders in the field of the execution of the evaluations of resources and reserves in oil and natural gas fields, the Company has no reason to doubt the correctness of the conclusions in the report. The abovementioned evaluations and estimates may be updated in so far as additional

1 The calculation of the Company's share in the chain is not included in the reserves report and it has been calculated in accordance with the share that is attributed to the holders of the Company's capital rights in the oil asset- 30.81%, before the payment of royalties.

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information becomes available and/or as the result of a range of factors that are connected to projects in respect of the exploration for and production of oil and natural gas, including as the result of activities directed at the development of the field, if any are carried out and as a result of the continued analysis of the findings of drillings and as the result of operational conditions and/or the conditions in the market and/or the regulatory conditions. The estimated probability of each of the risk factors that are involved in the exploration process for oil and the estimated probability of overall success is as follows:

The probability of success Parameter (as a percentage) Trap integrity 90 Reservoir quality 90 Source Evaluation 100 Migration/ Timing 95 Overall probability of success 77

The following are the basic parameters that were used in the calculation of the various scenarios The estimates in respect of porosity are 3% higher (the high estimate) and 3% lower (the low estimate), than the findings in Dalit 1, which constitute the best estimate. The evaluation in respect of the average water saturation are 3.5% higher (the high estimate) and 3% lower (the low estimate), than the findings in Dalit 1, which constitute the best estimate. The assumptions in respect of the recovery factor are identical to those that were taken into account in accordance with the findings in Dalit 1, such that the high estimate figures that are received are parallel to the 3C figures, the low estimate figures are parallel to the IC figures and the vest estimate figures are parallel to the 2C figures. Warning – there is no certainty that any part whatsoever of the potential resources that have been noted will indeed be discovered. If they are discovered, there is no certainty that it will be possible from the commercial perspective to produce any part whatsoever of the resources. The prospective information does not lie within the bounds of an evaluation in respect of the conditional reserves and resources, which it will only be possible to evaluate after the exploratory drilling, if at all. A reserves report as of December 31, 2010, which has been prepared by NSAI, is attached to this report by way of a referral to the reserves report that is attached as Appendix D to the periodic report of the Delek Drilling Partnership for the year 2010, which was published on March 31, 2011 (Document No. 2011-01-101625). 1.11.5 The Ratio Yam project A. General

General details in respect of the oil asset Name of the oil asset: 349/ Rachel 350/Amit 351/ Hannah 352/ David 353/ Eran Location: Maritime assets, which are located approximately 130 – 140 kilometers West of the Haifa shoreline Area: The overall area of all of the license, when taken together is approximately 1,800 square kilometers Type of the oil asset and description of the License permitted activities for that sort: The activities that are permitted under the

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General details in respect of the oil asset Petroleum law – Exploration and Production Date of the original granting of the oil asset: December 15, 2008 Date of the original expiry of the oil asset: December 14, 2011 The dates on which decisions were taken to - extend the period of the oil asset: The current date on which the oil asset will December 14, 2011 expire: Note whether there is an additional possibility of Subject to the Petroleum law, it is possible to extending the period of the oil asset: if there is extend the period for up to seven years from such a possibility – note the period of the the date of the grant, with the possibility of possible extension: extending the period in the event of a discovery. Note the name of the operator: Noble Note the names of the direct partners in the oil (6) Noble (39.66%)1. asset and their direct shares in the oil asset, and (7) Ratio Oil Exploration (1992) – Limited also, to the best of the Company’s knowledge, Partnership (hereinafter: "Ratio) (15%). To the names of the controlling interests in the said the best of the partnership's knowledge, the partners general partner in Ratio, Ratio Oil Exploration Ltd., is a company that is jointly owned by D.L.I.N. Ltd. (40%), Hiram Landau Ltd. (40), Eitan Eisenberg Ltd. (10%) and the estate of the late Zvi Tsafriri (10%). D.L.I.N. Ltd. is a private company that is owned by Yair Rotlevy i 1/3 and Ligad Rotlevy 2/3. Hiram Landau Ltd. is a private company, which is owned by Yeshayahu Landau. Eitan Eisenberg Ltd. is a private company that is owned by Eitan Eisenberg. There is a shareholders agreement in force between the shareholders in Ratio Oil Explorations Ltd.2 (8) Delek Drilling Partnership (22.67%)3 (9) Avner (22.67%)4

General details in respect of the Company's share in the oil asset Note the date of the acquisition of the holding in -5 the oil asset that was acquired: Description of the nature and the manner of the Through its direct holdings and its holdings in Company’s holding in the oil asset: the participation units of the Delek Drilling Partnership and the Avner Partnership Note the effective share that is attributed to the 24.579% holders of the Company's capital rights in the oil asset: The overall share of the holders of the Company’s 27,454 thousand USD6 capital rights in the cumulative investment in the oil asset during the course of the five years that preceded the last day of the reporting year (whether recognized as an expense or as an asset in the financial statements):

1 See section 1.11.3 (A) for the names of the controlling interests. 2 As of 14.2.2011 the holdings of all of the interested parties in Ratio came to less than 27%. 3 See section 1.11.1 (D) above for the names of the controlling interests. 4 See section 1.11.1 (D) above for the names of the controlling interests. 5 The leases were granted to the partnership on 2.12.2009 following the "Tamar" and "Dalit" natural gas discoveries that were discovered in 2009 in the 309/ "Matan" and 308/ "Michal" licenses. Most of the licenses were acquired by the partnership in the year 2006 from third parties for no consideration. 6 Correct as of December 15, 2010.

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B. Compliance with the terms of the work plan in the Ratio Yam licenses, as of the date of the report.

Description of the components of the work plan Description of the work Description of the components of that were no plan that was set for the the work plan that were completed in completed in the Period period the period period 2008 -1 A 2D seismic survey covering - approximately 2,700 kilometers of seismic lines, which also includes the areas covered by the Alon and Ruth preliminary permits, and with an overall cost of approximately USD 6 million. 2009 The mapping of potential Potential prospects were mapped in The components prospects on the basis of reliance on the 2D seismic survey that of the work plan the new seismic survey, the was done in 2008 and defined as an were completed facial seismic, physical area in which (together with the areas analysis of the rocks and covered by the Alon licenses) 3D the evaluation of the seismic surveys were performed. The potential by 15.9.2009, the economic checking of the prospects. economic checking of the During the course of the year 2009 an prospects – within 12 agreement was signed for the rental of months of the granting of a drilling rig for the execution of the the Ratio Yam licenses, in drillings in the areas covered by the other words, by 15.12.2009. licenses and in other areas. 2010 – • An additional 2D - 3D • The processing and interpretation of The components up to seismic survey, if seismic material from the of the work plan the required – within 24 seismological surveys that were were completed date of months of the granting of performed, as aforesaid. the the Ratio Yam licenses, • During the course of the month of report i.e. by December 15, October 2010 the work was started 20102. on the "Leviathan 1" drilling in the • The signing on an area covered by the Rachel license. agreement for the At the end of December 2010 the performance of maritime drilling reached a depth of drilling – within 24 approximately 5,170 meters months of the granting of (including the depth of the sea) to the Ratio Yam licenses, the bottom of the main target (the i.e. by December 15, NG-10 strata), and after various 2010. checks were performed, including electrical checks (logs) and Coring results, from the target strata, the "Leviathan 1" drilling was declared to be a natural gas discovery.

1 The survey was conducted even before the license was received, accordingly there was no binding work plan for this period. 2 As aforesaid, this was done in 2009.

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Description of the components of the work plan Description of the work Description of the components of that were no plan that was set for the the work plan that were completed in completed in the Period period the period period 2010 – • As of the time of the report, the up to drilling works are continuing for the the secondary objectives: the Leviathan date of prospect (Lower Oligocene) and the the Leviathan prospect (Lower report Cretaceous), to an overall depth of (contd.) approximately 7,200 meters. During the course of the drilling works on "Leviathan 1" Noble informed the partners that the drilling works were going to take a further two months beyond what was planned, primarily as a result of technical delays and the implementation of stringent work procedures (health, environment and safety), which the partners implement on drilling works. • On 20.3.2011 the evaluation drilling works on "Leviathan 2" were started in the Amit License, which is located approximately 14 kilometers from the "Leviathan 1" drilling, at an overall depth of approximately 5,400 meters1.

C. Future binding work plans in accordance with the conditions of the oil asset2

Estimate of the Estimate of the budget that is effective share of required for the the partners in the execution of the work overall budget (in plan (in thousands of thousands of USD) with a division USD) (with a Description of the updated work plan into the main division into the Period that has been set for the period components) main components) 2011 The start of the execution of drilling for 50,000 – 70,000 12,289- 17,205 the tertiary objective up to 36 months from the granting of the Ratio Yam licenses, i.e. by December 14, 2011 2012 As aforesaid, as of the date of the report - - the period of the validity of the Ratio Yam licenses are up to December 14, 2011. Accordingly, as of the time of the report, there are no conditions covering this period in the license. 2013 As aforesaid, as of the date of the report - - the period of the validity of the Ratio Yam licenses are up to December 14, 2011. Accordingly, as of the time of the report, there are no conditions covering this period in the license.

1 The "Leviathan 2" drilling is being carried out using an additional drilling rig, which has reached the area and it is being done in parallel to the "Leviathan 2" drilling. Is should be clarified that the "Leviathan 2" drilling, is planned as an evaluation drilling for the Leviathan discovery that lies solely in the NG- 10 strata and accordingly it is not expected to be affected by the results of the "Leviathan 1" drilling, for the deep secondary purposes. After the completion of the "Leviathan 2" drilling works, and the analysis of the findings, the partners in the Leviathan discovery intend to take steps to present an application for a lease. 2 In accordance with the approval from the Commissioner.

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D. The actual and planned work plan in the Ratio Yam licenses The following is an abbreviated description of the main activities that have actually been performed in the Ratio Yam licenses from January 1, 2008 and up to the time of the report, as well as an abbreviated description of the activities that are planned in the said project:

The Ratio Yam Licenses Period Abbreviated description of the The overall actual cost/ The Company's activities actually performed for the estimated overall effective share of the period/ an abbreviated budget for operations at the cost/ budget description of the planned work the level of the oil asset (in thousands of program (in thousands of USD) USD) 2008 A 2D seismic survey covering 3,785 930 approximately 2,700 kilometers of seismic lines, which also includes the areas covered by the Alon and Ruth preliminary permits, and with an overall cost of approximately USD 6 million. 2009 Potential prospects were mapped in 15,444 3,796 reliance on the 2D seismic survey that was done in 2008 and defined as an area in which (together with the areas covered by the Alon licenses) 3D seismic surveys were performed. 2010 • The processing and 92,469 22,728 interpretation of seismic material from the seismological surveys that were performed, a aforesaid. • During the course of the month of October 2010 the work was started on the "Leviathan 1" drilling in the area covered by the Rachel license. On 22.12.2010 the drilling reached a depth of approximately 5,170 meters (including the depth of the sea) to the bottom of the main target (the NG-10 strata), and after various checks were performed, including electrical checks (logs) and Coring results, from the target strata, the "Leviathan 1" drilling was declared to be a natural gas discovery.

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The Ratio Yam Licenses Period Abbreviated description of the The overall actual cost/ The Company's activities actually performed for the estimated overall effective share of the period/ an abbreviated budget for operations at the cost/ budget description of the planned work the level of the oil asset (in thousands of program (in thousands of USD) USD) 2011 • Drilling for the main purpose of 172,532 42,407 the Rachel License was done in 2010 as part of the work on the "Leviathan 1" drilling. As of the time of the report, the drilling works are continuing for the secondary targets: the Leviathan prospect (Lower Oligocene) and the Leviathan prospect (Lower Cretaceous), to an overall depth of approximately 7,200 meters. During the course of the drilling works on "Leviathan 1" Noble informed the partners that the drilling works were going to take a further two months beyond what was planned, primarily as a result of technical delays and the implementation of stringent work procedures (health, environment and safety), which the partners implement on drilling works. • evaluation drilling on "Leviathan 2" drilling in the Amit License, which is located approximately 14 kilometers from the "Leviathan 1" drilling, at an overall depth of approximately 5,400 meters. 2012 As aforesaid, as of the date of the - - report the period of the validity of the Ratio Yam licenses are up to December 14, 2011. Accordingly, as of the time of the report, there are no conditions covering this period in the license. 2013 and As aforesaid, as of the date of the thereafter report the period of the validity of the Ratio Yam licenses are up to December 14, 2011. Accordingly, as of the time of the report, there are no conditions covering this period in the license. * Of which an amount of approximately USD 72,561 thousand has been estimated (the entity's share of which is USD17,835 thousand) which were invested from January 1, 2011 to February 28, 2011.

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E. Disclosure on the subject of the effective participation right in the income and expenses in the Ratio Yam Licenses

Percentage Percentage Rate grossed up Rate grossed up before the after the return to 100% before to 100% after the return of the of the the return of the return of the Participation rate investment investment investment investment Explanations The effective share of the oil asset that is attributed to the 24.579% 24.579% 100% 100% holders of the capital rights in the entity The effective share of the income from the oil asset that is 21.36% 21.91% 86.92% 89.15% See the calculation attributed to the holders of the capital rights in the entity in section F below The effective share expenses involved in the exploration, 24.82% - 24.82% - 101% - 104% 101% - 104% See the calculation development or production expenses for the oil asset that 25.56% 25.56% in section G' below is attributed to the holders of the capital rights in the entity

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F. Note on the calculation of the effective share of the income from the Ratio Yam Licenses that is attributed to the holders of the capital rights of the entity

Abbreviated explanation as to Percentage Percentage how the royalties or the payments up to the after the are calculated (including the return of return of deduction of expenses and other the the items) (as well as a reference to Item investment investment the description of the agreement) Theoretical annual income of 100% 100% the oil asset after the discovery (%) Details of the royalties or the payments (which are derived from the income after the discovery) at the level of the oil asset * The state 11.21% 11.21% Calculated in accordance with the wellhead price, in other words, expenses relating to the transportation from the platform and to the point where the gas is delivered on the Ashdod shoreline are deducted from the 12.5% Total 11.21% 11.21% The income that is adjusted at 88.79% 88.79% the level of the oil asset The share of the adjusted 24.579% 24.579% income from the oil asset (in a chain) that is attributed to the holders of the capital rights in the reporting entity The holders of the capital rights 21.82% 21.82% in the reporting entity's overall share of the effective income, at the level of the oil asset (and before the other payments at the level of the reporting entity The holders of capital rights in 0.513% 2.225% the reporting entity's share of the income as the result of the receipt of additional royalties from the asset Details of the royalties or payments (which are derived from the income after the discovery) in connection with the oil asset at the level of the reporting entity (The percentage hereinafter are calculate in accordance with the holders of the capital rights in the reporting entity's share in the oil asset) At the level of the reporting entity: The holders of the capital rights - - in the reporting entity's share of the payment to [other provider of services who collects the payment at the level of the reporting entity]

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Abbreviated explanation as to Percentage Percentage how the royalties or the payments up to the after the are calculated (including the return of return of deduction of expenses and other the the items) (as well as a reference to Item investment investment the description of the agreement) The holders of the capital rights 0.9731% 2.1378% In the consolidated partnership – in the reporting entity's share of overriding royalties at a rate of 3% the payment to [a general up to the return of the investment partner- other provider of and of 13% after the return of the services who collects the investment is paid to the owners of payment at the level of the the royalty less wellhead expenses reporting entity] in accordance with the rate that is used in the calculation of the royalties for the state. In the affiliated partnership – overriding royalties at a rate of 6% is paid to the to the owners of the royalty less wellhead expenses in accordance with the rate that is used in the calculation of the royalties for the state. ======The effective share that is 21.36% 21.91% attributed to the holders of the capital rights in the reporting entity in the income from the oil asset.

G. Note on the calculation of the effective share of the exploration, development and production expenses in the Leviathan project that is attributed to the holders of the Capital rights in the entity

Abbreviated explanation as to how the royalties or the payments are calculated (including the deduction of expenses and other items) (as well as a reference Item Percentage to the description of the agreement) Theoretical expenses of the oil asset 100% after the discovery Details of the payments (which are derived from the expenses) at the level of the oil asset The operator 1%-4% The rate in the table relates to exploration expenses. These amounts are in respect of indirect expenses and they are in addition to the reimbursement of the expenses, which is paid to the operator. The rate of the payment to the operator declines as the exploration expenses increased. The payment rate in respect of the development expenses has not yet been determined. Total effective rate of the expenses at 101% - 104% the level of the oil asset The share of the expenses for the oil 24.579% asset (in a chain) that is attributed to the holders of the capital rights in the entity The holders of the capital rights in the 24.82% - entity's overall share of the effective 25.56% expenses rate, at the level of the oil asset (and before the other payments at the level of the Company)

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Abbreviated explanation as to how the royalties or the payments are calculated (including the deduction of expenses and other items) (as well as a reference Item Percentage to the description of the agreement) At the level of the Partnership Details of the payments (which are derived from the expenses) in connection with the oil asset and at the level of the Partnership. The general partner in the reporting In accordance with the Partnership entity Agreement, the general partner is entitled to the higher of 7.5% of the affiliated partnership's exploration expenses or 40 thousand Dollars a month on a quarterly calculation. Since searches are taking place in the area covered by the license during this period, the operator's fees are at the level that was determined in the partnership agreement. The effective share of the expenses 24.82% - that are involved in the exploration and 25.56% development expenses or the production expenses for the oil asset that is attributed to the capital rights in the entity

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H. Royalties and payments that have been paid in the course of the exploration, development and production activities for the oil asset

The Leviathan Project Item The holders of the Of which the holders Of which the holders capital rights in the of the capital rights of the capital rights in Company’s overall in the Company’s the Company’s share in the overall share of the overall share of the investment in the oil payments to the payments to the asset in the period1 general partner operator The budget that was 930 0 33 actually invested in the year 2008 (including the said payments) The budget that was 3,796 0 87 actually invested in the year 2009 (including the said payments) The budget that was 22,728 804 169 actually invested in the year 2010 (including the said payments)

I. Contingent resources in the Leviathan discovery In accordance with a report that has been received from the NSAI company, which was prepared in accordance with the principles of the Petroleum Resources Management System (SPE-PRMS), the contingent resources in the Leviathan discovery, are classified as Development Pending stage (being at the justification of development) as of 31.12.12.2010 and are as detailed below (in MMCF)2:

The Company’s net Total in the oil asset share in a chain3 Category of the contingent resources (Gross) (MMCF) (MMCF) The low quantitative estimate 11,356,200 2,791,240 (1C – Low Estimate) The best quantitative estimate 15,899,300 3,907,889 (2C – Best Estimate) The highest quantitative estimate 21,079,000 5,181,007 (3C – High Estimate)

In accordance with what is determined in the abovementioned report, the resources are conditional upon the approval of the development program for the Leviathan field, which also includes a reasonable expectation of the sale of the natural gas from the field. It was further determined in the NSAI report, and based on the data from the discovery, the existing infrastructure, the assumptions in respect of the prices and the costs in the region, after the above conditions are complied with the discovery will be economically feasible for production.

1 Including costs (exploration, production and so on) in respect of which payments are paid to the operator. 2 At the partners' request, NSAI evaluated the average economic potential (Gross Mean Resources) of the reserve on the basis of the PRMS model, and it is estimated at 16,086,700000 MMCF. This evaluation accords with the operator's evaluation, which was provided in the partnership's immediate report of 29.12.2010. It should be noted that the average economic potential (Gross Mean Resources) is not a category in accordance with the PRMS definition, however the partnership has asked to permit comments in the earlier reports that included this category to be included on the basis of Noble's evaluation. 3 The calculation of the Company's share in the chain is not included in the reserves report and it has been calculated in accordance with the share that is attributed to the holders of the Company's capital rights in the oil asset- 30.81%, before the payment of royalties.

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Warning in respect of forward looking information – NSAI's evaluations in respect of the contingent resources in the Leviathan field, constitute forward looking information. The above evaluations are based, inter alia, on geological, geophysical and other information, which has been received from the drillings and from the operator of the field and they lie solely within the bounds of professional estimates and evaluations by NSAI alone and there can be no certainty in respect of them. The quantities of natural gas, which will actually be produced, may be different from the abovementioned estimates and evaluations, inter alia, as the result of the technical, operational conditions and/or as a result of regulatory changes and/or a as a result of the supply and demand conditions in the natural gas market and/or the actual performance of the field. The Company has not carried out an independent evaluation or check of the data that it has been provided with, as aforesaid, however in the light of NSAI's status, as one of the leaders in the field of the execution of the evaluations of resources and reserves in oil and natural gas fields, the Company has no reason to doubt the correctness of the conclusions in the report. The abovementioned evaluations and estimates may be updated in so far as additional information becomes available and/or as the result of a range of factors that are connected to projects in respect of the exploration for and production of oil and natural gas, including as the result of activities directed at the development of the field, if any are carried out and as a result of the continued analysis of the findings of drillings and as the result of operational conditions and/or the conditions in the market and/or the regulatory conditions. The Company declares that all of the above date has been prepared in a manner that accords with the Petroleum Resources Management System (SPE- PRMS). A reserves report as of December 15, 2010, which has been prepared by NSAI, is attached to this report by way of a referral to the reserves report that is attached as Appendix E' to the periodic report of the Delek Drilling Partnership for the year 2010, which was published on March 312, 2011 (Document No. 2011-01-101625). 1.11.6 Exploration by the Limited Partnerships other than the Yam Tethys project and the Tamar project In addition to the production operations of the Yam Tethys project, and the development activities of the Tamar project, the Partnerships are engaged in further oil and gas exploration pursuant to licenses granted them under the Petroleum Law. Below is a brief description of the oil and gas exploration operations of the Limited Partnerships in additional areas: A. Ruth licenses 1. General

General Details Regarding the Oil Asset Name of Oil Asset: 358/Ruth A 359/Ruth B 360/Ruth C 361/Ruth D1

Location: Offshore assets about 45-95 km west of the coast of Haifa.

Area: The total area covered by all licenses is 1,600 km2 Type of oil asset and description of the License operations permitted for this type: Activities permitted by the Petroleum Law - Exploration and production. Oil asset's original issue date: 1.3.2009 Oil asset's original expiration date: 29.2.2012 Dates of decision to extend the oil asset - for an additional period:

1 In December 2010, in the context of a settlement with the Petroleum Commissioner, and in view of the partnership's and Avner's intention to focus their exploration activities on certain licenses, the partnership has given the Petroleum Commissioner notice that it is renouncing its rights in Ruth 362 E and Ruth 363 F Licenses.

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General Details Regarding the Oil Asset Oil asset's current expiration date: 29.2.2012 Note if there still exists an option to Subject to the Petroleum Law, it is possible to extend the lease period for the oil asset; extend the original lease up to seven years if such an option exists – note the from the date it was issued, with an option for possible extension period. further extension in the event of discovery. Operator: Noble 1 Names of direct partners sharing the oil (10) Noble - (47.059%) asset and their direct part in the oil asset, (11) Delek Drilling - (27.835%)2 as well as the names of the controlling (12) Avner - (25.106%)3 owners of said partners, to the best of the In addition, in regard to additional partners partnership's knowledge: listed in the Ruth D license according to the conditional transfer, see section 1.11.29 L below.

General Details Regarding the Corporation's Part in the Oil Asset For the acquired oil asset holding – date 4- of purchase Description of the nature of the Through its holdings in Delek Drilling and corporation's holding of the oil asset: Avner Partnership participation units. On the 23.2.2011, the Partnerships and Noble signed conditional agreements with third parties for the sale of part of their rights in the Ruth D/361license, as detailed in section 1.11.29 below. Said agreements are subject to various approvals as detailed in the agreements. Once the transfer of ownership and rights according to said agreements is completed, the participation rights held by each of the partners to the Ruth D/361 license will be 12.5%. Note of the effective share allocated to 28.783% the holders of capital rights of the corporation in the oil asset:

The total share of the holders of capital USD 2,926 thousand5 rights of the corporation in the accumulated investment in the oil asset in the course of the five years preceding the last reporting year (regardless of whether this share has been recognized as an expenditure or as an asset in the financial statements):

1 The names of the controlling owners have been given above. See section 1.11.3 A 2 The names of the controlling owners have been given above. See section 1.11.1 D 3 The names of the controlling owners have been given above. See section 1.11.1 D 4 The Ruth licenses were granted on 1.3.2009, in lieu of the Ruth/197 preliminary permit. 5 As of 31.12.2010.

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2. Meeting the conditions of the activities planned for the Ruth licenses as of the report date The following are the planned activities for each of the Ruth licenses:

Description of planned activities Description of planned that have not been Description of the activities activities that have been carried out yet Period planned for the period carried out during the period during the period 2008 - A 2D seismic survey covering about 2,700 km of seismic - lines, which also included the preliminary permit areas of Alon and Ratio Yam. The total cost of the survey amounted to about USD 6 million.1 2009 Mapping potential prospects The results of the 2D seismic The planned based on the new seismic survey covering the license activities were survey, seismic fascial areas were mapped carried out analysis, rock physics and assessment of potential by December 1, 2009. 2010 – As Economic analysis of An economic analysis was The planned of the prospects up to 1.3.2010. carried out as required. activities were report A 3D seismic survey was carried out date carried out over parts of the Ruth and Alon license areas. The survey covered an area of about 2350 km2 in the Alon B, Alon C, Alon D, Alon F, Ruth A, Ruth B and Ruth C license areas, as well as the drilling areas of Tamar and Dalit. The survey is currently being processed and deciphered and the results are expected in the course of the last quarter of 2011.

3. Binding future plan of activities according to the conditions of the oil asset

The corporation's estimated effective Estimated budget required part in the total for carrying out the planned budget (USD activities (USD thousands thousands divided Description of the activities divided according to the according to the Period planned for the period main elements) main elements) 2011 An additional 2D-3D seismic 8,3684 About 2,404 survey if required by the 1.3.2011.2 Signing an agreement to carry out offshore drilling with a drilling contractor by the 1.3.2011.3

1 The survey was carried out before the license was received, and there is therefore no biding activity plan for this period. 2 As above, carried out in the course of 2010. 3 Carried out in the course of 2010. 4 The plan of activities for this year was carried out in the course of 2010, and this was the sum expended for it.

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The corporation's estimated effective Estimated budget required part in the total for carrying out the planned budget (USD activities (USD thousands thousands divided Description of the activities divided according to the according to the Period planned for the period main elements) main elements) 2012 Commencement of tertiary TBD. Drilling cost between 14,392-20,148 goal drilling by 29.2.2012. USD 50 to 70 million. 2013 As stated above, as of the time TBD TBD of writing, the expiration date of the Ruth licenses is 29.2.2012. Thus, as of the report period, the license does not stipulate any conditions for this period.

4. Actual and planned activities in the Ruth license areas The following is a concise description of the main activities actually carried out in the Ruth license areas during the period 1.1.2008 to the time of writing, along with a concise description of the activities planned to take place within said license areas: Ruth Licenses

Concise description of The corporation's activities actually carried estimated effective out during the Estimated total budget per part in the cost/ period/concise description activity at the level of the oil budget (USD Period of planned activities asset (USD thousands) thousands) 2008 A 2D seismic survey covering 1,563 450 about 2,700 km of seismic lines, which also included the preliminary permit areas of Alon and Ratio Yam. The total cost of the survey amounted to about USD 6 million. 2009 The results of the 2D seismic 234 67 survey covering the license areas were mapped 2010 A 3D seismic survey was 8,368 2,409 carried out over parts of the Ruth and Alon license areas. The survey covered an area of about 2350 km2 in the Alon B, Alon C, Alon D, Alon F, Ruth A, Ruth B and Ruth C license areas, as well as the drilling areas of Tamar and Dalit. The survey is currently being processed and deciphered. 2011 Processing and interpretation 1,000 288 the results of the 3D seismic survey carried out in 2010. The results are expected in the course of the last quarter of 2011. 2012 Commencement of tertiary TBD. Drilling cost between 20,148-14,392 goal drilling by 29.2.2012. USD 50 to 70 million. 2013 and As stated above, as of the - - thereafter time of writing, the expiration date of the Ruth licenses is

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29.2.2012.

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5. Disclosure of effective rate of participation in the expenses and income of the Ruth licenses

Percentage Percentage Rate grossed up Rate grossed up before the after the return to 100% before to 100% after the return of the of the the return of the return of the Participation rate investment investment investment investment Explanations The effective part allocated to holders of the corporation's 28.783% 28.783% 100% 100% capital rights in the oil asset. The effective part allocated to holders of the corporation's 25.07% 25.74% 87.09% 89.42% See calculation in capital rights in the income from the oil asset. section (6) below. The effective part allocated to holders of the corporation's 29.07%- 29.07%-29.93% 101%-104% 101%-104% See calculation in capital rights in the expenses involved in the exploration, 29.93% section (7) below. development or recovery operations in the oil asset.

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6. Notes to the calculation of the effective part allocated to the holders of the partnership's capital rights in the income, given a scenario of gas or oil discovery at the Ruth license areas.

Ruth Licenses Abbreviated explanation as to Percentage Percentage how the royalties or the payments up to the after the are calculated (including the return of return of deduction of expenses and other the the items) (as well as a reference to Item investment investment the description of the agreement) Theoretical annual income from 100% 100% the oil asset after discovery (%) List of royalties or fees (derived from income after discovery) at the oil asset level*: The state 11.21% 11.21% Calculated by the wellhead price, i.e., the expenses involved in conveying the gas from the platform to its point of delivery at the Ashdod shore is deducted from the 12.5%. Total 11.21% 11.21% Eliminated income at the oil 88.79% 88.79% asset level. The part ascribed to the holders 28.783% 28.783% of the corporation's capital rights, which is reported in the eliminated oil asset income (through linking) The total part of the holders of 25.56% 25.56% the reporting corporation's capital rights in the effective rate of income, at the oil asset level [prior to other payments at the level of the reported corporation]. The share of the holders of the 0.630% 2.732% reporting corporation's capital rights in income from additional royalties generated by the asset. The holders of capital rights in the 0.5776% 0.5776% reporting entity's share of the income as the result of the receipt of additional royalties from the asset List of royalties or payments (derived from post-discovery income) related to the oil asset at the level of the reporting corporation: At the level of the reporting corporation: List of royalties or fees (derived from post-discovery income) related to the oil asset at the level of the reporting corporation (the percentages listed below will be calculated according to the share of the holders of the reporting corporation's capital rights in the oil asset): At the level of the reporting corporation: The share of the holders of the - - reporting corporation's capital rights in the payment to [another service provider deriving the payment at the level of the reporting corporation]

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Ruth Licenses Abbreviated explanation as to Percentage Percentage how the royalties or the payments up to the after the are calculated (including the return of return of deduction of expenses and other the the items) (as well as a reference to Item investment investment the description of the agreement) The share of the holders of the 1.1198% 2.5498% In the consolidated partnership – reporting corporation's capital royalties at the rate of 3% up to rights in the payment to [a investment recovery and of 13% after general partner/other service the investment recovery is paid to the provider deriving the payment royalty owners, deducting wellhead at the level of the reporting expenses at the rate calculated for corporation] royalties paid to the government. In the associated partnership – royalties at the rate of 6% paid to the royalty owners, deducting wellhead expenses at the rate calculated for royalties paid to the government. ======The effective part attributed to 25.07% 25.74% the holders of the reporting corporation's capital rights in the income of the oil asset.

7. Notes to the calculation of the effective part allocated to the holders of the partnership's capital rights in the exploration, development and recovery expenses at the Ruth license areas.

Abbreviated explanation as to how the royalties or the payments are calculated (including the deduction of expenses and other items) (as well as a reference Item Percentage to the description of the agreement) Theoretical oil asset expenses after 100% discovery (%) List of payments (derived from expenses) at the oil asset level*: Operator 4%-1% The rate in the table relates to the exploration expenses. These sums are the indirect expenses that are added to the reimbursement of expenses paid the operator. The rate of operator fees decreases as the exploration expenses increase. The rate of payment for development expenses has not been set yet. Total effective rate of expenses at the 104%-101% oil asset level. The part ascribed to the holders of the 28.783% corporation's capital rights, in the oil asset expenses (through linking) The total part of the holders of the 29.93%- reporting corporation's capital rights in 29.07% the effective rate of income, at the oil asset level [prior to other payments at the level of the reported corporation].

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Abbreviated explanation as to how the royalties or the payments are calculated (including the deduction of expenses and other items) (as well as a reference Item Percentage to the description of the agreement) At the company level: List of payments (derived from expenses) relating to the oil asset at the partnership level (the percentages listed below will be calculated according to the share of the holders of the reporting corporation's capital rights in the oil asset): The general partner in the reporting According to the partnership agreement, corporation the general partner is entitled to 7.5% of the total expenses of the associated partnership, and no less than USD 40 thousand per month in the quarterly accounting, the higher of the two sums. Since explorations are currently being undertaken in the license areas, the operator fee rates are those stipulated in the partnership agreement. The effective part attributed to the 29.93%- holders of the reporting corporation's 29.07% capital rights in the expenses associated with the exploration, development or recovery activities at the oil asset.

8. Compensations and payments paid during the course of exploration, development and recovery activities at the oil asset

Ruth Licenses Item The holders of the Of which the holders Of which the holders capital rights in the of the capital rights of the capital rights in Company’s overall in the Company’s the Company’s share in the overall share of the overall share of the investment in the oil payments to the payments to the asset in the period1 general partner operator The budget that was 450 0 17 actually invested in the year 2008 (including the said payments) The budget that was 67 0 2 actually invested in the year 2009 (including the said payments) The budget that was 2,409 0 54 actually invested in the year 2010 (including the said payments)

1 Including costs (exploration, production and so on) in respect of which payments are paid to the operator.

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B. Alon licenses 1. General General details in respect of the oil asset Name of the oil asset: 364/Alon A 365/ Alon B 366/ Alon C 367/ Alon D 368/ Alon E 369 /Alon F Location: An offshore asset, about 50—40 km. North- west of the shores of Nahariya Area: About 2,400km2 Type of the oil asset and description of the License permitted activities for that sort: Activities permitted by the Petroleum Law - Exploration and production. Date of the original granting of the oil asset: 1.3.2009 Date of the original expiry of the oil asset: 29.2.2012 The dates on which decisions were taken to extend - the period of the oil asset: The current date on which the oil asset will expire: 29.2.2012 Note whether there is an additional possibility of Subject to the Petroleum Law, it is possible to extending the period of the oil asset: if there is such extend the original license up to seven years from a possibility – note the period of the possible the date it was issued, with an option for further extension: extension in the event of discovery. Note the name of the operator: Noble Note the names of the direct partners in the oil (1) Noble - (47.059%)1 asset and their direct shares in the oil asset, and (2) Delek Drilling - (26.4705%)2 also, to the best of the Company’s knowledge, the (3) Avner - (26.4705%)3 names of the controlling interests in the said Also, as regards the additional partners to the Alon partners E license subject to the conditional transfer, see section 1.11.29 below.

General details in respect of the Company's share in the oil asset Note the date of the acquisition of the holding in the 4- oil asset that was acquired: Description of the nature and the manner of the Through its holdings in Delek Drilling and Avner Company’s holding in the oil asset: Partnership participation units. On the 23.2.2011, the Partnerships and Noble signed conditional agreements with third parties, for the sale of part of their rights in the Alon E/368 license, as detailed in section 1.11.29 below. Said agreements are subject to various approvals as detailed in the agreements. Once the transfer of ownership and rights according to said agreements is completed, the participation rights held by each of the partners to the Alon E/368 license will be 12.5%. Note the effective share that is attributed to the 28.699% holders of the Company's capital rights in the oil asset: The overall share of the holders of the Company’s USD 4,6345 capital rights in the cumulative investment in the oil asset during the course of the five years that preceded the last day of the reporting year (whether recognized as an expense or as an asset in the financial statements):

1 The names of the controlling owners have been given above. See section 1.11.3 A 2 The names of the controlling owners have been given above. See section 1.11.1 D 3 The names of the controlling owners have been given above. See section 1.11.1 D 4 The Alon licenses were granted on 1.3.2009, in lieu of the Alon/198 preliminary permit. 5 As of 31.12.2010.

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2. Meeting the conditions of the activities planned for the Alon licenses as of the report date The following are the planned activities for each of the Alon Licenses:

Description of planned activities that have not been Description of the Description of planned activities that carried out yet activities planned for the have been carried out during the during the Period period period period 2008 - A 2D seismic survey covering about - 2,700 km of seismic lines, which also included the preliminary permit areas of Alon and Ratio Yam. The total cost of the survey amounted to about USD 6 million.1 2009 Mapping potential prospects The results of the 2D seismic survey The planned based on the new seismic covering the license areas were activities were survey, mapped carried out seismic facies analysis, rock physics and assessment of potential by December 1, 2009. 2010 – Economic analysis of An economic analysis was carried out The planned As of prospects up to 1.3.2010. as required. activities were the An additional 2D-3D A 3D seismic survey was carried out carried out report seismic survey, if required over parts of the Ruth and Alon license date by the 1.3.2011. An areas. The survey covered an area of agreement regarding about 2350 km2 in the Alon B, Alon C, offshore drilling will be Alon D, Alon F, Ruth A, Ruth B and signed with a drilling Ruth C license areas, as well as the contractor by the 1.3.2011. drilling areas of Tamar and Dalit. The survey is currently being processed and deciphered and the results are expected in the course of the last quarter of 2011.The operator of the licenses has signed an agreement with a drilling contractor according to which it will be possible to drill in some of the license areas, as determined.

1 The survey was carried out before the license was received, and there is therefore no binding activity plan for this period.

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3. Binding future plan of activities according to the conditions of the oil asset

Estimate of the effective share of the partners in the overall budget (in Estimate of the budget that is thousands of Description of the required for the execution of the Dollars)(with a updated work plan that work plan (in thousands of division into the has been set for the Dollars)(with a division into the main main Period period components) components) 2011 - - -

2012 Commencement of tertiary TBD TBD goal drilling by 29.2.2012. 2013 As stated above, as of the TBD TBD report date, the Ruth licenses expiration date is 29.2.2012. Thus, at the time of this writing, the license sets no conditions for this period.

4. Planned and actual activities in Alon licenses The following is a concise description of the main activities actually carried out in the Alon license areas during the period 1.1.2008 to the time of writing, along with a concise description of the activities planned to take place within said license areas:

The Alon Licenses Period Abbreviated description of the The overall actual cost/ The Company's activities actually performed for the estimated overall effective share of the period/ an abbreviated budget for operations at the cost/ budget description of the planned work the level of the oil asset (in thousands of program (in thousands of Dollars) Dollars) 2008 A 2D seismic survey covering 1,705 489 about 2,700 km of seismic lines, which also included the preliminary permit areas of Ruth and Ratio Yam. The total cost of the survey amounted to about USD 6 million. 2009 Potential prospects have been 4,080 1,171 mapped on the basis of the 2D seismic survey carried out in 2008 (along the Ratio Yam license areas) and 3D seismic surveys have been conducted 2010 A 3D seismic survey was carried 10,109 2,901 out over parts of the Ruth and Alon license areas. The survey covered an area of about 2,350 km2 in the Alon B, Alon C, Alon D, Alon F, Ruth A, Ruth B and Ruth C license areas, as well as the drilling areas of Tamar and Dalit. The survey covered an area of about 2350 km2 in the Alon B, Alon C, Alon D, Alon F, Ruth A, Ruth B and Ruth C license areas, as well as the drilling areas of Tamar and Dalit. The survey is at the processing and interpretation stage.

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The Alon Licenses Period Abbreviated description of the The overall actual cost/ The Company's activities actually performed for the estimated overall effective share of the period/ an abbreviated budget for operations at the cost/ budget description of the planned work the level of the oil asset (in thousands of program (in thousands of Dollars) Dollars) 2011 Processing and interpretation of 1,000 287 the 3D seismic survey results, carried out in 2010. The results of the processing and interpretation are expected to be received in the course of the fourth quarter of 2011. 2012 Commencement of tertiary goal TBD. Drilling cost between 14,350-20,089 drilling by 29.2.2012, in each USD 50 to 70 million. license area. 2013 and As stated above, as of the time of - - thereafter writing, the expiration date of the Ruth licenses is 29.2.2012.

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5. Disclosure of effective rate of participation in the expenses and income of the Alon licenses

Percentage Percentage Rate grossed up Rate grossed up before the after the return to 100% before to 100% after the return of the of the the return of the return of the Participation rate investment investment investment investment Explanations The effective share of the oil asset that is attributed to the 28.699% 28.699% 100% 100% holders of the capital rights of the entity The effective share of the income from the oil asset that 24.95% 25.58% 86.92% 89.15% See calculation in is attributed to the holders of the capital rights of the section (6) below. entity The effective share expenses involved in the exploration, 28.99%- 28.99%-29.85% 101%-104% 101%-104% See calculation in development or production expenses for the oil asset that 29.85% section (7) below. is attributed to the holders of the capital rights of the entity

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6. Notes to the calculation of the effective part allocated to the holders of the partnership's capital rights in the income, given a scenario of gas or oil discovery at the Alon license areas.

Abbreviated explanation as to Percentage Percentage how the royalties or the payments up to the after the are calculated (including the return of return of deduction of expenses and other the the items) (as well as a reference to Item investment investment the description of the agreement) Theoretical annual income from 100% 100% the oil asset after discovery (%) List of royalties or fees (derived from income after discovery) at the oil asset level*: [The State] 11.21% 11.21% Calculated by the wellhead price, i.e., the expenses involved in conveying the gas from the platform to its point of delivery at the Ashdod shore is deducted from the 12.5%. Total 11.21% 11.21% Eliminated income at the oil asset 88.79% 88.79% level. The part ascribed to the holders of 28.699% 28.699% the corporation's capital rights, which is reported in the eliminated oil asset income (through linking) The total part of the holders of the 25.48% 25.48% reporting corporation's capital rights in the effective rate of income, at the oil asset level [prior to other payments at the level of the reported corporation]. The share of the holders of the 0.5996% 2.5981% reporting corporation's capital rights in income from additional royalties generated by the asset. List of royalties or fees (derived from post-discovery income) related to the oil asset at the level of the reporting corporation: At the level of the reporting corporation: The share of the holders of the - - reporting corporation's capital rights in the payment to [another service provider deriving the payment at the level of the reporting corporation] The share of the holders of the 1.1363% 2.4962% In the consolidated partnership – reporting corporation's capital overriding royalties at the rate of 3% up rights in the payment to [a general to investment recovery and of 13% partner/other service provider after the investment recovery is paid to deriving the payment at the level the royalty owners, deducting wellhead of the reporting corporation] expenses at the rate calculated for royalties paid to the government. In the associated partnership – overriding royalties at the rate of 6% paid to the royalty owners, deducting wellhead expenses at the rate calculated for royalties paid to the government. ======The effective part attributed to 24.95% 25.58% the holders of the reporting corporation's capital rights in the income of the oil asset.

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7. Notes to the calculation of the effective part allocated to the holders of the partnership's capital rights in the exploration, development and production expenses at the Alon license areas.

Abbreviated explanation as to how the royalties or the payments are calculated (as well as a reference to the description Item Percentage of the agreement) Theoretical oil asset expenses after 100% discovery (%) List of payments (derived from expenses) at the oil asset level*: Operator 4%-1% The rate in the table relates to the exploration expenses. These sums are the indirect expenses that are added to the reimbursement of expenses paid the operator. The rate of operator fees decreases as the exploration expenses increase. The rate of payment for development expenses has not been set yet. Total effective rate of expenses at the 104%-101% oil asset level. The part ascribed to the holders of the 28.699% partnership's capital rights, in the oil asset expenses (through linking) The total part of the holders of the 29.85% partnership's capital rights in the effective rate of income, at the oil asset level [prior to other payments at the level of the partnership]. At the level of the partnership: List of payments (derived from expenses) associated with the oil asset at the partnership level: The general partner in the reporting According to the partnership agreement, corporation the general partner is entitled to 7.5% of the total expenses of the associated partnership, and no less than USD 40 thousand per month in the quarterly accounting, the higher of the two sums. Since explorations are currently being undertaken in license areas, the operator fee rates are those stipulated in the partnership agreement. The effective part attributed to the 29.85%- holders of the reporting corporation's 28.99% capital rights in the expenses associated with the exploration, development or recovery activities at the oil asset.

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8. Royalties and payments paid during the course of exploration, development and recovery activities at the oil asset

Alon licenses Item The holders of the Of which the holders Of which the holders capital rights in the of the capital rights of the capital rights in Company’s overall in the Company’s the Company’s share in the overall share of the overall share of the investment in the oil payments to the payments to the asset in the period1 general partner operator The budget that was 489 0 17 actually invested in the year 2008 (including the said payments) The budget that was 1,171 0 34 actually invested in the year 2009 (including the said payments) The budget that was 2,901 0 65 actually invested in the year 2010 (including the said payments)

C. Oil assets that are negligible for the company's activities As of the report date, the following oil assets are negligible for the company's activities: 1. 337/Avia license General

General details in respect of the oil asset Name of the oil asset: 337/Avia Location: About 60 km offshore from the coasts of Tel Aviv and Ashdod Area: About 400km2 Type of the oil asset and description of the License permitted activities for that sort: Activities permitted by the petroleum law - Exploration and recovery. Date of the original granting of the oil asset: 10.6.2007 Date of the original expiry of the oil asset: 9.6.2010 The dates on which decisions were taken to 31.5.2010; extend the period of the oil asset: 13.2.2011 The current date on which the oil asset will expire: 31.12.2011 Note whether there is an additional possibility Subject to the Petroleum Law, it is possible to of extending the period of the oil asset: if there extend the original license up to seven years is such a possibility – note the period of the from the date it was issued, with an option for possible extension: further extension in the event of discovery. Note the name of the operator: Avner Gas and Oil Ltd.2 Note the names of the direct partners in the oil (1) Delek Drilling - (50%).3 asset and their direct shares in the oil asset, and (2) Avner - (50%)4. also, to the best of the Company’s knowledge, the Also, as regards the additional partners to the names of the controlling interests in the said Alon E license subject to the conditional partners transfer, see section 1.11.29 L below.

1 Including costs (exploration, production and so on) in respect of which payments are paid to the operator. 2 According to the license's conditions of rights transfer (see section 1.11.29L below), ATP East Med Number 1 B.V. will be nominated as license operator. 3 The names of the controlling owners have been given above. See section 1.11.1 D 4 The names of the controlling owners have been given above. See section 1.11.1 D

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General details in respect of the Company's share in the oil asset Note the date of the acquisition of the holding in the oil asset that was acquired: Description of the nature and the manner of the Through its holdings in Delek Drilling and Company’s holding in the oil asset: Avner Partnership participation units. On the 23.2.2011, the Partnerships and Noble signed conditional agreements with third parties, for the sale of part of their rights in the Alon E/368 license, as detailed in section 1.11.29 L below. Said agreements are subject to various approvals as detailed in the agreements. Once the transfer of ownership and rights according to said agreements is completed, the participation rights held by each of the partners to the license will be 12.5%. Note the effective share that is attributed to the 54.21% holders of the Company's capital rights in the oil asset: The overall share of the holders of the Company’s USD 1,4221 capital rights in the cumulative investment in the oil asset during the course of the five years that preceded the last day of the reporting year (whether recognized as an expense or as an asset in the financial statements):

Binding future plan of activities according to the conditions of the license

Estimate of the Estimate of the effective share budget that is of the company required for the in the overall execution of the budget (in work plan (in thousands of thousands of Dollars)(with a Dollars)(with a division into the Description of the work plan that was set division into the main Period for the period main components) components) 2011 Processing of a new 3D seismic survey 400 carried out over the license area by the 30.04.2011 Interpretation of the new 3D survey and additional 2D seismic lines, in order to improve the existing prospect and identify additional prospects, including the presentation of a summary report to the Petroleum Commissioner's office by the 30.6.2011, Carrying out an AVO analysis of the new 3D seismic survey data, in order to identify amplitude anomalies in prospects within the license areas and presenting a summary report by the 31.07.2011. Signing an agreement with a drilling contractor to drill within the license areas – by the 1.08.2011. TGS will process depth dimension data (PSDM) along existing 2D lines within the license area, in order to identify deep targets by the 31.08.2011.

1 As of 31.12.2010.

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Estimate of the Estimate of the effective share budget that is of the company required for the in the overall execution of the budget (in work plan (in thousands of thousands of Dollars)(with a Dollars)(with a division into the Description of the work plan that was set division into the main Period for the period main components) components) 2011 Completion of seismic data analysis along the (contd.) time and depth dimensions, integration of all relevant geophysical and geological data, preparation of one prospect or more for drilling within the license area, and their presentation to the commissioner's office by the 30.11.2011. Beginning of first drilling within the license area, by the 31.12.2011. Once processing is complete, a copy of the Seismic 2D and 3D data, both for the depth dimension and for the time dimension, as well as the reports and the accompanying data, will be transferred to the national archive of the geophysical institute. 2012 As stated above, as of the time of writing, the ______expiration date of the Avia license is 31.12.2011. 2013 As stated above, as of the time of writing, the ______expiration date of the Avia license is 31.12.2011.

2. 338/Keren License General

General details in respect of the oil asset Name of the oil asset: 338/Keren

Location: About 60 km offshore from the coasts of Tel Aviv and Ashdod Area: About 400km2 Type of the oil asset and description of the License permitted activities for that sort: Activities permitted by the petroleum law - Exploration and recovery. Date of the original granting of the oil asset: 10.6.2007 Date of the original expiry of the oil asset: 9.6.2010 The dates on which decisions were taken to 17.3.2011 extend the period of the oil asset: The current date on which the oil asset will 31.3.2012 expire: Note whether there is an additional possibility Subject to the Petroleum Law, it is possible to of extending the period of the oil asset: if there extend the original license up to seven years is such a possibility – note the period of the from the date it was issued, with an option for possible extension: further extension in the event of discovery. Note the name of the operator: Avner Gas and Oil Ltd.1

Note the names of the direct partners in the oil Avner (50%)2 asset and their direct shares in the oil asset, Also, as regards the additional partners to the and also, to the best of the Company’s license, subject to the conditional transfer, see

1 According to the license's conditions of rights transfer (see section 1.11.29L below), ATP East Med Number 1 B.V. will be nominated as license operator. 2 The names of the controlling owners have been given above. See section 1.11.1 D

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knowledge, the names of the controlling section 1.11.29 L below. interests in the said partners

General details in respect of the Company's share in the oil asset Note the date of the acquisition of the holding in - the oil asset that was acquired: Description of the nature and the manner of the Through its holdings in Delek Drilling and Company’s holding in the oil asset: Avner Partnership participation units. On the 23.2.2011, the Partnerships and Noble signed conditional agreements with third parties, for the sale of part of their rights in the Alon E/368 license, as detailed in section 1.11.29 L below. Said agreements are subject to various approvals as detailed in the agreements. Once the transfer of ownership and rights according to said agreements is completed, the participation rights held by each of the partners to the license will be 12.5%. Note the effective share that is attributed to the 54.21% holders of the Company's capital rights in the oil asset: The overall share of the holders of the Company’s 385 1 capital rights in the cumulative investment in the oil asset during the course of the five years that preceded the last day of the reporting year (whether recognized as an expense or as an asset in the financial statements):

Binding future plan of activities according to the conditions of the license

Estimation of the effective part of the company in the Estimated budget required general budget for carrying out the planned (NIS thousands activities (NIS thousands divided according Description of the activities divided according to the to the main Period planned for the period main elements) elements) 2011 Signing a drilling agreement TBD TBD with a contractor by the 30.9.2011 2012 Beginning of drilling operations TBD TBD according to the amended prospect by the 31.3.2012 2013 As stated above, as of the time ______of writing, the expiration date of the Keren license is 31.3.2011.

1 As of 31.12.2010.

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3. 321/Zerach license – Tzuk Tamrur enclave General

General details in respect of the oil asset Name of the oil asset: Participation right in the Tzuk Tamrur enclave located within the 321/Zerach license area Location: An onshore asset in the Dead Sea area Area: The enclave is an area of about 16.5 km2, located within the 321/Zerach license area, spread over an area of about 400km2 Type of the oil asset and description of the License permitted activities for that sort: Activities permitted by the petroleum law - Exploration and recovery. Date of the original granting of the oil asset: 1.1.2004 Date of the original expiry of the oil asset: 31.12.2006 The dates on which decisions were taken to 15.12.2009 extend the period of the oil asset: The current date on which the oil asset will 31.12.2010 1 expire: Note whether there is an additional possibility of extending the period of the oil asset: if there is such a possibility – note the period of the possible extension: Note the name of the operator: Avner Gas and Oil Ltd. Note the names of the direct partners in the oil In the Tzuk Tamrur enclave - asset and their direct shares in the oil asset, (1) Zerach Oil and Gas Exploration Ltd. – A and also, to the best of the Company’s limited partnership ("Zerach") (50%). To the knowledge, the names of the controlling best of the partnership's knowledge, the interests in the said partners general partner in Zerach, Zerach Oil and Gas Exploration Ltd, is a private company, in which all of the company's issued and paid-up stock and all of its voting rights are held by Ginko Oil Exploration Limited Partnership, whose stakeholders are: Avraham (Rami) Karmin (27.37%), Yair Karni himself and by proxy of a company in his possession (24.92%), Yair Karni in trust for Nissan Hachshuri (13.12%), Nazarian & Friends, LLC. (7.45%), Louis and Nissan Hachshuri (6.82%), Moshe Shushan (1.33%), Eliyahoo Shushan (1.33%), Dov Slalouk (1.33%), Gad Ezer Slalouk (1.33%), Alon Nathan (1.33%), and Yoseph Engelchin (1.33%).2 (2) Delek Drilling - (25%)3 (3) Avner - (25%)4.

At the Tsuk Tamrur Drilling 3 - (1) Delek Drilling - (22.386%) (2) Avner - (22.386%) (3) Lapidot Israel Oil Exploration Ltd. (10.456%); To the best of the partnership's knowledge the holder of the controlling interest

1 The license has expired on the 31.12.2010 after the Petroleum Commissioner rejected the license partners request for a lease to the area, and after it was determined that the discovery in the Tzuk Tamrur enclave within the area of the Zerach license, is not a commercially viable discovery. Alternatively, the commissioner refused to extent the license's validity. The partners to the license contend that they have made "discoveries" within the license area, as defined by the Petroleum Law and they are therefore entitled to receive a lease for the area. In view of the above, the partnership is considering the options available to it in order to receive a lease as provided by the Petroleum Law, including appealing the Commissioner's decision. 2 As of 9.2.2011, the holdings of all stakeholders in Zerach were less than 22%. 3 The names of the controlling owners have been given above. See section 1.11.1 D 4 The names of the controlling owners have been given above. See section 1.11.1 D

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General details in respect of the oil asset in Lapidot is Mr. Yaakov Luxenburg, via companies under his control. (4) Zerach - (44.772%)

General details in respect of the Company's share in the oil asset Note the date of the acquisition of the holding in - the oil asset that was acquired: Description of the nature and the manner of the Through its holdings in Delek Drilling and Company’s holding in the oil asset: Avner Partnership participation units. Note the effective share that is attributed to the 27.105% holders of the Company's capital rights in the oil asset: The overall share of the holders of the Company’s 2,133 Thousands USD 1 capital rights in the cumulative investment in the oil asset during the course of the five years that preceded the last day of the reporting year (whether recognized as an expense or as an asset in the financial statements):

Binding future plan of activities according to the conditions of the oil asset On the 30.12.2010 the Petroleum Commissioner notified the partners to the lease that the oil production taking place according to the license cannot be recognized as a discovery according to the Petroleum Law, since the economic calculation carried out by the Petroleum Commissioner's office and the assumptions regarding future recovery on which this calculation was based, do not meet the criterion of commercial viability so that beginning from the second year of production, the balance would indicate a loss. In light of the above, the Petroleum Commissioner has announced that the license will expire on the 31.12.2010. It should be noted that said calculation was carried out by the Petroleum Commissioner's office and not shown to the license partners, but its conclusions do not coincide with the calculation carried out by the license partners and presented to the Commissioner, according to which it is unequivocally indicated that production in the license area is profitable and meets the criterion for commercial viability. The partners to the license contend that they have made "discoveries" within the license area, as defined by the Petroleum Law and they are therefore entitled to receive a Lease for the area. In view of the above, the Partnerships have appealed the Commissioner's decision to the Minister of National Infrastructures. 1.11.7 Rights in Cyprus A. On 22.1.2009, the general partners in the Limited Partnerships signed an agreement with the affiliated company Noble ("Noble Cyprus") in which Noble Cyprus undertook to pay the general partners 15% of a product sharing contract with the Cypriot government ("the PSC"), subject to the approval of the Cypriot authorities, as described below ("The Transfer Agreement"). The concession agreement grants oil and/or gas exploration and recovery rights in the Cypriot territorial waters known as Block 12, located 15-20 km west of the Alon licenses ("Block 12"). On the 22.1.2009, each of the Partnerships signed an option agreement (amended on the 29.12.2009 and on the 20.12.2010) with the general partner ("The option agreement") so as to receive all rights transferred to the general partner according to the above transfer agreement, after such rights are assigned to the general partner (subject to their having been received by the general partners and subject to the exercise conditions as described below). B. In return for said option, the Partnerships undertook to pay the general partners any amount paid by them with respect to the PSC rights and/or to indemnify the general partners for any

1 As of 31.12.2010.

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liability imposed upon them under the PSC and/or the agreements that will be signed with Noble Cyprus pertaining to the PSC for Block 12 (the transfer agreement and the JOA as stipulated below), from the date the PSC is signed until the date the option expires or is exercised, including the Partnerships' relative share in the costs deriving from the PSC pertaining to the works that are required at the initial stage (up to three years from the date the PSC is signed) and including amounts and liabilities incurred during the option period and/or to which the general partners are obligated during the option period, with a payment date that is later than the expiry date of the option. C. It is hereby explicitly stated that the consideration for the option is not limited to the sums noted in this section and in section K below, and it is possible that further, presently unforeseen, obligations or expenses may be imposed on the general partners. However, such obligations may only apply after the Cypriot authorities have authorized the transfer of rights as detailed below. D. The option agreement also stipulates that the option may be exercised, without additional consideration, by 30.6.2011. It is noted that the Partnerships will not exercise the option unless the TASE bylaws are amended so that oil exploration partnerships are permitted to participate in the explorations in Block 12. If the TASE bylaws are not amended (as described below), the Partnerships will not be able to exercise the option, although they will continue to bear their obligations under the option agreement. In such event, the Partnerships will consider selling their option to the highest bidder. It is also noted that it is not at all certain that the Partnerships will be able to find a buyer for the options to which they are entitled according to the option agreement and/or will be able to sell the rights to which they are entitled according to the option agreement at a price that will reflect their expenses in accordance with the option agreement. Therefore, the Partnerships may be required to bear the expenses of the works in Block 12 without receiving any benefit from the PSC and the rights to which they are entitled according to the option agreement. E. It is noted that under Article 8 of the Income Tax (Deductions from revenues of oil rights holders) Regulations, 1956, the Petroleum Commissioner has confirmed the applicability of the regulations to the Partnerships in Block 12 as well, subject to the conditions set by him. F. In the transfer agreement signed 22.1.2009, between the general partners and Noble Cyprus, Noble Cyprus undertook to transfer to the general partners 15% (each) of the participation rights in Block 12, subject to the approval of the Cypriot authorities, which has not yet been received ("the Transfer Agreement"). The transfer agreement was signed subsequent to the joint agreement of the general partners and Noble Cyprus, according to which Noble Cyprus will act to receive the rights in Block 12 from Cyprus and if these rights are received, the general partners will receive between 30% to 40% of the rights and the liabilities under the PSC. After Noble Cyprus signed the PSC as above, the general partners informed Noble Cyprus that they wanted 15% (each) of the rights and liabilities under the PSC, and to transfer them in full to the Partnerships. G. It is hereby explicitly stated that as of this writing, Noble Cyprus has not yet presented the Cypriot authorities with the request to transfer the rights to the general partners, and for this reason the authorities' approval of the transfer has not been received yet. In view of this situation, should an option be exercised before the Cypriot authorities have given their approval, each of the partnerships will step into the shoes of the general partner in the transfer agreement, until all approval required for the transfer is received. According to the transfer agreement (as amended), should the approval of the Cypriot authorities not be forthcoming by the 29.12.2012 or an earlier date set according to the provisions of the transfer agreement, but no earlier than the 31.1.2011, the general partners will be entitled to cancel the agreement in exchange for reimbursement of all expenses, or to transfer their rights to a third party acceptable to the Cypriot authorities and to Noble Cyprus, all subject to the transfer agreement's conditions. H. According to the TASE bylaws, the Partnerships are not entitled to carry out projects that are not defined specifically in the limited partnership agreement. "Project" in the TASE bylaws means oil and gas exploration or recovery under an oil right or preliminary permit with priority rights to receive a license as defined in the Petroleum Law, and as granted to the Partnership. As Block 12 does not lie within the territorial waters of Israel, Israeli jurisdiction does not apply and is not granted under the Petroleum Law, therefore, according to the current version of the TASE bylaws, the Partnerships may not participate in exploration activities in this region.

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I. The general partners have appealed to the TASE to amend the bylaws, so as to enable the Partnerships to participate in exploration beyond Israel's territorial waters. The TASE has yet to approve this request. Therefore, the general partners signed the transfer agreement and at the same time, the general partners and Noble Cyprus signed a JOA applicable to Block 12, in order to regulate the operation if the abovementioned transfer is approved. The JOA covers the same issues included in the JOA for the Yam Tethys project described above, wherein resolutions are adopted by a decisive majority vote, i.e., a positive vote in favor of a decision, by at least two participants who are not affiliated parties and who jointly hold at least 65% of the license rights. In addition, Noble Cyprus was appointed as the operator. J. As Noble informed the Partnerships, on the 24.10.2008, Noble Cyprus and the Republic of Cyprus signed the PSC. The PSC defines the terms for oil exploration and production in Block 12, including the agreement period, project area, project work plan, guarantees to be provided to ensure that the work will be carried out, tax provisions, bonuses payable according to project development stages, and the right of Cyprus to a share in any oil and/or gas that may be recovered, if recovered, according to the arrangements defined in the PSC. The term of the agreement was based on the progress of the work stages. K. The work plan for Block 12 up to the end of the first period in October of 2011, includes, inter alia, the preparation of a report on existing Block 12 seismic data, preparation and processing of a seismic survey, and interpretation and mapping of the data arising from the survey. At the time of writing, a 3D seismic survey has been carried out. The estimated budget for the period of the preliminary stage encompassed by the PSC (3 years) is about EUR 7 million (about USD 9.55 million) (for 100% of rights). The Partnerships' share of said costs is EUR 1,050 thousand (about USD 1.45 million) (each). Said costs will be paid in fixed monthly installments. Payments adjustment according to actual liabilities on the basis of the costs incurred in the implementation of the Block 12 work plan and on the basis of the JOA applied to Block 12, will be carried out at the time of transfer. L. From the beginning of the Cyprus operation up to the third quarter of 2010, the total expenses for Block 12 operations are estimated at about EUR 4,000 thousand (about USD 7 million) (for 100% of the rights), wherein the Partnerships' share is about USD 1.05 million (each). At the time of writing, the Partnerships are expected to be charged with fixed monthly payments amounting to about USD 300 thousand (each) for the year 2011. 1.11.8 Participation rights in oil assets in the US A. Delek Energy's operations in the US are carried out through Delek Energy USA, commencing from 2006, when Delek USA acquired 83.49% of rights in AriesOne, a limited partnership involved in the exploration and recovery of oil and gas, mainly in the south of the United States (Texas, Louisiana, Colorado, Kansas, Oklahoma and New Mexico). Later that same year, Delek acquired 50% of the gas and/or oil exploration and recovery rights of the Alvord project in the Wise district of Texas. In 2008, Delek USA acquired the full share capital of Elk Resources LLC, USA ("Elk") and the full rights to the loan taken by Elk from a hedge fund in the USA. Elk's oil assets are located in Utah and in New Mexico. USD 95.5 million, were paid in consideration of the acquisition of Elk, of which USD 78.5 million were used to repay Elk's said loan from the hedge fund. B. In 2011, Delek Energy began to realize its oil and gas assets in the US, as part Delek Energy's plans to focus on its core businesses in Israel, following the gas discoveries at Tamar, Dalit and Leviathan.

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C. Quantities According to a report received from Netherland and Sewell & Associates, Inc. ("NSAI"), The Elk assets natural oil and gas reserves (located in Utah and New Mexico"), as of 31.12.2010, were as follows:

Oil Natural gas NGL Natural gas (barrels) (MMCF) liquids (barrels) PDP – Proved Developed Producing 1,474,111 438 20,246 PDNP- Proved Developed Non Producing 810,834 142 9,740 PUD - Proved Undeveloped 6,191,173 2,127 55,114 Total Proved 8,476,117 2,703 85,100 Total Probable 6,853,469 1,738 23,104 Total Proved+ 15,329,586 4,441 108,204

A word of caution regarding forward looking information – the above estimates and data regarding oil and gas reserves are based on future estimates. Said information is based on Delek Energy estimations based on a variety of factors, including geological, geophysical, economic and other data and estimations, in regard to which there can be no assurance. Estimations may prove to be wrong should experts change their appraisal, or should data change following survey and drilling results and/or if changes take place in the relevant economic conditions and/or the total array of unforeseen factors associated with oil and gas explorations, most of which are described in section 1.11.33 below, which discusses the various risk factors. 1.11.9 Delek Energy's continued activities in the US A. In the course of February 2011, Delek USA signed two agreements for the sale of part of its US oil holdings, as follows: 1. On the 14.2.2011, a transaction for the sale of part of Delek Energy USA's oil and gas assets, located in Texas ("the sold assets") was signed and completed. The sold assets comprise, inter alia, oil wells producing (as of the last quarter of 2010) about 100 barrels of oil per day, net (deducting royalties). The sale was completed for the sum of USD 11 million in cash. According to the agreement, as of the 1.1.2011, the operational results of the sold assets, will be transferred to the purchasing company. The expected Delek Energy profit from said transaction (deducting transaction expenses) will amount to USD 8.5 million and will be recorded in Delek Energy's books in the first quarter of 2011. 2. On the 15.2.2011, an agreement was signed for the sale of an additional part of Delek USA's oil and gas assets ("the agreement"). The assets covered by the agreement are mainly located in Texas, Oklahoma and New Mexico and comprise, inter alia, oil wells producing (as of the last quarter of 2010) about 250 barrels of oil per day, net (deducting royalties) ("the sold assets"). According to the agreement, as of the 1.1.2011, the sold assets and the operational results of the sold assets will be transferred to the purchasing company. The transaction was completed on the 25.3.2011. In consideration for the sale of said assets, Delek Energy USA received the total sum of USD 31.3 million, and the expected profit from this transaction (deducting transaction expenses) will amount to USD 16.7 million and will be recorded in Delek Energy's books in the first quarter of 2011. 3. Delek Energy USA continues to negotiate the sale of additional US oil and gas assets, and in the context of these negotiations Delek Energy USA may sell its US assets in their entirety. Delek Energy estimates that realization of all its US operations, should it be completed (including said transactions) will not produce any material profit or loss for the company. caution regarding forward looking information – the above estimate regarding the results of the above mentioned transactions and the sale of the US oil and gas assets in their entirety, constitutes forward looking information in the sense provided by section 32A of the Securities Law and is based on US operations data and the negotiations relating to their sale. There is no certainty that US oil and gas assets will be sold in their entirety. Said estimate may not be realized (for better or for worse) or be partially realized, as it depends, inter alia, on the timing

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of the sales, when they should take place, the assets sold, the prices of oil and the terms agreed with the buyers. 1.11.10 Additional International Operations A. Oil production rights in the North Sea On April 26, 2007, Delek Energy Gibraltar signed an agreement with Noble Energy Oilex Ltd. ("Noble Oilex"), a subsidiary of Noble Energy Inc. Pursuant to the agreement, Delek Energy Gibraltar acquired 25% of the rights in Block 21/20 F in the North Sea, covering an area of about 22 km2, and located 190 km east of the coast of Scotland, adjacent to producing oil fields ("the license"). On January 13, 2008 an exploration drilling was carried out in Block 21/20f, and in view of results it was subsequently sealed and abandoned. As of this writing, there are no material operations in the license area and no work plan has been established. Delek Energy and the project partners are considering their continued activities in the project, if at all. B. Acquisition of shares in Matra 1. General On March 29, 2007, Delek Energy International signed an agreement with Matra Petroleum PLC ("Matra Petroleum"). A company involved in oil exploration in Russia and Hungary. The company is registered in the UK and its shares are listed for trading as MTA on the London AIM (Alternative Investments Market). As the time of writing, most of Matra's operations are carried out in Russia through Arkhangelovskoe 'OOO', a wholly owned subsidiary. Arkhangelovskoe holds oil rights in the Arkhangelovskoe license in an area 25 km from Orenburg, which is located 1,200 km southeast of Moscow. Matra's market value in the AIM exchange close to the time of writing was about GBP 41.75 million. At the time of writing, Delek Energy International holds about 29.3% of Matra's issued and paid up capital. 2. The Arkhangelovskoe License The license covers an area of 158 km2, adjacent to producing oil fields. On 6.11.2007, Matra announced an oil discovery at the Arkhangelovskoe 12 drilling (also known as the Sokolovskoe discovery), Remapping based on information acquired in the course of the license operations, indicated that about 50% of the discovery's structure lies in areas not included in the license from the outset. On 1.7.2009, Matra announced that in response to its request, the Russian authorities have approved the change in the boundaries of the Arkhangelovskoe license, so that areas in the north were added to the original license, while areas in the west and east were deducted, so that the total area covered by the original license was not changed, and the license now optimally covers the structure of the discovery. Matra performed two additional drillings in the Sokolovskoe structure in 2007 and 2009, with the aim of assessing the size of the discovery and recovering oil. In December 2010, Matra reported that it had received a production license for an initial period of 20 years in the license area. 3. Operations carried out in the Arkhangelovskoe License In the course of 2008-2009, Matra processed and interpreted 2D seismic services conducted within the license areas, and also reprocessed seismic materials existing in the Sokolovskoe discovery area. In the course of October 2009, drilling began at Arkhangelovskoe 13, down to a depth of 3,718 m. Coring, electrical logging and flow testing were carried out in a number of prospective well areas. A short flow test produced oil at a rate of 110 barrels per day. An analysis of the flow test data indicated the existence of structural well damage. Following a drilling work-over, the well produced about 100 barrels per day, but it is possible that production could be improved following additional treatments. As of this writing, additional tests are being conducted to evaluate the potential for improving the well's production. Works were conducted at Arkhangelovskoe 13 (which produced large quantities of water, so recovery operations were stopped) in an attempt to separate the oil bearing layer from the water bearing layer, to no avail. In view of this failure, directional drilling was carried out from the well into the oil layer, in an attempt to get to the oil without passing through

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the water bearing layer. The directional drilling was successful, and as of this writing, there are preparations for regular oil recovery. 4. Planned operations in the Arkhangelovskoe License It is Matra's intention to begin full development of the Sokolovskoe oil field. Accordingly, Matra intends to carry out a supplementary 3D seismic survey that will cover the Sokolovskoe deposit, and additional drillings for a re-evaluation of the field and increased production. All this is subject to the company's success in raising the required financial resources for carrying out said activities. Moreover, Matra will consider the possibility of acquiring additional oil rights in the area of operations. 5. The following are the main financial data included in Matra's financial statements (in EUR thousands):

As of 31.12.2010 As of 31.12.2009 (audited) (audited) Total assets in balance sheet 15,833 15,519 Income volume -- -- Operational loss 1,829 2,316 Net loss 1,769 2,325

6. Sokolovskoe field data In the course of October 2010, Matra reported that it received a Competent Person's Report ("CPR"), which is a parallel report to the reserves report for the Sokolovskoe oil field. The CPR was carried out by ERC, which is a recognized company in the area of reserves evaluation. The survey was conducted according to the guidelines of the AIM exchanges regarding the reports of oil, gas and mining companies. The main findings were as follows:

Contingent Resources (1C-Low Estimate) 5.7 million barrels of oil Contingent Resources (2C-Best Estimate) 15.1 million barrels of oil Contingent Resources (3C-High Estimate) 35.5 million barrels of oil

For additional details regarding the Sokolovskoe oil field CPR, see Delek Energy's immediate report dated 26.10.2010 (reference No. 2010-01-659826) and dated 9.11.2010 (Reference No. 2010-01-674145), which present information included here by reference. caution regarding forward looking information – the above estimates regarding the work plan, the results and the scope of the reservoirs are all forward looking. Said information is based on public information published by Matra at the AIM exchange, most of which, according to Matra's reports, as above, is based on estimated data of availability, drilling equipment, costs and schedules, as well as non-proven professional geological assumptions. Said estimates may not be realized owing to changes in Matra's own estimates and/or changes in work plans following the results of surveys and/or drilling, and/or changes in pre-established plans and/or in the event that agreements are signed or not signed with service providers and/or a whole range of unforeseen factors related to oil and gas exploration, most of which are described in section 1.11.33 below, which discusses the various risk factors. It is hereby explicitly stated that in a report dated 9.11.2010, Delek Energy announced that since Matra's shares in its possession are no longer considered a material company asset, Delek Energy will no longer provide immediate reports regarding Matra's current activities. C. Purchase of shares in Nexus In the course of the period 2008 to 2010, a Delek Energy subsidiary acquired about 28.4 million shares in the public Australian company Nexus Energy ("Nexus") for a total consideration of about NIS 79.8 million (since 2010, the company has acquired about 16.6 million shares for a total consideration of about NIS 26.9 million), which constitute about

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2.77% of Nexus's equity. The balance, amounting to NIS 45.8 million, is presented according to the stock exchange rate on the date of balance sheet publication. The company intends to realize said shares. 1.11.11 Terminated Operations A. Operations terminated in Israel Following discussions with the Petroleum Commissioner regarding a number of licenses held by the Partnerships and Noble, and in light of the Partnerships' wish to focus their exploration activities in certain license areas, the Partnerships and Noble have reached an arrangement with the Petroleum Commissioner, whereby they relinquish their rights in Ruth E, Ruth F and Zurim licenses1, and have also signed agreements to transfer their rights in a number of additional licenses. Accordingly, on the 9.1.2011, the Petroleum Commissioner was sent a request to authorize, in accordance with section 76 of the Petroleum Law, the transfer of part of their rights in the 361/"Ruth D" license, 368/"Alon E" license, 337/"Avia" license and 338/"Keren" license, so that the total rights of the Partnerships will not exceed 25% (12.5% each) and Noble's total rights will not exceed 25%. In addition, the Partnerships and Noble requested the Petroleum Council to authorize their continued possession of the 360/"Ruth" license, as an additional license beyond the 12 licenses, as well as license areas exceeding four hundred thousand (400,000) hectares, in accordance with the provisions of section 17 of the Petroleum Law. The Council's response in this matter has not been received yet. The following table summarizes oil assets returned, transferred or expired during the period 2008- 2010:

Rights Asset Name Expiry Date Reason for Expiry 313/Ashkelon Amok license 30.4.2008 Part of the license area was merged with the Ashkelon license, while as regards the rest of the area there were no prospects worthy of drilling. 344/Med Ashdod 2 license 13.7.2009 The Petroleum Commissioner cancelled the license as no drilling operations were carried out during the license period. 349/Hof license 21.2.2010 The Petroleum Commissioner cancelled the license as no drilling operations were carried out during the license period. 327/Zurim Halamish Enclave 31.12.2010 The partnership relinquished all its rights to the license enclave, as there were no prospects worthy of drilling 331/Ohad License 30.6.2010 The license expired, as there were no prospects worthy of drilling 362/Ruth E and 363/Ruth F 29.2.2012 The partnership relinquished all its rights in these licenses licenses, as there were no prospects worthy of drilling

B. Operations terminated overseas2 1. Vietnam Project Until its sale in July 2009, Delek Vietnam was a wholly owned subsidiary of Delek Energy, and held participation rights of 25% in the exploration project in Block W12 in Vietnam (in this section: "the Project"). Block 12 W covers an area of about 3,500km2 in the Nam Con Son basin and is 400km south-east of the coast of Vietnam, at a water depth of about 100 meters. On the 20.7.2009, Delek sold its entire Delek Vietnam holdings to Premier Oil Group ("Premier Group") (The mother company of Premier, which is the project operator and one of the partners). In consideration for the sale of Delek Vietnam, Delek Energy received an immediate payment of about USD 83.9 million in cash. In addition to said

1 It hereby explicitly stated that Noble had no rights in the Zurim license. 2 As regard the sale of assets in the US over the course of 2011, see section 1.11.8 above.

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sum, and subject to the conditions stipulated in the agreement, Premier has undertaken the following contingent payments: − To pay the company the sum of USD 3 million on the first anniversary of the first commercial recovery from the Dua field, if an when there is one. − To pay the company the sum of USD 7 million on the first anniversary of commercial recovery from any other field in the 12W block (except for the Chim Sao and Dua fields), if and when there is one. Delek Energy's profits from the Delek Vietnam sale amounted to about NIS 1.5 million. According to Premier's reports – (1) The Chim Sao field development is progressing as planned and recovery is predicted to start in the course of 2011; (2) A decision regarding the Dua field development plan is expected to be made in the second half of 2011. 2. Oil production rights in Guinea-Bissau At the beginning of 2007, Delek Energy International acquired from Premier Oil West Africa B.V., a subsidiary of Premier Oil ("Premier Africa") 11.43% of the rights in two offshore concessions in Guinea- Bissau in West Africa: the Esperance concession (Blocks A4 and A5) and the Sinapa concession (Block 2) (in this section: "the Concessions"). Two drillings were carried out within the areas of the concessions, and they were subsequently sealed and abandoned, following which Delek International's project partners decided to relinquish their rights in the licenses. In view of Delek Energy's policy to concentrate its resources in its core assets in Israel, Delek International signed an agreement with First Australian Resources Ltd., on the 18.12.2009, for the transfer of its rights in the concessions. In consideration for its holdings, Delek International received the sum of USD 570 thousand from the buyer, in order to cover its 2009 expenses. In addition, Delek will be entitled to receive repayment amounting to USD 13 million for its past expenses in the concessions, to be paid from the net profits of the buyer, whatever they may be, according to the repayment schedule stipulated in the agreement. It should be noted that no commercial discovery has been declared in the concession's areas to date, so there is no certainty that the buyer will derive any profits from the project. To the best of Delek Energy's knowledge, since the sale of its rights, the partners have conducted a 3D seismic survey over an area of about 1,600km2 and the concessions were extended until 2012. The results of the processing and interpretation of said seismic survey are expected during the first quarter of 2011 (as of this writing, the partners to the concession have not yet published any updates regarding the results of said seismic survey). 3. The Alvord Project In the year 2010, Delek USA sold its rights in the Alvord project (in the layer known as Barnet Shale) for the consideration of about USD 1.2 million. Delek Energy recorded a loss of about USD 0.4 million for this sale. 4. Viking Oil and Gas International Ltd ("VOGIL") During the period 2007-2008, Delek International invested the sum of about USD 19.5 million in VOGIL in exchange for 25% of VOGIL's stock. VOGIL is a private company registered in the Virgin Islands. The company has a number of stakeholders who are private investors. Delek Energy is a holding company that does not retain employees. Following the results of Delek Energy, VOGIL's operations were terminated in the course of 2009. Delek energy wrote off its investments in VOGIL and recorded a liability for the losses caused by the guarantees it had provided. In the course of 2008, Vogil signed a contract for difference ("CFD")1 for an additional 12,350,000 Nexus shares for the equivalent of AUD 21.24 million. The CFD was made with Kaupthing Singer and Friedlander Bank ("KSF"). As collateral for the CFD, Vogil attached 14,917,000 of its Nexus shares and KSF was given the shareholders' guarantees and financial guarantees for 25% of the value of the CFD. KSF demanded that Delek pay its part in the guarantee, amounting to AUD 4 million, and fully allocated the sum in its books.

1 CFD is a financial instrument that provides the parties with the right to change the value of a commodity. According to the agreement, the price of the share is tracked without actually purchasing it and the payments are made according to the price differences.

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Moreover, in March 2011, Delek Energy settled its USD 3.9 million debt to BOS incurred by the guarantee that Delek issued for the purchase of Nexus's shares in 2007. 1.11.12 Additional Projects - LNG On the 20.10.2009, Delek Energy and Teekay LNG Partners L.P1 presented pre-qualification documents for a BOT tender covering the planning, financing, construction, operation and maintenance of a LNG processing terminal. According to the pre-qualification documents published by the government, the tenders committee intends to select the project contractor in a two-stage competitive process: a pre-qualification stage and an RFP stage, in which latter stage only Groups that have passed the pre-qualification stage may participate. The pre-qualification documents have set the following criteria, inter alia: A. The terminal will have a daily throughput of 16 million m3 of natural gas (an annual quantity of about 4 BCMs natural gas). B. The contract will be signed for a period of 20-30 years, whereas at the end of the period, the terminal will pass into governmental ownership without recompense. C. The terminal completion date was set for October 2013. On the 12.5.2010, the inter-departmental tenders committee for the construction of a LNG terminal notified six tender contenders, among them Delek Energy, that they have passed the pre- qualification process and will be invited to present their proposals in the RFP stage of the tender. The committee also notified the contenders that in order to encourage the involvement of a greater number of service providers in the Energy market, the government is considering the imposition of restrictions on license holders (as defined by the Natural Gas Economy Law, 2002) or on other parties, as regards the right to build and operate the LNG terminal envisaged by the tender. According to the committee's notice, should the government impose said restrictions; it will do so before the publication of the tender RFPs. It is explicitly stated that the pre-qualification stage is no more than a preliminary stage, which does not obligate the contender to present a proposal at the tender stage, and that the technologies required for the project, the project site, and additional details required in order to make a decision regarding the presentation of a proposal at the RFP stage, have not been divulged. The Yam Tethys Group has conducted a techno-economic evaluation of the possibility of converting and operating the LNG production and transmission systems of Yam Tethys and the Mari reservoir for the storage of LNG. Also considered was the technical possibility of using terminals to offload LNG and store it in the Mari Reservoir for the government. It should be noted that to the best of Delek Energy's knowledge the Israel Electric Company and the Israel Natural Gas Lines Company ltd. are considering the possibility of setting up a LNG processing terminal. 1.11.13 Products and services At the time of writing, the Limited Partnerships supply natural gas from the Mari reservoir to IEC, Paz Refineries Ashdod, Hadera Paper and Delek Ashkelon, as well as the ICL group. Moreover, the Partnerships have signed letters of intention for the sale of natural gas from the Tamar project to additional clients (see section 1.11.29 below). AriesOne and Elk supply natural gas and oil to various customers in their areas of operation. In the USA, oil and gas are commodities. The US market is large and sophisticated and the company is able to contract with a wide range of customers. As gas and/or oil is found in the exploration operations of Delek Energy (through its subsidiaries) and/or the Limited Partnerships, Delek Energy will act to sell them. 1.11.14 Breakdown of revenue and profitability of products and services Most of Delek Energy's revenues and profits as of 31.12.2010 are derived from the sale of natural gas and royalties from the Yam Tethys project. Additional financial data are provided above. The rest of Delek Energy's income was derived from Delek USA sales. 1.11.15 Customers A. Customers in Israel At the time of writing, the Limited Partnerships (together with other partners in the Yam Tethys project) have signed contracts to provide natural gas (IEC, Paz Refineries Ashdod, Hadera

1 A limited partnership, most involved in the LNG shipping. The company's securities are traded on the NYSE under the TGB ticker symbol ("Teekay").

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Paper and Delek Ashkelon, as well as the ICL group) totaling about 28.9 BCM. As of 31.12.2010, about 17.64 BCM have already been supplied. The Partnerships' revenues from IEC accounted for 91% of revenues in 2009 and 87% of revenues in 2010.The Yam Tethys project partners also serve additional customers on an occasional basis, especially Nesher Commerce (Cement Marketing) Ltd. Delek Energy is dependent upon IEC, since cancellation or termination of the contract with IEC would materially impact Delek Energy's operations and profitability. For details of the agreement with IEC, see section 1.12.29A below. For a summary of the Limited Partnerships' agreements for the sale of natural gas, see section 1.11.29 below. Other potential customers of the Partnerships in Israel are significant industrial customers and private power stations. B. Customers in the United States Delek Energy USA sold oil and natural gas to many customers in the US during the period 2009-2010.The US market is large and sophisticated and Delek Energy is able to contract with a wide range of customers. No single customer in the USA accounts for 10% or more of Delek Energy's total revenues. As aforesaid, at the time of writing, Delek Energy USA has two major clients (refineries located in the production areas) to which Delek Energy USA supplies most of the oil that it produces. The rest of Delek Energy's customers in the US do not have any particular distinguishing characteristics. 1.11.16 Marketing and distribution A. The Yam Tethys project and Tamar project partners are taking steps to market gas to potential customers beyond the present ones, and to increase the quantities delivered to existing customers. The partners are at various stages of negotiations with potential customers. There is no certainty that these negotiations will culminate in the signing of additional binding agreements for gas delivery. B. Delivery of gas to additional customers also depends on the completion of the national gas pipeline being built by Israel Natural Gas Lines (INGL). At the time of writing, INGL has yet to complete the pipeline for the delivery of gas to all additional IEC power plants that are planned to operate on natural gas and to additional potential customers. At the time of writing, the following power stations and customers are connected to the national pipeline: Delek Ashkelon, Paz Refineries Ashdod, Hadera Paper, the ICL Group Dead Sea plants, and the IEC power stations in Ashdod, Tel Aviv (Reading), Gezer, Hagit and Zaffit. C. The US oil market is highly developed, with proper infrastructure for delivery of oil and/or gas. Therefore marketing and distribution are conducted by means of existing infrastructure, and Delek Energy is not required to make any material investments in additional facilities.1 D. The oil produced by Matra in Russia is sold at the wellhead in a competitive local market, at local prices. If and when production scales become more significant, the oil will be transmitted by Matra to refineries and distributed to the broader market at more attractive prices. Delek Energy estimates that marketing and distribution will be through existing infrastructure, and Matra will not be required to make any material investments in additional facilities. 1.11.17 Order backlog A. For binding contracts by the Limited Partnerships for delivery of natural gas, see sections 1.11.29.A and 1.11.29 E below. At the time of writing, it was not possible to estimate at a high certainty level the forecasted gas consumption under current contracts for sale of gas, primarily due to the uncertainty and possible delays in schedule for connecting additional power plants to the gas pipeline system, and in view of the uncertainty of the supply of natural gas to IEC by EMG and the prices of coal supplied to IEC. For this matter, see section 1.11.29 below. For the minimum quantity which IEC has undertaken to purchase from the Partnerships, see section 1.11.29.A(8).

1 As regards ELK's investment in a natural gas pipeline, see section 4.1.22 Y,

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B. As of December 31, 2010, the order backlog for the years 2011 and 2011, as stipulated in binding contracts for the supply of natural gas, was as follows:1:

Minimum total annual quantity in the contracts (BCM) 2011 2010 2.8 2.8

C. As of December 31, 2009, the order backlog for the years 2011 and 2011, as stipulated in binding contracts for the supply of natural gas, was as follows:

Minimum total annual quantity in the contracts (BCM) 2011 2010 2.8 2.8

D. The supply of natural gas in 2010 was 3.25 BCM. The consideration received from the sale of gas in the course of 2010, amounted to about USD 462.8 million. 1.11.18 Competition A. A number of companies have been selling natural gas in Israel for many years. The sale of natural gas is primarily intended for local markets, and therefore the competition is with parties operating in these markets. B. In addition to the Yam Tethys group, there is one other group supplying natural gas in the Israeli market: the East Mediterranean Gas Company ("EMG"). EMG imports gas from Egypt and has signed gas supply agreements with a number of Israeli consumers, the largest of which are the IEC and companies affiliated to the Israel Corp. It should be noted that EMG's supply of natural gas has been disrupted of late, as a consequence of political and/or security developments in Egypt. Moreover, the media have recently published information regarding the intention of the Egyptian authorities to reexamine the sales prices of the gas leaving Egypt. Said events may have implications for the competition in Israel's natural gas economy. C. Furthermore, to the best of our knowledge, British Gas ("BG") discovered natural gas reservoirs off the Gaza shore. These reservoirs are of similar size to existing discoveries at Yam Tethys (the Mari and Noa fields). D. In view of the commercial discoveries at "Tamar", "Dalit" and "Leviathan", and assuming that the discoveries will be developed, the partners to these discoveries (including the Partnerships) could become significant suppliers of natural gas to the Israeli market. E. Natural gas suppliers also compete with other fuels, including coal, and the level of gas consumption and price are affected by the prices of these fuels. In addition, in the future, LNG may be imported into the Israeli market (see also section 1.11.2 above). F. Oil sales are less limited to local customers, and may be made on the global markets, where there is greater competition, but also more sales options. However, oil is a commodity with a price dictated by global fluctuations in supply and demand, and thus the competition with other oil producing companies is not expected to have a material impact on the oil sales of Delek Energy. 1.11.19 Seasonality In Israel, IEC's gas consumption fluctuates, inter alia, with seasonal changes in demand for electricity and with IEC's maintenance plan. In the third quarter of each year (the summer months) power consumption is highest, and the IEC therefore consumes more gas during that quarter. The following data describe the distribution of natural gas sales to IEC over the past three years1:

1 Delek Energy estimates that the actual quantities may larger than stated above, based on the minimum contractual quantity stipulated in contracts with IEC (including the agreement in principle), Paz Refineries Ashdod, Delek Ashkelon, Hadera Paper and the ICL group (without any carry forward).

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Q1 (BCM) Q2 (BCM) Q3 (BCM) Q4 (BCM) 2008 0.9 0.7 0.9 0.8 2009 0.6 0.5 0.8 0.6 2010 0.4 0.6 1.0 0.7

The seasonal effect of gas and oil consumption by customers in the USA has no material effect on Delek Energy's revenues from projects in the USA. 1.11.20 Facilities and production capacity A. Yam Tethys project The production system of the Yam Tethys project includes a production platform connected to eight wells, of which six are producing wells, a 42-km offshore pipeline of for transmission of gas, and a permanent receiving terminal, which was completed in 2008. The production platform is anchored to the seabed at a water depth of approximately 236 meters. The upper part of the production platform, above sea level, contains all the platform decks. The four decks, 60 m long and 35 m wide, contain include production facilities planned for a maximum gas supply of up to 600 million cu. feet per day, equal to 6 BCM per year. The platform also includes generators, compressors, connection outlets for a gas pipeline, gas wellheads, space for a drilling machine, helipad, employee living quarters and work area, a raised gas removal facility, antennas, fire extinguishing facilities, life boats and security devices, measuring and other facilities associated with the platform production and handling system. B. Elk Elk has production, handling, storage and delivery facilities in the areas in which it operates and owns a natural gas pipeline. In the Cisco field, Elk owns a system of compressors, handling facilities and measuring infrastructure for natural gas produced in the area by Delek Energy and by others. In 2008, Delek Energy invested USD 0.4 million in gas treatment facilities in the Cisco field and in 2009 no additional investments were made in the facilities. 1.11.21 Human resources A. At the reporting date, Delek Energy employs a CEO, CFO, business development manager, regulations manager, legal counsel, accounting staff, investment relations manager, office manager and office staff. In addition, Delek Energy and its subsidiaries receive management, administrative and financial services from Delek Investments. Delek Energy also receives professional consultation service from various consultants, including geologists, geophysicists, lawyers, media consultants and financial advisors, as required. At the reporting date, the limited partnerships have the following employees: (1) Delek Drilling Partnership – an engineer, investor relations officer and economist; (2) Avner Partnership – a geology secretary. The partnerships are managed by the general partners according to the provisions of the limited partnership agreement of each partnership. The general partners provide management services for the limited partnerships, including management (directors of the general partner), accountant, bookkeeping and office services. In addition to management of the general partner, the limited partnerships use the services of consultants (including attorneys, geological and financial consultants) as required. It is noted that under operating agreements in various projects to which Delek Energy is partner, the project operator (“the operator”) employs staff for management and operation of the projects. There are no employee-employer relations between employers of the project operator and Delek Energy, and Delek Energy has no direct liability for severance. B. Delek Energy USA and Elk: At the reporting date, Delek USA and Elk have 14 employees, including accountants, geologists, geophysicists, engineers, administrative staff and maintenance staff. C. Options for senior officers D. On August 6, 2007 and August 20, 2007, Delek Energy’s audit committee approved an allocation of 258,265 unquoted options exercisable for 258,265 ordinary shares of Delek

1 The data refer to the total natural gas sales of the entire Yam Tethys Group, rounded off to the nearest tenth of a BCM.

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Energy to CEO Mr. Gideon Tadmor. On August 20, 2007 the board of directors approved the allocation. If the CEO exercises all the options, the underlying shares will constitute 5.2% of Delek Energy’s issued and paid up share capital before the allocation. E. On August 23, 2007 Delek Energy’s board of directors and audit committee decided, subject to approval of Delek Energy’s general meeting, which gave its approval on December 10, 2007, to approve the allocation of 55,345 unquoted options exercisable for 55,345 ordinary shares of Delek Energy, to the former chairman of Delek Energy, Mr. Gabriel Last. On January 17, 2010, Mr. Last announced his resignation as chairman of Delek Energy’s board of directors, effective from February 1, 2010 and Delek Energy’s board of directors resolved to appoint him as deputy chairman of the board of directors as from that date. On January 17, 2010, subject to the approval of the general meeting, which was given on March 3, 2010, it was resolved that in view of the change in Mr. Last’s position, the terms of the options plan will be revised, such that subsequent to the changes, Mr. Last will have 44,276 options.. If Mr. Last exercises all the options, the shares will account for 0.9% of Delek Energy’s issued and paid up share capital, assuming the exercise of all of Delek Energy’s convertible securities. F. On January 17, 2010, Delek Energy’s board of directors resolved, subsequent to the resolution of the audit committee meeting of January 14, 2010 and subject to the approval of the general meeting, which was given on March 3, 2010, to approve the allotment of the phantom units amounting to 2% of the Company’s issued and paid up share capital (at the approval date of the agreement), which is, 100,108 phantom units, in four equal tranches, to the chairman of Delek Energy, Dr. Yoram Turbowicz. On March 30, 2011, a general meeting of Delek Energy’s shareholders was convened for May 3, 2011 to approve the termination of Dr. Yoram Turbowicz’s employment as director of Delek Energy, as from the approval date of the general meeting. The general meeting will also be asked to approve the exercise of the first tranche by Dr. Yoram Turbowicz, even though he has not served for two years at Delek Energy (as set out in his employment agreement). For additional information, see Article 21 in Chapter D of the Periodic Report. 1.11.22 Suppliers and raw materials A project operator is appointed for each drilling project in which Delek Energy has rights. The operator contracts with professional contractors, which have the relevant equipment, for each project. There are no contractors in Israel involved in drillings or offshore seismic surveys of the type conducted by the limited partnerships together with their partners in the various projects. Therefore, the partnerships need to contract with foreign contractors for the necessary services. Offshore drilling equipment is transported from all over the world according to availability, project type and special needs of each project. Another important parameter that has impact on this matter is the price of crude oil: an increase in the price of crude oil usually affects the availability of contractors and required equipment and vice versa. Delek Energy does not directly contract with suppliers or professional contractors, and such contracting is left to the project operators. Elk is the operator of most of its assets. Steel is a significant raw material in exploration and production equipment, used for pipes, drill bits and platform structures. Global metal prices have increased significantly in recent years. 1.11.23 Working capital A. Revenues of the partnerships from the IEC contract are received by the later of the 20th of the invoicing month or 15 working days from the invoicing date for gas supplied in the previous month. Payments of the Company to operators of the joint ventures are made under the terms in each operating agreement. B. Revenues from oil sales are received within 30 days from the end of the month in which the sale was made. 1.11.24 Financing A. Delek Energy’s operations are financed primarily by long-term loans provided by Delek Investments, a long-term loan provided by a subsidiary, Delek Energy debentures,1 financing by a bank loan received in Israel and from foreign banks and from debentures sold in the United States and in Israel as stipulated below.

1 On September 1, 2010, The debentures were repaid in full.

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Delek Energy examines from time to time options for receiving finance in Israel from the banking system and/or by way of the capital market. There is no certainty that the Company will receive additional finance as set out above. B. Delek Energy and Delek Investments have a framework agreement dated October 10, 2007 (as revised) for financing from Delek Investments. According to the agreement, Delek Investments provided loans and guarantees to Delek Energy. C. In 2009 and 2010, Delek Energy engaged with local banks to receive credit, amounting to USD 80 million at December 31, 2010, with variable annual Libor interest + 1.75%-4%, for repayment in 2009-2014. To guarantee the loan, the Company recorded a specific charge on part of the participation units in the limited partnership and undertook to comply with the financial covenants set out below. D. Delek Energy undertook to comply with financial covenants for long-term loans from banks in Israel, amounting to USD 80 million at December 31, 2010, as follows. 1) The total equity of Delek Drillings and Avner will be at least USD 60 million and USD 70 million, respectively; 2) the percentage of the equity out of the total equity of Delek Drillings and Avner will be at least 30%; 3) Delek Energy’s equity, plus loans from the parent company, will be at least NIS 250 million; 4) the equity ratio plus loans from the parent company and the total equity will be at least 13%-15%; 5) the debt to collateral ratio will be 25%-50%; 6) at the reporting date, and shortly before the publication date of the report, Delek Energy is in compliance with the financial covenants set out above. E. The scope of the charged participation units at the balance sheet date, for the bank loans, is 93% of the participation units held by Delek Energy in Delek Drillings and 83% of the participation units held by Delek Energy in Avner. in accordance with the agreements with the banks, Delek Energy is able to release a significant number of the charged participation units, however the release has yet to be performed. F. Furthermore, in 2008, Rockies signed an agreement with a foreign bank to receive a loan in an overall amount of USD 100 million for 10 years at variable Libor interest + 1.65% - 3.05%. G. As collateral for repayment of the loan, all of Elk’s share, assets, oil and gas hedges and Delek Energy guarantees of USD 30 million were pledged in favor of the bank. The guarantee expired in February 2011. Delek Energy also undertook to provide the subsidiary with the required financing (if any) for the development plan for Elk for 2008-2010 and to indemnify the bank if, within one year, any material breaches in the Elk transaction are discovered. The loan agreement includes numerous terms, including a provision that the subsidiary will comply with the financial relations, breach and immediate payment events, declarations and evidence. As part of the financing transaction, Delek Energy has hedging transactions for oil and gas prices, including put and call options, as required by the financing bank. The total cost of the transaction amounted to USD 3.3 million. The fair value of the transaction at the reporting date is USD 0.5 million, and it is included in current assets under financial derivatives. H. According to the terms of the loan received by Delek Energy, repayment of the principal will based on the required coverage ratio between the present value of the expected cash flows from the pledged reservoirs discounted at the loan interest, and the amount of the loan. The debt ratio is assessed twice a year according to December and June data. On February 18, 2011, a subsidiary met with a bank representative (“the bank”). regarding the lengthy negotiations for the proposed changes in the structure of the loan terms. The discussions included a report of Delek Energy’s plan to sell certain oil and gas assets in the USA. In the meeting, the subsidiary informed the bank that it is considering selling all of its oil and gas assets. On March 7, 2011, the subsidiary received a letter from the bank claiming that the loan agreements have been breached, due, among other things, to insolvency of the subsidiary and the inability to repay the loan in an amount exceeding the balance of the approved loan. The letter also claimed that the bank reserves all its legal rights for this breach. On March 9, 2011, the subsidiary responded that it does not agree that there was a breach or a breach event of the loan agreement. Regarding the claim that the subsidiary did not meet the principal payments, the subsidiary noted that the bank did not complete the calculation of the required repayment amount according to the loan terms by September 30, 2010, therefore there is no breach in this provision of the agreement. Moreover, the subsidiary asked to pay the principal during the period, but the bank asked it to defer payment until further notice from the bank. Accordingly, the subsidiary asked the Bank to cancel the notice of the breach immediately. The subsidiary and the bank are negotiating to resolve the disputes.

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I. On July 1, 2009, Delek Energy issued to classified investors USD 20 million registered par value debentures (Series B) bearing annual interest of 7.9% for up to five years. According to the terms of the debentures, the repayment dates of the debentures (principal and interest) will be accelerated and brought forward in certain cases, based on the annual quantity of gas produced from the Yam Tethys oil assets and Delek Energy may, at its sole discretion, repay the debentures prematurely (in full or in part) at any time. To secure its full and precise compliance with all the terms of the debentures, Delek Energy attached its rights to receive royalties from Delek Drilling for the Yam Tethys oil assets. Delek Energy also attached all its rights according to the insurance policy covering the discontinuation of payment of overriding royalties from Delek Drilling to Delek Energy. J. In addition, in October 2009 and in January-June 2010, Delek Energy issued to the public debentures (Series C-E) at a total par value of NIS 1,112 million. To secure its full and precise compliance with the terms of the debentures (Series C-E), Delek Energy attached the participation units in the limited partnerships that it owns. For details see the shelf offering memorandums of October 6, 2009 (Ref. 2009-01-248643), January 21, 2010 (Ref. 2010-01- 361662) and July 1, 2010 (Ref. 2010-01-539556) that are included by way of reference. K. Average interest rates Below is the average interest rate on loans from bank and non-bank sources effective in December 2010 and which are not intended for specific use by Delek Energy:

Interest rate Bank financing Dollar loans Libor + 1.65-4% Index-linked shekel loans from the parent company Index + 7.25%- Non-bank financing Dollar debentures at fixed interest 5.326%-7.9% Dollar debentures at variable interest LIBOR + 1.1% Shekel index-linked debentures Index +5.19%-7.19%

L. The unpaid balance of the loans (principal and interest) granted to Delek Energy and its subsidiaries by Delek Investments as of December 31, 2009 amounted to NIS 311 million. The financing received from Delek Investments is part of the total amount set out in the framework agreement. On March 3, 2010,, subsequent to receiving the approval of Delek Energy's board of directors and the audit committee on January 20, 2010, the general meeting approved changing the terms of Delek Energy's existing debt to Delek Investments, so that the entire balance of the loans from Delek Investments will be consolidated into a single loan under the following terms: (1) the loan period will be from the date of the approval of the general meeting through to September 30, 2014; (2) the loan principal will be repaid by Delek Energy in five unequal installments; (3) the unpaid balance of the loan principal will bear fixed annual interest of 7.25%, which will be repaid twice a year on March 31 and September 31 of each year from the date of approval of the loan by the general meeting through to September 30, 2014; (4) The loan principal and interest on the loan will be linked to the CPI. The unpaid balance of the new loan, as set out above, at March 3, 2010 (date of approval of the changes in the terms by the general meeting) is NIS 523.9 million. These loans are not secured by liens and Delek Energy has to repay these loans prematurely and without penalty. Should Delek Energy decide on a public issue and/or a rights issue and/or a private placement (“the offering”), Delek Investments will be entitled to call for immediate repayment of the total unpaid balance of Delek Energy's debt (including interest, linkage differentials and VAT), to a net maximum amount raised by Delek Energy in the issue, and this immediately upon receipt of the proceeds from the issue. In such case, the Company will not be charged commission for early repayment. Delek Investments shall be entitled to demand that Delek Energy execute such issue, whereby the proceeds are intended for repayment of the balance of Delek Energy's debt. Should Delek Investments cease being the controlling shareholder in Delek Energy, the entire unpaid balance of Delek Energy's debt shall be repaid immediately, including interest, linkage differentials and VAT. In this case, Delek Energy will not be charged commission for early repayment. M. Oil exploration operations (unlike production and development) of the limited partnerships is financed by the shareholders’ capital of the limited partnerships, raised pursuant to prospectuses for public offering of rights published by the limited partnerships. Pursuant to a

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permit granted by the Income Tax Authority to the partnerships close to the date of their establishment, the limited partnerships have committed not to obtain loans exceeding 2-3% of the amount raised from investors in the partnerships without prior consent of the Income Tax Authority.1 In view of the development plan for the Tamar project, the additional investments in the Yam Tethys project and further exploration efforts, the partnerships are expected to require large sums of money for their operations, and this in accordance with the work plan and budgets that will be approved from time to time under the joint operating agreements applicable to the oil assets that they hold. N. The partnerships intend taking action to raise the finances required to meet their obligations, among other things, by raising capital in the partnerships by way of a rights issue. Should Delek Energy decide to maintain the rate of its holding in the partnerships, it will have to participate in the forgoing efforts to raise capital and to inject the funds required for its relative share in the partnerships. It is further noted that there is no certainty that the partnerships will receive this financing. O. The partnerships and their partners in the Yam Tethys project are examining an option to receive additional financing (non-recourse) based on the anticipated revenues from the sale of gas from the project, under which the debentures issued in 2005 will be repaid prematurely. P. The proceeds from the initial agreement signed with IEC in 2002 were attached under the project financing. Q. This interim financing was intended to enable the partnerships to comply with the cash flow requirements for their operation, inter alia, as part of the Tamar project development, until the project financing for the project was concluded. R. On March 9, 2005 agreements to obtain non-recourse financing for the share of Israeli partners in Tam Tethys project (the partnerships and Delek Investments and Properties Ltd.) were concluded, totaling USD 275 million. The shares of Delek Drilling Partnership and Avner Partnership in this amount is USD 130 and USD 120, respectively. The capital was raised by a special purpose company (SPC), Delek and Avner Yam Tethys Ltd. (hereinafter in this subclause: “the SPC”), which issued to institutional investors in the USA, pursuant to Rule 144A, debentures in the total amount of USD 275 million (“the SPC debentures”) of which USD 175 million at fixed interest of 5.326% per annum, and USD 100 million at variable interest of 3-month Libor plus a margin of 1.1% per annum The debentures will be paid every quarter until August 1, 2013 according to a payment table (based on the estimated expected gas supply to IEC). Notwithstanding the foregoing, in the event of increased consumption of the IEC beyond the forecast, partial early redemption will be carried out of the SPC debentures at variable interest, without early redemption commissions. Conversely, non- redemption of the debentures at the dates specified in the payment table, due to lower than expected consumption by IEC, subject to meeting a minimum, will not be considered as breach of the SPC debentures. To guarantee the payment of the SPC debentures, the partnerships, Delek Investments and the SPC pledged their rights in the following assets: the Ashkelon lease and the lease to operate the rig, the IEC agreement, the joint operating agreement (“JOA”) (in respect of the IEC agreement, the rig and other equipment used to produce gas for the IEC), insurance policies, shares of Yam Tethys (lease holder of pipeline), hedging agreements and SPC bank accounts (which include the revenues account in which proceeds from the IEC will be deposited and accounts in which collateral was deposited, including collateral for debt and collateral for constructing the receiving terminal). The loan based on the debentures is a non-recourse loan, with the exception of assets pledged as aforesaid. The agreements for the sale of gas with other customers and the Noa lease are not included in the pledged assets. S. In addition to this collateral, the Israeli partners have undertaken several covenants towards investors in SPC debentures, including the following:2 1. Not to reduce their share of the Ashkelon lease

1 In September 2001, the partnerships received approval from the Income Tax Authority for a loan for construction of production infrastructure for the Yam Tethys project. In March 2010, the partnership received approval from the Income Tax Authority to finance its part in the production infrastructure plan at the Tamar project through a loan or issuance of debentures, without the required financing and/or investments made by the partnership in the project cancelling the partnership’s status as a partnership as set out in the Income Tax Regulations (Rules for Tax Calculations for Ownership and Sale of Participation Units in an Oil Exploration Partnership), 1988. 2 Delek Energy estimates that as of the reporting date, the Israeli partners are in compliance with these limitations.

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2. Not to vote in the operating committee in favor of any additional operations not intended for production of gas to be supplied to IEC (hereinafter in this sub-section: “the additional operations”) unless one of the following conditions exists: A) The partnerships have all the financial means for financing the additional operations in full and the partnership has given the trustee of the SPC debentures written confirmation that the financial means are available and are intended for the additional operations until they are completed in full. B) The vote in favor of the additional operations was approved by a majority of SPC debenture holders C) Rating agencies (Standard & Poor’s and Moody’s) have confirmed that commitment to undertake the additional operations will not have an adverse effect on the rating D) Not toundertake nor agree to expand or modify the production system, unless conditions stipulated by the financing documents are met. T. In addition to the aforesaid, on June 19, 2009, the partnerships signed an irrevocable order to IEC to transfer the proceeds from the sale of natural gas according to the letter of intent to the project revenue account. U. On June 24, 2010, agreements were signed for a bridge loan (“the financing agreement”) between one of the limited partnerships (through wholly-owned SPCs as set out below) and Barclays Bank Plc and HSBC Bank Plc (“the financing banks”). 1According to the financing agreement, each partnership will receive a non-recourse loan of up to USD 190 million ("the loan"), to finance their share in the development costs in the Tamar field ("the Tamar project") (“the loan”). Concurrently, a financing agreement with the same terms was signed between the financing banks and Dor Gas for a loan of USD 50 million, to finance the share of Dor Gas in part of the development costs of the Tamar project. The loan is for the period until the agreement is signed for long-term non-recourse project finance to fully finance each of the limited partnership’s share in the development costs of the Tamar project “the project finance”) or for 18 months, whichever is earlier (with an option for extension to a total of 24 months under certain terms). The loan will be repaid in a bullet payment at the end of the loan period. The limited partnerships intend to take steps to raise financing for the project before the finance agreement expires, so that the project finance will repay the loan. The limited partnerships may repay the loan prematurely, subject to the terms set out in the finance agreement. The loan is in dollars and bears variable annual interest calculated at Libor for three months plus a maximum of 4% if the loan is not extended beyond 18 months. (not including fees). The funds of the loan will be transferred to the partnership of a current basis, in accordance with the payment requirements issued by the operator to the partners for development costs of the Tamar project (cash calls) and to finance the loan costs. To receive the financing, the limited partnerships established a special purpose company: Delek partnership established Delek Drilling (Tamar Financing) Ltd. and Avner partnership established Avner Exploration (Tamar Financing) Ltd. (in this section for each of the SPCs: “the special purpose company”). In accordance with the financing agreement, the loan provided to the special purpose company will be a back-to-back loan for each limited partnership. To secure the loan, each of the partnerships pledged its rights to the assets related to the Tamar project. The main points are as follows: The rights in the Tamar and Dalit leases (“the leases”), rights in the Tamar project JOA, rights in any future agreements for the sale of natural gas from the Tamar project, shares of the SPC and accompanying agreements of the Tamar project (such as insurance policies and equipment). The loan is a non-recourse loan and the lenders have no right to the limited partnerships’ assets that were not pledged in their favor. These pledges are subject to royalty rights of the State and other entities that are entitled to receive royalties from each of the limited partnerships (including interested parties). To establish legal certainty regarding priority of claim in the event of insolvency of the limited partnership, the financing agreements prescribe, based on requirement of the banks, that the leases will be pledged in favor of the entities entitled to royalties for the term of the financing agreement as collateral for the right to royalties.

1 Subsequent to the financing, the financing banks syndicated the loan according to the financing agreement.

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The financing agreement establishes a mechanism that allows each limited partnership, under certain conditions, to raise an additional amount of up to USD 100 million, using the same collateral and subject to approval of the majority of the lenders. As is standard in this type of financing, the limited partnerships have undertaken standard covenants, including the following: Restrictions on taking additional loans (other than non- recourse loans, loans from related parties and loans of up to USD 20 million); compliance with liquidity tests; compliance with the reservoir to debt ratio; restrictions on the change in operations; restrictions on the transfer of control in the limited partnerships; restrictions on signing contracts that may adversely affect the limited partnerships’ ability to raise project financing; maintaining the pledged assets and avoiding breach or change of conditions of the material agreements, including agreements not to vote in accordance with the JOA in a way that may adversely affect the ability of each limited partnership to raise the project financing (including with respect to replacing the operator); purchase of insurance in accordance with the JOA; conditions for the purchase of additional rights in the Tamar project; and restrictions on approval of sole risk operations in the Tamar project. As customary in financing transactions of this nature, the financing agreement defined events of default, which if occur (subject to recovery periods set out in the financing agreement) confer on the financing banks the right to call for immediate repayment of the loan, including the following main events: failure to pay amounts owed to lenders; breach of covenants; breach of representations; insolvency events; occurrence of events that may have a material adverse effect on the ability of the limited partnerships to fulfill their material obligations in respect of the financing agreement or the Tamar project, events that may have a material adverse effect on their assets or main businesses or the financial condition of the limited partnerships or events that could have a material adverse effect on their ability to raise the project financing; cancellation or inability to receive material approval required for the Tamar project; meeting of additional milestones set according to agreed deadlines (project development approval; gas sales agreement with IEC; planning approval for establishment of the gas receiving terminal; availability of a drilling rig for development drilling); and a continuing force majeure event in connection with the Tamar project. Parallel to signing the financing agreement, each limited partnership appointed the financing banks as exclusive consultants and organizers for project financing, and granted them exclusive rights or participation according to certain conditions set out in any hedge transactions that the limited partnership may perform and the right of refusal for financial services and other consulting services to each of the limited partnerships, in respect of the Tamar project. The limited partnerships are in advanced negotiations with the Tax Authorities to receive an exemption from withholding tax for foreign lenders. If the exemption is not received, the limited partnerships will gross up withholding tax according to the composition of the foreign lenders at payment date of the interest. The bank loans are subject to certain conditions, the main ones being completion of registration of the liens in accordance with the law.1 V. Credit limits In addition to the collateral described above, the Israeli partners have undertaken several covenants towards investors in SPC debentures, including the following:2 1. Not to reduce their share of the Ashkelon lease 2. Not to vote in the operating committee in favor of any additional operations not intended for production of gas to be supplied to IEC (hereinafter in this sub-section: “the additional operations”) unless one of the following conditions exists: A) The partners have all the financial means for financing the additional operations in full and have given the trustee of the SPC debentures written confirmation that the financial means are available and are intended for the additional operations until they are completed in full. B) The majority of SPC debenture holders voted in favor of additional operations.

1 Registration was completed in August 2010. 2 Delek Energy estimates that as of the reporting date, the Israeli partners are in compliance with these limitations.

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C) Rating agencies (Standard & Poor’s and Moody’s) have confirmed that commitment to undertake the additional operations will not have an adverse effect on the rating D) Not to commit nor agree to expand or modify the production system, unless conditions stipulated by the financing documents are met In this regard, see Note 16E to the financial statements. W. Credit facilities 1. In addition to the financing described above, Delek Energy has current credit facilities from banks in Israel of USD 70 million. 1.11.25 Taxation For details of taxation on Delek Energy profits, see Note 26 to the financial statements. 1.11.26 The environment Drilling and production operations carry environmental risks associated with oil gushing and/or oil spill and/or natural gas leak. In Israel, the Petroleum Law and its regulations stipulate that, inter alia, the drilling shall be accomplished with due caution so as to prevent seepage of liquids and gases into the ground or uncontrollable gushing, as well as to prevent their penetration from one geological layer to another. Furthermore, it is forbidden to abandon a well unless it is plugged in accordance with instructions of the Petroleum Commissioner. The operator purchases insurance to cover environmental damage incurred by uncontrolled gushing of oil and/or gas in oil and gas drilling and/or production. As described above, according to the licenses and permits obtained by the Yam Tethys project partners for construction of the Yam Tethys project production system, the partners are required to operate in compliance with the environmental protection standards prescribed in the licenses and permits. Following an oil seepage event in 2010 in the Gulf of Mexico, requirements and supervision were tightened for offshore oil and gas exploration off the coast of Israel Delek Energy’s operations in the United States are also subject to standards and legislation pertaining to environmental protection, under laws of each country where operations take place. The cost of operations related to environmental protection is included in the budgets for the different projects. At the report date, no additional material costs are anticipated. 1.11.27 Restrictions on and supervision of operations A. Israel 1. In Israel, oil and gas exploration and production are regulated primarily under the Petroleum Law, 1952 and regulations. Exploration is conducted under permits, licenses and leases (as defined in the Petroleum Law), which are granted by the competent authorities and include work plans, schedules and restrictions. The Petroleum Law also stipulates that a lease owner must pay the State royalties equal to one eighth of the oil produced in the lease area, but no less than the minimum royalties stipulated by the law. Oil rights may be revoked if the holder of the right fails to comply with the provisions in the law or the terms of the oil right. In Israel, transmission, distribution and marketing of natural gas are regulated by the Natural Gas Sector Law, 2002. Construction and operation of a natural gas pipeline and distribution network require a license from the Minister of Infrastructures. 2. Permits and licenses for production and transmission systems: As part of the development of gas discoveries by the Yam Tethys project partners, the partners have been granted permits and licenses under the Petroleum Law, 1952 (“the Petroleum Law”) and the Natural Gas Sector Law, 2002, which are mandatory for construction and operation of the production system and the pipeline from the offshore platform to the shore. 3. Petroleum Profits Tax, Bill 2011 On April 12, 2010, the Minister of Finance appointed a committee to evaluate the fiscal policy of Israel’s oil and gas resources (“the Sheshinski Committee”). The Sheshinski Committee is mandated to examine the fiscal system in Israel for oil and gas reserves and to propose updated fiscal policies.

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On January 3, 2011, the Sheshinski Committee submitted its final recommendations to the Minister of Finance. In Resolution 2762 of January 23, 2011, the government adopted the Sheshinski Committee reports and its conclusions. B. Following the recommendations of the Sheshinski Committee, on February 23, 2011, the Petroleum Profits Tax Bill, 2011 (“the Bill”) was published. On March 30, 2011, the law was passed in the Knesset, however the final version has not yet been registered. C. Legislation of the Petroleum Profits Tax Law will result in a significant increase in the tax burden on the owners of the participation units and will adversley affect the partnership’s business and operations. Subsequent to completion of the legislation, the partnership will evaluate its legal steps, specifically in respect of the applicability of the law on oil rights granted to the partnership prior to legislation of the law. For details see Note 16F to the financial statements. D. USA In the USA, oil and natural gas exploration and production rights are usually acquired from the landowners. Typically, only the oil and gas exploration and production rights are acquired, with other ownership rights in the real estate remaining with the land owner. In exchange for acquisition of exploration and production rights, the landowner usually receives current lease payments as well as royalties from the buyer if oil or gas is produced. The buyer of the rights is committed to minimal exploration operations to keep the exploration and production rights. If these commitments are not fulfilled, the landowner may sell these rights to a third party. Oil and gas exploration operations are subject to various laws, including environmental protection laws. These laws include provisions for prevention of land, water and air pollution. 1.11.28 Antitrust A. On October 11, 2000, the Antitrust Commissioner consented to a transaction in which the Israeli partners acquired the Reading & Bates rights in Yam Tethys project. This consent and its amendment were contingent on the following major conditions: 1. By a date set by the Antitrust Commissioner (as amended on a number of occasions), Delek Group (including its affiliates) will not hold, directly or indirectly, rights in the offshore oil and gas exploration projects known as Med Ashdod, Ashdod Enclave and Med Yavne (in this section: “Med Project”) or the share of Delek Group’s holding in Yam Tethys project will not exceed its holdings in Yam Tethys on August 1, 2000. In discussions held between representatives of the limited partnership and the Antitrust Commissioner, the latter confirmed that sale of the share associated with natural gas in the Med Project would be considered as compliance with the above condition. 2. There will be a separation of personnel so that information will not be exchanged relating to natural gas operations between the Yam Tethys and Med Projects (for example, Med Yavne lease and Med Ashdod leases). 3. Any purchase of holdings by Delek Group (including its associates) of 5% or more in a corporation engaged in exploration, production, transmission, marketing or sale of natural gas in Israel, requires prior approval of the Antitrust Commissioner, if the corporation has any natural gas discoveries. This sub-section (3) does not apply to the Yam Tethys joint venture. 4. Pursuant to the directives of the Antitrust Commissioner, on October 28, 2004, Delek Drilling partnership and Ratio Oil Explorations (1992) Limited Partnership (“Ratio”) signed a sales agreement. Under the agreement, Delek Drilling partnership sold all its rights in the Med Yavne 1/8 lease (8%) and all its rights for natural gas only in the 1/9 Med Ashdod lease (21.766%). Under the agreement, the parties defined the method for continuing operations in the Med Ashdod lease, taking into account the distribution of the rights as aforesaid (inter alia, in respect of making decisions regarding the proposed work plans in the lease). In return for these rights, Ratio assumed the liabilities of the Delek Drilling partnership according to the existing agreements, to pay royalties from its share of the Ashdod and Yavne leases. In addition to the royalties, Ratio undertook to pay to the Delek Drilling partnership royalties amounting to 0.625% of its share in the production from these oil concession fields (0.1375% of the entire production of the concession). On February 7, 2005, the Antitrust Commissioner announced that there was no apparent reason to intervene in the agreement between the Delek Drilling partnership and Ratio, subject to a number of conditions, including, inter alia, that Delek Drilling partnership would waive its first right of refusal in the agreement with Ratio with regard to its

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participation in place of Ratio in the drilling for natural gas should Ratio be willing to relinquish its share in these drillings. Since the Ashdod Med license constitutes a direct continuation of the operations of the parties to the agreement dated October 28, 2004, Delek Drilling partnership and Ratio signed the agreement to transfer the rights (which came into effect on October 28, 2008), containing the same arrangements that were applicable to the aforesaid concession (with certain changes), to the Ashdod Med rights. Accordingly, Delek Drilling partnership transferred to Ratio its rights in the Ashdod Med license relating to natural gas only (22%).1 B. On August 28, 2006, the Antitrust Commissioner consented to the transfer of the partnership rights in the Matan and Michal licenses to Noble as specified in section 1.11.4 above. The Antitrust Commissioner’s decision was contingent on the following major conditions: 1. The “local corporations” (as defined below) would not hold jointly, whether on their own or with additional holders, any gas rights other than those directly and exclusively arising from the Matan and/or Michal licenses, without the express prior written consent of the Antitrust Commissioner. By December 31, 2006, the “local corporations” shall terminate any joint holding in gas rights, other than those directly and exclusively arising from the Matan and/or Michal licenses, which they held jointly on the decision date, whether on their own or with other holders, unless such joint holding is expressly permitted in writing by the Antitrust Commissioner. 2. In any arrangement, agreement or understanding, oral or in writing, with regard to setting a mechanism or system for decision making between holders of Matan and Michal licenses for marketing natural gas produced under the Matan and Michal licenses, none of the “local corporations” shall individually own, directly or indirectly, any right or power to prevent the other holders from taking any decision or action for marketing natural gas produced under the Matan and Michal licenses. 3. Definitions: The “local corporations” – Delek Group and Isramco; Delek Group – Avner Oil Exploration Limited Partnership and/or Delek Drilling Limited Partnership and/or any person affiliated with any of them; Isramco – and any affiliate. 4. On January 18, 2007, the partnerships applied to the Antitrust Commissioner for a waiver of approval of a restrictive agreement by the Antitrust Tribunal. The application was filed in connection with joint exploration operations by the partnerships and Isramco in the area of 331/Ohad and 332/Shimshon licenses. In the application, the partnerships claimed that such joint exploration operations do not constitute a restrictive agreement as defined in the Antitrust Law, 1988 and that the application is filed merely for the sake of caution and in view of the Antitrust Commissioner’s decision on the Matan and Michal licenses. The Antitrust Commissioner’s approval was still pending on August 2, 2007, and consequently a decision was made to separate the leases so that the full leases of the 332/Shimshon license were transferred to Isramco and the full leases in the 331/Ohad license were transferred to the partnerships. 1.11.29 Material agreements2 Delek Energy and/or the partnerships contracted certain material agreements which were effective in the period described in the report, as follows: A. Agreement with IEC: 1. On June 25, 2002 the partners of Yam Tethys project (in this section: “the sellers”) and Israel Electric Corporation (in this section: "IEC" or "the buyer”) signed an agreement for delivery of natural gas to IEC. 2. The agreement is valid through July 1, 2014 or by such date as the sellers have delivered to the buyer a cumulative gas volume equal 18 BCM (“the total contracted volume”), whichever is earlier. 3. The buyer or the sellers may terminate the agreement should the other party (and for the Sellers, any of them) take any bankruptcy action (as defined in the agreement) which is likely to have an adverse effect on the discharge of their obligations pursuant to the agreement, by giving at last 30 days' written notice. The buyer and the sellers agreed not

1 The Antitrust Commissioner's approval for this transfer has not yet been received. 2 For the matter of financing agreements, see section 1.11.17. above.

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to exercise any right they may have to lawfully terminate the agreement other than in connection with significant or continued breach of material provisions of the agreement, and only after granting a 90-day period to the party in breach to remedy such breach (unless a shorter period is stipulated in the agreement). 4. Without derogating from the sellers’ obligations under the agreement with regard to maintaining reserves, the sellers would not be limited to any sources of natural gas (either from Israel or imported) which they supply to the buyer under the agreement. 5. The Sellers will ensure that at any time during the term of the agreement they shall have available remaining reserves in reservoirs amounting to 130% of the remaining total contracted quantity (“Remaining TCQ”) (the remaining TCQ after deduction of quantities of gas delivered by the Sellers under the agreement). The agreement sets forth instructions for reporting on and supervision of the remaining reserves and for adjustment of certain provisions in the agreement should the sellers fail to maintain sufficient reserves as required. At the date of the report, the sellers are in compliance with the requirements of the reserve balances. 6. The agreement stipulates the annual contracted volume of gas, which changes over the term of the agreement depending, inter alia, on the pace of completion of the transmission system and its connection to IEC power stations for delivery of gas to the stations (in this section: the annual contracted volume”). 7. According to the agreement, gas is supplied on an hourly basis with a minimum and maximum volume per hour, according to procedures and mechanisms set forth in the agreement. 8. Gas is delivered to the connection point at the INGL pipeline near the permanent receiving terminal on Ashdod shore. 9. Minimum bill quantity: The agreement specifies the annual minimum bill quantity, at 80% of the annual contracted volume (subject to adjustments) for which the Buyer has committed to pay even if it does not consume that volume, subject to provisions of the agreement, as well as instructions for the calculation and adjustments of the minimum bill quantity, including due to force majeure or failure to supply by the Sellers. The agreement also specifies a mechanism for the accumulation of excess volume consumed by the Buyer in the course of any year, and its use to reduce IEC's undertaking to purchase a minimum quantity, as set forth above, in subsequent years. Furthermore, the agreement specifies provisions and mechanisms allowing IEC to receive gas at no additional charge up to the volume paid for, on account of gas not consumed due to activation of the minimum bill quantity. At the date of this report, IEC consumes volumes significantly exceeding the minimum bill quantity. 10. Financial value of the agreement: Delek Energy estimates that total net receipts (net of royalties to the State and to third parties, including interested parties) of Delek Drilling partnership and Avner partnership, from the production start date for their share alone, will be USD 330 million and USD 300 million, respectively,12 based on the Partnerships’ hedging agreements (see subsection 11 below) and the total quantities of gas that the Partnerships undertook to supply to IEC. Notice regarding forward-looking information: The aforementioned estimate by Delek Energy is forward-looking information, based on its estimates of future gas consumption by IEC. The estimate may not materialize should actual gas consumption by IEC be different than these projections. 11. Price of gas: The contracted price for the gas is denominated in US dollars per energy unit (BTU) and is linked to the fuels index and to the US Producer Price Index according to the mechanism in the agreement, including minimum and maximum prices.. In view of the hedging agreements of the partnerships and Delek Investments, after signing the agreement with IEC, the partnerships effectively set the price for gas volumes to be sold at USD 2.47 per million BTU. 12. Gas quality: According to the agreement, delivery of natural gas will comply with specifications set out in the agreement and according to requirements of the transmission company as approved by the relevant authorities from time to time. The buyer has the

1 For details of delivery to IEC, see section 1.11.8A above. 2 fn

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right to refuse to receive non-compliant gas until such non-compliance is remedied. All disputes between the parties with regard to gas quality may be submitted to an expert for resolution at the request of any of the parties. 13. Breach and damages: According to the agreement, should the Sellers fail to supply, at any time, the gas volume ordered by the Buyer pursuant to the agreement, and should the non- supply exceed the deviation allowed by the agreement, the Sellers shall compensate the Buyer in the subsequent month by selling gas at a discounted price up to the volume of gas not supplied in breach of provisions of the contract. Furthermore, the agreement lists specific breaches by any party for which damages are payable at high rates (including financial compensation). The agreement also sets limits to liability of each party for breach of some of the agreement provisions at amounts specified in the agreement. 14. Collateral and guarantees: The agreement establishes collateral to be provided and maintained by each of the Sellers in favor of the Buyer, to guarantee the Sellers’ obligations under the contract, all at dates, terms and amounts set out in the agreement.. The shares of Delek Drilling and Avner partnerships in the collateral are USD 7.65 million and USD 6.9 million, respectively. 15. Relationships between sellers and the sellers’ coordinator: The Sellers operate jointly on issues such as development of the reservoir, the Sellers’ facilities and gas production, delivery and supply pursuant to the agreement. Concurrently, the Buyer declares that none of the provisions in the agreement shall be considered as creating mutual liability among the Sellers, and each Seller is individually liable to the Buyer for its share of the oil rights and in connection with any liability arising from the agreement. Although the Buyer may order gas volumes by a single notice to the Sellers’ coordinator, the volume considered ordered from each of the Sellers will be the portion of each of the Sellers out of the total volume ordered. 16. Addendum to the agreement: On August 15, 2006, the Sellers contracted an addendum to the agreement for the supply of additional volumes of natural gas (the addendum to the agreement). Pursuant to the addendum to the agreement, the sellers granted IEC an option to purchase additional volumes of natural gas, primarily in response to IEC’s gas supply requirements during peak consumption hours.. This option referred to additional volumes of gas purchased after June 2006. The validity of the addendum was extended from time to time to March 31, 2009 but in practice the parties acted according to the terms of the addendum until June 30, 2009. The purchase price for gas under the terms of the Addendum to the Agreement is significantly higher than the price at which IEC purchases natural gas under the 2002 agreement, due to the different mechanism according to which the gas price is set and due to the increase in global fuel prices. 17. Letter of intent with IEC In June 2009, the Yam Tethys project partners and IEC signed a letter of intent for the supply of an additional quantity of 1 BCM of natural gas per year for five years (a total of 5 BCM). The financial scope of the agreement (for 100% of the rights) is estimated at the reporting date, to be USD 1 billion. The actual revenue of Yam Tethys Group from the sale of additional quantities to IEC will be affected by a number of conditions, mainly global fuel prices, supply schedule and other conditions. Caution about forward looking information: The above estimates concerning the agreement with IEC is forward looking information, regarding which there is no certainty that it will materialize, in full or in part, in the aforesaid manner, and in particular, it is not at all certain that a binding contract will be signed under the foregoing terms and it is uncertain that the financial scope of the agreements will be as estimated above. The above estimates may not materialize, inter alia, if the specific agreement is not finally reached under the foregoing terms and if the global fuel prices or the volume of gas supply to the IEC are volatile. B. Agreement with Paz Refineries Ashdod On September 3, 2004 an agreement was signed between the Yam Tethys project partners and Paz Ashdod for supply of gas to the oil refinery in Ashdod. The total contracted volume that Yam Tethys group is required to supply to Oil Refineries Ltd. (“ORL”) is 1.3 BCM.

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The term of the contract is ten years from the end of the trial period specified in the contract, or until ORL consumes the total contracted volume, whichever is earlier. ORL has a take or pay agreement for a minimum annual volume of gas according to a mechanism set out in the agreement. The total financial value of the agreement (for all Yam Tethys project partners) is estimated at USD 120 million. Gas supply to ORL started in November 2005. Caution about forward looking information: The above assessment is forward-looking information, based on Delek Energy's estimates relating to the future gas consumption of Paz Refineries Ashdod. The estimate may not materialize should actual gas consumption by Paz Refineries Ashdod be different from the aforementioned projections. C. Agreement with Delek Ashkelon In August 2005, an agreement was signed and approved between Yam Tethys project partners and IPP Delek Ashkelon Ltd. ("Delek Ashkelon”), a company controlled by Delek Group, for the supply of gas to Delek Ashkelon’s power station adjacent to the desalination plant in Ashkelon. Gas supply under the agreement will commence when natural gas is delivered to Delek Ashkelon’s power station, subject to terms set forth in the agreement, and will end after 15 years from the end of the run-in period of the power station, or on June 30, 2022. The partners in the Yam Tethys project are negotiating with Delek Ashkelon to increase the volume under the agreement. The annual gas volume to be purchased by Delek Ashkelon is 0.12 BCM. The total financial value of the agreement (for all Yam Tethys project partners) is estimated at USD 160 million. Actual revenues will be affected by a number of conditions, primarily the price of fuel oil and rate of gas consumption. Gas supply to Delek Ashkelon commenced in August 2007. Delek Ashkelon has a take or pay agreement for a minimum annual volume of gas according to a mechanism set out in the agreement. Caution about forward looking information: The above assessment is forward-looking information, based on Delek Energy's estimates relating to the future gas consumption of Delek Ashkelon. The estimate may not materialize should actual gas consumption by Delek Ashkelon be different from the aforementioned projections. D. Agreements for the sale of natural gas to AIPM On July 29, 2005, Yam Tethys project partners signed an agreement with AIPM for the supply of natural gas. Gas supply under the agreement commenced in August 2007 upon completion of the pipeline and required facilities, and shall terminate on the earlier of five years from commencement of gas flow or upon purchasing of 0.43 BCM, but no later than July 1, 2011. The gas price formula specified in the agreement is based on the price of fuel oil with a discount component, including minimum and maximum prices. AIPM has a take or pay agreement for a minimum annual volume of gas according to a mechanism set forth in the agreement. The total financial value of the agreement (for all Yam Tethys project partners) is estimated at USD 40 million. Actual revenues will be influenced by a number of conditions, primarily the price of fuel oil and rate of gas consumption. Caution about forward looking information: The above assessment is forward-looking information, based on Delek Energy's estimates relating to the future gas consumption of Hadera Paper Ltd (“AIPM” American Israeli Paper Mills. The estimate may not materialize should actual gas consumption by AIPM be lower than the aforementioned projections. E. Agreement for the sale of natural gas to Israel Chemicals Ltd. On March 25, 2008, the Yam Tethys project partners signed a agreement with a subsidiary of Israel Chemicals Ltd. (“ICL”), guaranteed by ICL, for the supply of natural gas to plants in the ICL Group in Israel (“ICL Group”). ICL Group undertook to purchase a total gas quantity of 2 BCM from Yam Tethys partnership, subject to the provisions in the agreement (“the contract gas quantity”).

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Gas supply commenced in December 2010 and will end at the earlier of: (1) five years from the date of completion of the running in period, but no later than September 2015 (subject to extension as described below; (2) purchase of the entire contract gas quantity. The period set out in subclause (1) will be automatically extended by one addition year, if by the end date the entire contract gas quantity has not been consumed. In addition, Yam Tethys partners have an option to extend the period by an additional two years, until the entire contract gas quantity has been consumed, as set out in the agreement. The price of gas is based on the price of fuel oil, with a discount including maximum and minimum prices. ICL Group has a take or pay agreement for a minimum annual volume of gas according to conditions set out in the agreement. The total financial value of the agreement (for all Yam Tethys project partners) is estimated at USD 260-330 million. Actual revenues will be affected by a number of conditions, primarily the price of fuel oil and rate of gas consumption. Caution about forward looking information: The above assessment is forward-looking information, based on Delek Energy's estimates relating to ICL's future gas consumption. The estimate may not materialize should actual gas consumption by ICL be different from the projections. F. Letters of intent for supply of natural gas 1. Letters of intent with IEC A) On December 13, 2009, a letter of intent was signed between IEC and the Tamar project partners and between IEC and the Tethys Yam project partners. The board of directors of IEC instructed IEC management to conduct exclusivity negotiations with the objective of signing binding contracts within six months. The following letters of intent were signed: (1) Letter of intent for the purchase of natural gas from the Tamar project: According to the letter of intent between the Tamar project partners and IEC, the parties will negotiate for the sale of a minimum BCM 2.7 per year of natural gas from the Tamar project to IEC and which volume may be substantially greater, for a period of 15 years.. The annual revenue from the sale of gas to IEC is estimated at between USD 400 million and USD 700 million (for 100% of the rights in the Tamar project). It is clarified that actual revenues will derive, inter alia, from global fuel prices at the time of actual supply and from the volume of gas that will be purchased in practice by IEC. It is noted that the Tamar project operator (Noble) estimates the revenue from the sale of the total quantity of gas to IEC, under the foregoing letter of credit, to be USD 9.5 billion (regarding 100% of the rights), and this is based on its assessment regarding the volume and prices of gas that will be sold throughout the contract period, calculated primarily according to estimates of the projected fuel prices during the contract period. (2) Letter of intent to purchase gas and storage services: According to another letter of intent between IEC and the partners in the Yam Tethys project, IEC will negotiate with the Yam Tethys project partners for the acquisition of strategic inventory of natural gas and the acquisition of pumping, storage and extraction services for gas purchased from the Mari field. Caution about forward looking information: The above estimates concerning the agreement with IEC is forward looking information, and there is no certainty that it will materialize, in full or in part, in the aforesaid manner, and in particular, there is no certainty that a binding contract will be signed under the terms set out above or under different terms, and it is uncertain that the volume supplied and the financial scope of the agreements will be as estimated above. The above estimates may not materialize, inter alia, if binding contracts are not signed or if they are signed under different terms to those stated above, or if there are fluctuations in global fuel prices or in the volume of gas purchased by IEC under the supply contract, insofar as the contract is signed, or if any of the risk factors connected to the development of the Tamar project materialize (such as lack of means for development and production, manifestation of technological risks and regulatory changes).

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B) At the same time, a letter of intent was signed by the Yam Tethys project partners and the Tamar project partners, according to which the strategic inventory set out in section (1)(b) above will be supplied by the Tamar project, subject to the agreement of the partners in both projects. 2. Letter of intent with Dalia Power Energies Ltd. ("Dalia") On December 14, 2009 a letter of intent was signed between Dalia Power Energies Ltd. ("Dalia")1 and the Tamar project partners, according to which Dalia will purchase natural gas from the Tamar project to fuel a power station to be built by Dalia ("the power station"). According to the letter of intent, Dalia is expected to purchase an estimated minimum volume of natural gas of BCM 5.6 over 17 years, from the date on which operation of the power station commences, which is expected to be during the second half of 2013. According to the letter of intent, the volume of gas that Dalia is permitted to purchase and which will be fixed according to the operating hours of the power station, its final gas consumption and size, may be smaller (in an insignificant amount) or alternatively larger (in a significant amount of up to three and a half times the quantity specified above). The Tamar project partners estimated the revenue from the sale of 5.6 BCM to be at least USD 1 billion (for 100% of the Tamar project rights). The actual revenue will be derived from a range of factors, including those mentioned above, fuel and energy prices and others. The letter of intent is nonbinding and the parties intend conducting exclusivity negotiations for the purpose of signing a binding supply contract in the months following the signing of the aforesaid letter of intent. It is clarified that the agreement will be subject to Dalia establishing and operating the power station, which depends on a series of factors including receipt of statutory permits, attaining the required financing, agreements with suppliers of equipment and construction contractors and others. Caution about forward looking information: The above assessment concerning the agreement with Dalia is forward looking information and there is no certainty that it will materialize, in full or in part, in the aforesaid manner, and may materialize in a substantially different manner, in particular (1) it is not at all certain that a binding contract will be signed under the terms set out above or under other terms, and the signing as aforesaid is subject, inter alia, to agreement between the parties of the terms of the binding contract and receipt of approval from the certified authorities and required permits under any law, if required; (2) also, following signing of a binding contract, there is no certainty concerning the actual supply of gas or that the volume of supply and/or the scope of revenues will be as estimated above, and these are dependent upon, inter alia, the terms of the supply contract, the size and scope of the operations of the power station, its operating hours and gas consumption, and fuel and energy prices and other factors. 3. Letter of intent with Darom Ltd. power station and DSI Dimona Silica Industries Ltd. On February 19, 2010, a letter of intent was signed between Darom Ltd. power station and DSI Dimona Silica Industries Ltd. ("the buyers")2 and the Tamar project partners, according to which the buyers will purchase natural gas from the Tamar project to fuel a power station constructed by the buyers ("the power plant") and for the requirements of the buyers’ plant in the south of Israel. According to the letter of intent, the buyers plan to purchase a minimum quantity of natural gas estimated at 2.8 BCM, over 17 years. Furthermore, in the letter of intent, the parties agreed to terms for the purchase of additional amounts of natural gas by the buyers for the buyers’ other potential projects (“the additional projects"). According to the letter of intent, the quantity of gas that the Buyers are permitted to purchase, and which will be fixed in practice, inter alia, are based on the scope of the

1 Dalia is a privately owned company established with the aim of building a 870 megawatt power station at Tel Tzafit (near Re’em Junction), fueled by natural gas. 2 The buyers are DSI Dimona Silica Industries Ltd., a privately owned company incorporated in Israel, which is planning to build a silica production plant in Dimona, and Darom Ltd, power plant, a privately owned company incorporated in Israel, which is planning to build a 120 megawatt cogeneration plant.

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additional projects that will be established in practice, on the operating hours of the of the power plant, the gas consumption of the power plant and the other projects, and may be greater (substantially greater, by more than double the quantities specified above). The Tamar project partners estimate the revenue from the sale of 2.8 BCM of gas to be at least USD 0.5 billion (regarding 100% of the Tamar project rights). The actual revenue will be derived from a range of factors, including those mentioned above and energy prices. The letter of intent is nonbinding and the parties intend to hold exclusivity negotiations for the purpose of signing a binding supply contract in the coming months. Caution about forward looking information: The above estimates concerning the agreements with Silica Dimona is forward looking information as defined in the Securities Law, and there is no certainty that it will materialize, in full or in part, in the aforesaid manner, and may materialize in a substantially different manner, in particular (1) it is not at all certain that a binding contract will be signed under the terms set out above or under other terms, and the signing as aforesaid is subject, inter alia, to agreement between the parties of the terms of the binding contract and receipt of approval from the certified authorities and required permits under any law, if required; (2) also, following signing of a binding contract, there is no certainty concerning the actual supply of gas or that the volume of supply and/or the scope of revenue will be as estimated above, and these are dependent upon, inter alia, the terms of the supply contract, the size and scope of the operations of the power station, its operating hours and gas consumption, and energy prices and other factors. G. Joint Operating Agreement for Yam Tethys project (see section 1.11.13.above) H. Financing agreement for Yam Tethys project (see section 1.11.17 above) I. Agreements for payment of royalties: Royalties received from Delek Drilling partnership Delek Energy and Delek Israel (in this sub-section: ("the transferors") and the general partner of Delek Drilling partnership, on behalf of the Partnership, signed an agreement for the transfer of rights in 1993. On March 30, 2000, the right of Delek Israel was transferred to Delek Investments as part of reorganization in Delek Group. According to the agreement, the transferors transferred the rights in a number of licenses to Delek Drilling partnership (in this sub-section: the transferred rights) and Delek Drilling partnership undertook to pay the royalties to the transferors, at rates set out below, out of Delek Drilling partnership’s share of oil, gas or any other material of value produced and used from the oil assets in which Delek Drilling partnership has or will have an interest (before deduction of any royalties, but after deduction of oil used for production). The royalty rates are as follows: Until such date as the investment of Delek Drilling Partnership is recouped, royalties will be paid at a rate of 5% of onshore oil assets and 3% of offshore oil assets. After this date – 15% of onshore oil assets and 13% of offshore oil assets. According to the agreement between Delek Drilling partnership and the transferors, in 2002 an expert was appointed to determine the meanings of certain definitions and terms relating to royalties owed by Delek Drilling as aforesaid, and mainly relating to the definition of “the investment return date". The appointed arbitrator expressed his opinion, inter alia, on the calculation method and different elements that should be considered when determining the investment return date. The investment return date, after which 13% royalties are paid, came into effect at the beginning of October 2007. J. Joint Operating Agreement in the Tamar project K. Delek Drilling and Avner limited partnership agreements As general partners, Delek Drilling Management (1993), Ltd., and Avner Oil and Gas Ltd. are party to the limited partnership agreements of Delek Drilling partnership and Avner partnership (as the case may be). Most of the provisions in the limited partnership agreements of Delek Drilling and of Avner are essentially similar. Below is a summary of the main provisions of the above agreements (in this section: the limited partnership agreement): 1. The limited partnership agreement was signed between the general partner and the limited partner (and trustee).

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2. The goals of the partnerships are to participate in oil and/or gas exploration in geographical regions specified in the limited partnership agreement. 3. The main expenses of the partnerships will be "exploration and development expenses" as defined in the Income Tax Regulations (Rules for Tax Calculation on Holding and Sale of Participation Units in an Oil Exploration Partnership), 1988. 4. The general partner of each partnership is entitled to 0.01% of revenues and is liable for 0.01% of expenses and losses of the limited partnership, as well as for expenses and losses of the limited partnership for which the limited partner may not be liable, due to restrictions pertaining to the limited partner. 5. According to the limited partnership agreement, the general partner will manage all of the limited partnership affairs at its discretion and to the best of its ability, and shall endeavor to implement the goals of the limited partnership as set out in the limited partnership agreement. A supervisor is appointed to each partnership and given certain specific supervisory authority intended to protect the interests of holders of participation units. The general partner is entitled to monthly management fees of USD 40,000 and to reimbursement of certain direct expenses allowed under the limited partnership agreement. 6. The limited partnership agreement stipulates that all of the limited partnership’s profits, which are lawfully distributable by the partnership as profits after deduction of amounts (excluded in determining the profit) required by the partnership - will be distributed to the partners, pro rata to their rights, as set out in the limited partnership agreement. 7. The general partner and/or employees and/or management shall not be liable to the limited partnership nor to the limited partner for any act or omission made on behalf of the limited partnership under authority granted to the general partner within or pursuant to the agreement or by law, unless the acts were committed fraudulently or willfully or constitute gross negligence. The limited partnership agreement also includes provisions for insurance and indemnification of the general partner. 8. The term of the limited partnership remains in effect as long as the limited partnership owns, directly or indirectly, a valid oil asset or rights therein or in any oil or gas to be produced. The limited partnership shall be terminated before the specified dates if it is disbanded earlier by order of the limited partnership agreement or by law or by the partners' consent. It is noted that the limited partnership agreement of Avner Partnership stipulates that the general partner may serve as operator of oil exploration operations in areas where the limited partnership has interests, and will be eligible to be appointed operator in areas where it may have interests in the future. Furthermore, the limited partnership agreement of Avner partnership specifies the right to royalties at 6% of the entire share of Avner partnership in oil and/or gas and/or any other material of value produced and exploited from oil assets where Avner partnership has, or may have in the future, an interest (before deduction of any royalties, but after deduction of oil used for production); Delek Investments is eligible to 1% of the aforementioned 6%. L. Contingent agreements for the sale of oil rights 1. Agreements for the sale of rights in the Ruth D and Alon E licenses A) On February 23, 2011, the partners in the 361/Ruth D license and 368/E Alon license (the Ruth D and Alon E licenses) signed contingent agreements with third parties for the sale of part of their oil rights in the Ruth D and Alon E licenses (in this section: “agreements for sale of the rights”). According to these agreements, the partners in the Ruth D and Alon E licenses will transfer (each according to their proportionate share in the licenses), 50% of the participation rights (out of 100%) in each of the Ruth D and Alon E licenses, subject to fulfillment of the preconditions,. B) The buyers of the rights in Ruth D and Alon E licenses, and their proportionate share in each of them (after transfer of the rights, to the extent that this is completed) are as follows:

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C) 17.5%: Israel Land Development Co. – Energy Ltd. (“ILDC – Energy”) (in the Alon E license, 5% of the rights were acquired by Israel Land Development Co. Ltd.– “ILDC”)1 D) 17.5%: ProSeed Venture Capital Management (1999) Ltd.2 E) 15%: Ellomay Capital Ltd.. 3 F) According to the sales agreement, the consideration for the rights in the Ruth D and Alon E licenses is as follows: G) At the completion date of the transaction: 1) reimbursement of USD 588,000 to the partnerships for prior expenses in the Ruth D and Alon E licenses; 2) reimbursement of expenses covered by the partnerships for their proportionate share in purchase of the rights in the Ruth D and Alon E licenses, from the signing date through to the completion date. H) For the first drilling in the Ruth D and Alon E licenses (in this section: “the first drilling”), to the extent that the drilling will be performed: the partnerships will be entitled to a creditor’s right for 30% of their rights, so that the buyers will bear, in addition to their proportionate part in the expenses of the first drilling, an additional 7.5% of the cost of the first drilling up to the total cost of USD 50 million (“the creditor’s right”). I) Overriding royalties of 3% of the rights transferred by the partnerships in the Ruth D and Alon E licenses for all oil and gas produced. J) The partnership may convert, up to the start date of the first drilling, the balance of their participation rights to overriding royalties of 3% of the transferred rights. K) It is clarified that the rights transfer agreements are subject to approvals, including approvals that are required according to the limited partnership’s agreements and the partnership’s escrow agreements, approvals of the certified organs of the buyers and the Commissioner’s approval to transfer the transferred rights in the Ruth D and Alon E licenses, at the dates set out in the agreements. After approval of the transfer of the transferred rights to the buyers, each partnership will own 12.5% of the rights in the Ruth D and Alon E licenses. M. Agreements for the sale of rights in the Avia and Keren licenses On February 23, 2011, the partners in the 337/Avia and 338/Keren licenses (“the Avia and Keren licenses”) signed contingent agreements with third parties for the sale of part of their oil rights in the Avia and Keren licenses. According to the agreements, the partners in the Avia and Keren licenses (each according to their proportionate share in the licenses) will transfer, subject to the fulfillment of preconditions, 75% of the participation rights in each of the Avia and Keren licenses. The buyers of the rights in the Avia and Keren licenses, and their proportionate share in each of them (after transfer of the rights, to the extent that this is completed) are as follows: 50% 4 ATP East Med Number 1 BV and ATP Oil & Gas Corporation (together: (“ATP”) 10% - Modiin Energy Limited Partnership5

1 To the best of the partnership’s knowledge, ILDC – Energy Ltd. is controlled by ILDC, which owns 69.69% of its shares. ILDC is a public company traded in Israel, controlled by Yaakov Nimrodi, who owns 43.12% of its shares and Ofer Nimrodi, who owns 28.72% of its shares. 2 To the best of the partnership’s knowledge, ProSeed Venture Capital Management (1999) Ltd. is a private company registered in Israel. The company is fully controlled by Landlan Investments Ltd., which is controlled by Ligad Rotlevy, Yair Rotlevy and Yeshayahu Landau through a private company. 3 To the best of the partnership’s knowledge, Ellomay Capital Ltd. (“Ellomay”) is an Israeli company traded on the NASDAQ. The controlling shareholders are Shlomo Nehama, who holds 37.3% of its shares and Kanir Joint Investments (2005) Limited, holding 33.3% of its shares. 4 To the best of the partnership’s knowledge, ATP East Med BV Number 1 is a private company registered in Holland, and is wholly owned by ATP East Med BV, which is wholly owned (through Netherlands) by ATP Oil & Gas BV) of ATP Oil & Gas Corporation. 5 To the best of the partnership’s knowledge, the controlling shareholder in the partnership is Modiin Energy Management (1992) Ltd, controlled by Yithak Sultan and IDB Development Company Ltd.

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10% - Ellomay Capital Ltd.1 5% - O.D.N Energy Ltd.2 According to the sales agreements, consideration for the rights in the Avia and Keren licenses will be as follows: 1. At the completion date of the transaction: 1) reimbursement of expenses of USD 2.671 million to the partnerships for prior expenses in the Avia and Keren licenses; 2) reimbursement of expenses covered by the partnerships for their proportionate share of the purchase of the rights in the Avia and Keren licenses, from the date of signature through to the completion date. 2. For the first drilling in the Avia and Keren licenses (in this section: “the first drilling”), to the extent that it is drilled: the partnerships will be entitled to creditor’s rights for 30% of their rights, so that the buyers will cover, in addition, their proportionate share in the expenses of the first drilling, an additional share equivalent to 7.5% of the cost of the first drilling up to the total cost of USD 50 million (“the creditor’s rights”). 3. Overriding royalties of 3% of the rights transferred by the partnerships in the Avia and Keren licenses for all oil and gas produced. 4. 6The partnership may convert, up to the start date of the first drilling, the balance of their partnership rights to overriding royalties of 3% of the transferred rights. 5. In the sale of rights in the Avia and Keren licenses, it was agreed that ATP would be appointed operator of the joint venture in the license areas, according to the provisions of the JOAs that were signed when the agreement was signed, which will come into effect after approval and completion of the transfers. 6. It is clarified that the agreements are subject to approvals, including approvals that are required according to the limited partnership’s agreements and the partnership’s escrow agreements, approvals of the certified organs of the buyers and the Commissioner’s approval to transfer the transferred rights in the licenses and to appoint ATP as operator of the Avia and Keren licenses, at the dates set out in the agreements. After approval of transfer of the transferred rights to the buyers, the percentage of the participation rights of each of the partnerships in the Avia and Ruth licenses will be 12.5%. 1.11.30 Legal proceedings In the matter of the claim filed at the Tel Aviv district court against Yam Tethys Ltd. and a number of other defendants, see Note 24A(33) to the financial statements. 1.11.31 Business strategy and objectives Oil and natural gas exploration includes high-risk investments. Accordingly, companies operating in this sector are required, inter alia, to diversify and balance their assets so as to realize the potential while taking calculated risks. Accordingly, Delek Energy’s portfolio includes productive oil and gas assets with further potential for low-risk development and exploration (Yam Tethys and Elk), oil and gas assets in pre- development stages and in development stages that are expected to produce oil and natural gas in the next few years (Tamar, Dalit and Leviathan), and exploration projects, which if successful, could have a significant contribution to the increase in Delek Energy’s value (exploration operations in oil assets off the shores of Israel). Delek Energy estimates that the significant discoveries of gas at Tamar, Dalit and Leviathan, continuation of successful operation in the Yam Tethys project and the attractive exploration assets off the shores of Israel, position the assets in Israel as the core assets of the company, which also incorporate the greatest potential for growth and generation of value. IIn view of the aforesaid, Delek Energy’s short-term operating strategy and objectives are as follows:

1 For information about Ellomay, see section 7.18.1 above. 2 To the best of the partnership’s knowledge, Odin Energy Ltd. is a private company registered in Israel. The company is controlled by A.R.I.B. Energy (2011) Ltd. (a company wholly owned by Ram Belinkov), which owns 50% of the shares, and by Adonan Ltd. (a company wholly owned by Benny Rosenberg), which owns the other 50% of its shares.

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A. Delek Energy (through Delek Drilling and Avner partnerships) will operate to maintain and reinforce its leadership in Israel and its professional capacity in the oil and gas sector, including: 1. Yam Tethys project: A) Negotiations and agreements for the sale of all the gas reserves discovered in the project B) Completion of project development and maintenance of the gas production capacity with the aim of it being used also as a bridge for the supply of gas to Tamar project customers, until development of the Tamar project has been completed. C) Examination of the possible future uses of the facilities at the project and the Mari reservoir, including for the purpose of selling strategic storage and operational services for gas to consumers in Israel and for unloading and storage of LNG for the State of Israel D) Using available cash flows from the sale of gas to receive additional financing for the partnership's expected investments 2. Tamar discovery: A) Developing the Tamar project, including drafting a final development plan and purchasing of equipment and services, with the aim of enabling commencement of the supply of natural gas in 2013. B) Negotiations and agreements for the sale of natural gas to potential consumers in Israel. C) Raising non-recourse interim capital from foreign banks and subsequent replacement with non-recourse project financing, for the partnerships, to finance their share in the costs of the development plan. 3. Continuing the partnerships' exploration efforts in the offshore oil concessions off the coast of Israel, including processing and analysis of 3D seismic surveys, focusing on the oil licenses with the greatest potential and assessment of exploration drillings in 2011- 2012, if the surveys produce positive results. B. Delek Energy will continue its operations in the USA through the managerial and professional infrastructure of Elk, while drafting operating strategies with respect to this operation. Elk will also take steps to assimilate the assets transferred from AriesOne, assess and take advantage of business opportunities in its field of operation in the USA, assess options for the sale of assets that are not defined as core assets in its operations and establish collaborations with others. C. Delek Energy intends to continue to provide financial and management support in projects and other companies, which are not defined as Delek Energy’s core assets, to allow them to continue their operations with the objective of maintaining the present situation. Concurrently, Delek Energy will assess the option for the sale of assets that are not defined as core assets, at an appropriate price, taking into account, inter alia, prices of oil and natural gas. D. The investments required for Delek Energy’s operations require it to raise substantial finances. Delek Energy intends to raise these finances by using the expected proceeds from distribution of the partnerships' profits and retained earnings in the subsidiaries and by issuing of capital and/or debentures in Israel, through bank financing on the company level and/or the project level and by assessing the option of selling assets that are not defined as Delek Energy’s core assets. It is uncertain whether Delek Energy will succeed in its efforts to raise these finances. Delek Energy’s objectives and strategy, as described above, are general intentions and goals, and as such there is no certainty that they will be realized, inter alia, due to changes in the projects, including the Tamar project, changes in the market situation, changes in priorities and as a result of surveys as well as due to unexpected events and the risk factors described in section 1.11.33. 1.11.32 Insurance coverage In each drilling project in which Delek Energy participates, it maintains property insurance, as is common practice in this sector for control of well (taking control of a well which is out of control, including new drilling expenses) as well as liability insurance for damage to third parties and/or to employees.

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Delek Energy also holds directors liability insurance under a policy acquired by Delek Group for the companies in the group. Delek Energy estimates that the abovementioned insurance coverage is reasonable. 1.11.33 Risk factors Oil and gas exploration and the development of oil and gas discoveries involve large financial outlays with a high financial risk, primarily for reasons set forth below. This is even more significant for offshore oil exploration and production operations. A. Fluctuations in the dollar exchange rate: Delek Energy is exposed to fluctuations in the dollar exchange rate. The international operations of Delek Energy are generally denominated in US dollars. From January 1, 2008, the limited partnerships also measure their results in US dollars, therefore every erosion in the dollar-shekel exchange rate will lower the revenue, net expenses and assets of Delek Energy, and consequently, will lead to a decrease in the equity and profitability of Delek Energy. On the other hand, in 2007 the Company started to raise dollar loans, therefore, every revaluation in the shekel-dollar exchange rate will result in revenue from exchange rate differences due to these loans. B. Dependence on global oil prices: The prices paid by consumers for natural gas in reservoirs in which the partnerships are party, are derived, inter alia, from prices of alternative energy sources to gas, such as oil and coal. A decrease in prices of alternative fuels could have an adverse impact on the price which Delek Energy is able to obtain from its customers for natural gas sold by the partnerships and/or may influence the viability of production from the reservoirs discovered in the Tamar project and newly discovered reservoirs (if any) by the partnerships. Furthermore, significant fluctuations in coal prices may lead to a change in the usage model of IEC, such that it will give preference to its coal-operating power stations compared with its natural gas -operating power stations, and vise versa. Oil and gas prices have a direct impact on Delek Energy’s income from sales of oil and gas in its overseas projects. Furthermore, assessments of reserves are also affected by oil and gas prices, for example, a decrease in oil and gas prices could result in a depletion of economically-viable production from reserves in Delek Energy’s oil and gas reservoirs, while an increase in oil prices could result in an increase in production from economically-viable reservoirs. C. Competition for gas supply: To the best of Delek Energy’s knowledge, at the reporting date there are two major competitors for gas supply in Israel. See section 4.7 above. In view of the relatively small gas market in Israel, competition could push down prices and consequently affect the ability of the limited partnerships to market the gas reserves they discovered or could discover. D. Market size compared with size of reservoirs: The natural gas reservoirs discovered in the Tamar and Ratio Yam projects are considerably larger than the potential market in Israel, which is relatively limited. Accordingly, the results of the partnership’s operations are largely dependent on the possibility of commercializing the gas, including the possibility of exporting gas and selling it on the international market. The possibility of gas export and sales depend on several factors with high uncertainty, such as establishment of an export and transportation system subject to regulatory approvals, economic feasibility of establishing this system, identification of potential customers in the international market, and financing investments in development and establishment of the export system. E. Uncertainty regarding the construction of the national gas pipeline: The ability of the Yam Tethys project partners to sell their gas to other potential consumers and to increase the gas volume supplied to IEC is dependent, inter alia, on establishment of the national gas pipeline. As of the date of this report, there is still uncertainty with regard to the completion date of this system. F. Absence of insurance cover: Although Delek Energy is insured against possible damages with regard to projects in which it operates, these policies do not cover all potential risks and therefore the insurance payout may not cover all potential losses (in the Yam Tethys project – in the matter of both potential loss of income and establishment costs of the production system in the case of an event that causes damage to the production system). Furthermore, there is no certainty that appropriate policies may be purchased in the future under reasonable commercial terms, if at all. G. Operational risks: Oil and gas exploration and production operations are exposed to all risks involved in exploration and production of oil and gas, such as uncontrolled gushing from the well, explosion, collapse and conflagration of the well. Any of these could damage or destroy the oil or

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gas wells, production facilities, exploration equipment as well as cause bodily injury and damage to property. There is also a risk that equipment could be trapped in the oil drill, preventing the continuation of drilling operations or incurring significant expenses. Should any of these events occur at sea, consequences could be extremely severe and major damage could be incurred. Furthermore, there is risk of liability for pollution damage due to gushing and/or leaking of oil and/or gas. 1 There is no certainty that all required insurance to cover these risks can be obtained, nor that coverage provided by the insurance policies obtained will be sufficient. The decision on the type and scope of insurance policy is usually made separately for each drilling, taking into account, inter alia, the cost of insurance, nature and scope of the proposed coverage and the anticipated risks. The operator of a specific project could decide not to take out certain policies. H. Dependence on contractors, equipment and professional services: There are no contractors in Israel involved in drillings, development or deep offshore seismic surveys of the type conducted by the limited partnerships. Therefore, the partnerships are required to contract with foreign contractors for the necessary services. Furthermore, there are few rigs and other vessels capable of drilling at sea in general, and in deep water in particular, compared to the large demand, and there is no certainty that proper vessels will be available for drilling when required. Therefore offshore oil exploration (in Israel and abroad) could involve high costs and/or significant delays in schedules set in the work plans, or part thereof. Not all the suitable equipment and human resources for specific operations in the oil exploration process are available in Israel or can be ordered on short notice, therefore it is often necessary to order equipment and professional human resource services from abroad, which is expensive and causes significant delay in operations. Contracting with foreign contractors for offshore oil exploration, development and production operations (including maintenance and repairs contractors) could sometimes be difficult due to the security and geopolitical situation in Israel. I. Exploration risks and reliable on incomplete data and assumptions: Oil and gas exploration is not an exact science, therefore there is a high risk, since failed exploration could result in a loss of investment. The geological and geophysical means and techniques do not provide an accurate forecast as to the location, shape, features or size of oil or gas reservoirs. Therefore, determining exploration prospects and estimating the size of existing reservoirs and gas reserves could be based, to a large extent, on partial or approximate data and on unproved assumptions.. It is obviously impossible to ensure that oil or gas will be found at all as a result of exploration operations, or that it will be commercially viable for production and exploitation. Furthermore, there is shortage of direct geological and geophysical information for some of the offshore areas of the oil assets of the partnerships and the Company. This is due, inter alia, to the limited number of drillings in these areas and the sparse information that could be derived from them. Estimates of proven gas reserves and resources in the reservoir could also change from time to time. The estimated oil and gas quantities in producing reservoirs during the reporting period is calculated each year, inter alia, based on assessments of oil and gas reserves by external experts. The estimation of the gas reserves and gas resources according to the aforementioned principles is subjective, based on different assumptions and incomplete information, and the estimates of experts could vary significantly. There are numerous assumptions and data that affect the results of the estimated reserves and changes in these assumptions and/or data could result in significant changes in the assessments. The information in this report regarding the gas reserves and gas resources in the different reservoirs is based on assessment only and should not be considered as information regarding precise quantities. Estimates of the proved and developed gas reserves in the Mari gas field are used to determine the depreciation rate of assets in financial statements of the limited partnerships. In Israel, depreciation of investments associated with discovery and production of proved and developed gas reserves is based on the depletion method, in other words, in each accounting period the assets are depreciated at a rate determined by the number of units of gas actually produced, divided by the proved and developed gas reserves remaining according to estimates. Given the fundamental importance of the depreciation, the abovementioned changes could significantly affect the operating results and financial situation of the limited partnerships and of the Company. J. Estimated costs and schedules and potential shortage of means :Estimated costs and schedules for exploration and development are based on general forecasts only and there could be significant variances. Exploration plans could change significantly due to the findings

1 Drillings and development works comply with American standards that have been adjusted recently, following the events in the Gulf of Mexico.

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of these explorations, causing significant deviations in schedules and estimated costs of these operations.. Malfunctions during exploration and production, and other factors, could extend the operations far beyond schedule and expenses for completing exploration could be significantly higher than forecasted. Proposed exploration operations could also involve financial outlay which the limited partnerships may not be able to cover.. According to JOAs, late payment of the share of the Company or the limited partnerships, as relevant, of an approved budget for a work plan is a breach which could lead to forfeiture of rights in the oil asset or assets to which the operating agreement applies. Each party to the JOA is liable for timely payment of its relative share. Should other parties to the agreement fail to pay the amounts due and are in breach of the agreement, the Company could be liable for payments significantly exceeding its proportional share in the oil asset or assets relative to the breach. If such payments are not made on time, the Company could risk forfeiture of all its rights in the assets. Particularly high costs of offshore drilling and development could result in deviations in the budget – expected or unexpected. This could prevent the Company from fulfilling its financial obligations, resulting in forfeiture of its rights. K. Risks in the development of a field in the event of a discovery: The decision-making process for continued investment in development and commercial production, intermediate operations prior to commercial production, and implementation of development and commercial production (if feasible) could continue for a long period and involve heavy expenses. Production in very deep waters (such as the depth in the Tamar discovery) is extremely complicated and requires technology for construction of special production platforms. L. Dependence on permits from external entities: Operations of some of the limited partnerships’ areas requires different permits. To the best of the Company’s knowledge, the main permits required in Israel are those pursuant to the Petroleum Law and Natural Gas Sector Law, permits from the security forces, Nature and National Parks Protection Authority, Civil Aviation Authority, local authority and/or planning and construction committees, the Ministry of Agriculture and Rural Development – Aquaculture Department, Ports Authority and shipping department in the Ministry of Transportation. Exploration and production abroad also require permits from various authorities of the countries in which operations take place. Attaining these permits could entail additional expenses beyond the budgets allocated for such operations, or cause delays to schedule of planned operations. Notwithstanding the aforesaid, some of the limited partnerships’ operations are subject to coordination and scheduling with Israeli security forces. Dependence on security forces could disrupt plans of the partnerships with regard to such operations, both in terms of their ability to carry out planned activities and in terms of the schedule and costs of these operations. M. Regulatory changes: : The Company’s operations in Israel require numerous regulatory permits, primarily from the competent authorities pursuant to the Petroleum Law and Natural Gas Sector Law, as well as permits from state institutions (including the Ministry of Defense, Ministry of Environmental Protection and planning authorities). In recent years, a number of bills were presented for amendments to the relevant laws and regulations relating to the core operations of the Company and its partnerships. In 2010, the Petroleum Commissioner prescribed new rules and procedures for granting oil rights and restrictions on the transfer of rights in oil assets. Implementation of these rules and procedures could have an adverse effect on the partnerships’ operations. In the Company’s operations in the world, primarily in undeveloped countries, there is a risk that changes in regulations will harm the Company. For information on the recommendations of the Sheshinski Committee and the legislation arising from the recommendations, see section 7.15.5 above. N. Dependence on weather and sea conditions: Rough seas and difficult weather could delay schedules of offshore work plans and extend the time for their completion. These delays could increase expected costs and could also cause non-compliance with mandatory schedules to which Delek Energy committed. O. Tax risks: The tax issues related to operations of the limited partnerships have yet to be litigated in Israeli courts and it is impossible to determine or to anticipate how the courts will rule on such issues, if and when they are brought before them. Furthermore, for some of the legal issues there is no way to anticipate the position of the tax authorities. Since the operations of the partnerships are subject to special taxes that include tax benefits, changes in legislation, regulations or a change in the position of the Tax Authority, as set out above, could have material implications on the tax applicable to the partnerships and holders of partnership units. Moreover, on February 23, 2011, the Petroleum Profits Tax bill was published. If the legislation for the bill is completed, there will be a much heavier tax burden on the

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partnership’s profits, and accordingly, this will adversely affect the partnership’s business and operations. P. Financing liabilities: A significant part of the Company's operations were financed by loans from Delek Investments and from banks in Israel and other countries. See section 7.12.1. If such loans are not extended, it could be difficult to raise the funds required for their repayment. Q. The limited partnerships have financing agreements as set out above. According to these financing agreements, the limited partnerships have place liens, inter alia, on their rights in the Ashkelon lease, agreement with IEC, hedging agreement for determining the price of gas based on an agreement with IEC, the Yam Tethys project JOA, facilities and rights according to insurance policies. Should the limited partnerships fail to comply with their liabilities under the aforementioned financing agreements, this could lead to a demand for immediate repayment of amounts due under the financing agreements, as well as to liquidation of the collateral provided by the limited partnerships. R. Dependence on a major customer: : The limited partnerships and IEC signed agreements for the sale of natural gas. IEC is currently the largest single consumer in Israel and today the main gas consumer of the partnerships. Payments received from IEC under the agreements are currently the main source of revenue for the limited partnerships. Failure of IEC to comply with its undertakings for timely payment of the amounts payable under the agreement with IEC could lead to a breach of the financing agreements and consequently to demands for their immediate repayment. Moreover, the terms of IEC's license expire in 2010. It is impossible to anticipate the changes to IEC's operating license (if extended), nor how these changes would affect the financial status of IEC. The government's policy to increase competition in Israel's energy market by introducing new, private power producers, as well as the government's intention to privatize IEC, could adversely affect IEC’s financial robustness, thus affecting its ability to meet its liabilities under the agreement. The 2002 agreement with the IEC has several provisions relating to force majeure events, which, should they occur, would release the IEC from its obligations to continue making payments under the agreement. As IEC is the main gas consumer in Israel, it is extremely important to sign a agreement for gas supply from the Tamar discovery, in order to establish the financing ability for the development plan of the Tamar discovery. S. Dependence on operators: The Company relies to a large extent on Noble, in its oil rights used as the operator, including in the Yam Tethys project and Michal and Matan licenses, due to the provisions in the JOAs as well as because of the operator’s experience in projects of this scope in other countries and the Company's relative lack of experience in this type of project. If Noble withdraws from the Yam Tethys project and/or the Tamar proejct and/or the Ratio Yam roject and/or the exploration areas, or changes its status in way that it will no longer be the operator, this could have an adverse effect on the ability of the limited partnerships to meet their liabilities according to the work plan of the oil assets and/or under the agreement for the sale of gas and could affect the production costs of the project. T. Arrears for payments for joint operations: According to agreements with the other partners in the oil assets, any party that does not pay its debts in full, under the agreements, shall forfeit their rights in oil assets to which the agreement applies, without any compensation. U. Minority decisive vote: In part of the transactions that the Company is party to, its participation holdings are low and therefore also its voting rights. Since the decisions are taken by majority vote (by a majority as defined in the JOAs), the Company has no influence over the decisions that are made. In addition, these transactions contain the option that if one of the partners withdraws and the other partners do not assume its share (of unapproved expenses) in exploration operations, this could lead to the termination of exploration operations before completion of the plan defined in the transaction and the return of the oil assets in which exploration operations are performed. V. Shortage of production and development resources and participation in operation : Commercial discoveries and their production require the Company to invest significant amounts, which exceed the means currently available to it. These costs, especially with regard to offshore discoveries (such as the Tamar and Dalit discoveries), are extremely high and the operations also entail risks, including operational risks. Although the Company could hold a valuable asset if there is a commercial discovery, there is no certainty that collateralizing this asset would be sufficient to obtain credit for its development and production. It is noted that due to the royalty payments due by the limited partnership to the State, the Company (Delek

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Drilling Partnership) and others, there is no certainty that, in the event of a commercial discovery, development of the oil field and oil production would be financially viable for the limited partnerships. A sharp rise in production expenses or a sharp drop in oil prices could have an adverse effect on production feasibility. W. Inclusion of additional participants and dilution of the share of the partnerships in the revenues: Exploration and production operations require substantial capital which in many cases cannot be raised within the frame of loans or debt, therefore in certain cases it may be required to include additional partners in various assets of the Company, leading to dilution of the Company’s share in those assets and in any the revenue deriving from them. X. Cancellation or expiration of oil rights and assets: Oil rights are granted for a limited term, and are contingent on fulfilling commitments on dates specified in terms of the oil assets Non- compliance with the commitments could lead to cancellation of the oil rights. An extension of the oil right is at the discretion of competent authorities in the relevant country, which may refuse an extension, restrict the oil right or add other conditions. The ability to exploit oil assets depends, inter alia, on financing of various operations and the availability of suitable equipment and personnel. The absence of equipment or personnel could increase the costs or even prevent fulfillment of the terms of the oil rights, prevent or restrict the extension of rights to assets or cause them to expire. Failure to meet the terms stipulated in the oil rights could result in a loss of the rights and loss of investment. Y. Migrating reservoirs: It is possible that oil or natural gas reservoirs that are discovered or will be discovered in the areas in which the Company or the partnerships has rights will migrate (in terms of the geological formation and size of the reservoir) into other areas where Company or the partnerships has no rights, and vice versa. If gas migrates to areas in which others have rights, negotiations could be required for an agreement on joint exploitation and production from the reservoir, to achieve maximum efficiency of the oil or natural gas reserves. Z. Security and geo-political risk: The Company’s exploration operations in Israel and abroad are often conducted in remote locations (at sea) and/or in countries where the political regime is unstable. The limited partnership is exposed to security risks, including terrorism, primarily in the area where Yam Tethys facilities are located, in relative proximity to Israel’s border with the Gaza Strip. The exposure to geo-political risks in countries in which the Company operates could have an adverse effect on the company in the event of war, coup d'état or financial crisis. AA. The Company’s relationship with Delek Group and the controlling shareholder – Yitzhak Tshuva: The Company belongs to Delek Group and the controlling shareholder, Yithak Tshuva, which could affect the Company’s ability to raise credit, inter alia, due to the single borrower limitation, which could limit the Company's sources of bank credit, and other regulatory limitations imposed on the banks and institutions by the Ministry of Finance and the Bank of Israel. The table below presents a summary of risk factors by type (macro risks, sector-specific risks and company-specific risks), according to the estimates of the Company based on the degree of their effect on the Company: major, moderate or minor effect.

Impact of risk factors on Delek Energy’s business Major Moderate Minor Macro risks Fluctuations in the dollar exchange rate X Dependence on global oil prices X Sector-specific risks Competition for gas supply X Uncertainty regarding construction of the national gas pipeline X Insurance X Operational risks X Dependence on contractors X

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Impact of risk factors on Delek Energy’s business Major Moderate Minor Exploration risks X Estimated schedules and costs X Field development on discovery X Dependence on permits from external entities X Regulatory changes X Dependence on weather and sea conditions X Risks specific to Delek Energy Tax risks X Financing liabilities X Dependence on primary customer X Dependence on operator X Arrears in payments for joint operations X Minority decisive vote X Shortage of production and development resources X and participation in operations Cancellation or expiration of oil rights and assets X Inclusion of additional participants X Migrating reservoirs X Security and political risks X Belonging of the Company to Delek Group and the X controlling shareholder, Yitzhak Tshuva

The impact of these risk factors on the energy sector is based on estimates alone and may actually differ.

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Glossary of Technical Terms

Oligocene layer: rocks from a geological period dating from about 34 million years to 23 million years ago Lower Oligocene layers are the deepest layer and are the earliest of the Oligocene layers. Exploration: operations related to the search for oil and gas LGN: liquid natural gas Hydrocarbons: carbons, a generic name for oil and gas, which are coal and hydrogen compounds Preliminary permit: as defined in the Petroleum Law The Commissioner, or the Petroleum Commissioner: the Commissioner of Petroleum Affairs appointed under the Petroleum Law, 1952 Working interest: an interest in an oil asset granting its owner the right to participate, pro rata, in the exploration, development and production of oil, subject to payment of a corresponding percentage of the expenses arising from these works, after acquiring the working interest. Oil right: a license or lease, as defined in the Petroleum Law Priority right to obtain a license: as defined in the Petroleum Law The Petroleum Law: the Petroleum Law, 1952 The Natural Gas Sector Law: the Natural Gas Sector Law, 2002 Lease: as defined in the Petroleum Law Oil exploration: (1) Test drilling (2) Any other operation for oil exploration, including geological, geophysical and geochemical tests, and drilling to achieve geological information only Commercial quantities: a quantity of oil, sufficient for production on a commercial basis Logs: electric logs recorded during drilling, providing a continuous record of rock properties and content, to locate the potential layers that could contain oil or gas reserves Petroleum Resources Management System (2007) (SPE-PRMS): as published by the Society of Petroleum Engineers, the Americal Association of Petroleum Geologists (AAPG), the World Petroleum Council (WPC) and the Society of Petroleum Evaluation Engineers (SPEE) and as revised from time to time Oil asset: the lease, direct or indirect, in a preliminary permit, license or lease; in another country – the lease, direct or indirect, in a similar right granted by a competent party. The oil asset is also regarded as the right to receive benefits arising from the lease, direct or indirect, in the oil asset or in a similar right (as the case may be) Oil: any petroleum fluid, whether liquid or gaseous and includes oil, natural gas, natural gasoline, condensates and (carbons) hydrocarbons and also asphalt and other solid petroleum hydrocarbons when dissolved in and producible with fluid petroleum Seismic survey: a method that allows (on land or offshore) subterranean imaging and detection of geological formations. The survey is carried out by inserting subterranean seismic waves and returning them from the different aspects in the tested profile. 2D and 3D surveys are common today. The 2D surveys are mainly used to obtain preliminary underground information in the survey area, and for general detection of formations that could serve as oil traps. The 3D surveys are carried out in areas identified as having potential in the 2D surveys. These surveys are more expensive than the 2D surveys and produce higher-quality results. The image received is detailed and allows, inter alia, detection of the optimal location for drilling and a more accurate assessment of the size of the formation. Petroleum; prospective resources; discovered; discovery; reserves; contingent resources; proved reserves; probable reserves; low estimate; best estimate; high estimate; 1C,2C,3C contingent resources; on production; approved for development; justified for development; development pending; development unclarified or on hold; well abandonment; development not viable; dry hole; 1P/2P/3P reserves: as defined in SPE-PRMS Development: drilling and equipping of the oil asset area to determine its production capacity and for oil production and marketing Test drilling: drilling of test wells to find oil or to determine the size or edges of the oil field

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Horizontal drilling: drilling of a well that travels horizontally through a producing layer Confirmation well: a drilling to confirm the existing of the oil reservoir that was discovered in the discovery drilling, and verification of the production tests in the discovery drilling. Directional drilling: diagonal drilling towards the target layer, compared to regular vertical drilling Appraisal well: a drilling carried out as part of the appraisal drilling plan, to determine the physical size, oil or gas reserves and the production rate of the field Cretaceous layer: rocks from a geological period dating from about 145 million years to 65 million years ago. Lower Cretaceous layers are the deepest layer and are the earliest of the Cretaceous layers. Reserves: Amounts of producible oil and/or gas in a reservoir Proved reserves: oil/gas reserves that to a high level of certainty are recoverable, according to the regulations of the Securities and Exchange Commission (SEC) and the regulations of the Society of Petroleum Engineers and World Petroleum Council (SPE/WPC) Proved, developed and producing reserves (PDP): proved reserves produced by development and production drilling Proved, developed and non -producing reserves (PDNP): proved reserves in reservoirs in a producing field, where commercial production has not commenced. The development and production drillings produce in other reservoirs in the same field, however these reserves are in reservoirs that are closed behind pipe. As the yield in producing reservoirs declines, the closed behind pipe reservoirs will decline. Proved, undeveloped reserves PUD): proved reserves in reservoirs, where there is no development drilling in continuation of or adjacent to the reservoirs with proved, developed and producing reserves Probable reserves: reserves believed to exist with reasonable certainty based on reasonable evidence of the presence of recoverable hydrocarbons in a known formation or reservoir, or based on assumptions regarding contact between fluids (water and oil), with a lower probability than that of proved reserves deriving from lower supervision of the wells in the area and/or lack of production test. These reserves could include laterals of proved reservoirs or other reservoirs where no production tests have been carried out at a commercial rate or recoverable reserves using methods to increase production not yet assessed at the reservoir or at reservoirs where the implementation of the plan is uncertain. License: as defined in the Petroleum Law Oil field: an area with geological layers under which an oil reservoir lies with potential for commercial production Jurassic layer: rocks from a geological period dating from about 144 million to 208 million years ago Discovery: discovery of oil in a drilling BCF: billions of cubic feet, which is 0.001 TCF or 0.0283 BCM BCM: billions of cubic meters, which is 35.3 BCF or 0.0353 TCF BOE: barrel of oil equivalent, being the amount of energy produced from gas that is the same as the amount of energy produced from one barrel of oil BOEPD: BOE per day Mmcf/D: millions of cubic feet per day TCF: trillions of cubic feet, which is 1,000 BCF or 28.32 BCM Mmcf: millions of cubic feet, which is 0.001 BCF or 0.0003 BCM Conversion table for units used in the report:

Mmcf BCF BCM 35310.7 35.3107 1

BCM Mmcf BCF 0.0283 1000 1

BCM BCF MMCF 0.00003 0.001 1

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1.12 Insurance and Finance in Israel

1.12.1 Acquisition of holdings in the insurance field in Israel 1.12.2 In 2005 and 2006 the Group, through Delek Investments and Delek Capital,1 and in two transactions, acquired control of The Phoenix2, for a total consideration of approximately NIS 1,882 million. As of the report date, Delek Group holds 55.55% of shares in The Phoenix and 54.74% of the voting rights. The purchase agreement signed with Meir Group stated that it hold shares in The Phoenix which entitle them to 20% or more of the capital and voting rights in the company ("Holding A"), or less than 20% but not less than 10% ("Holding B"), Delek Capital and Delek Investments will use their means of control in order to bring about a situation whereby two directors will serve on The Phoenix's Board of Directors in the case of Holding A, or one director in the case of Holding B, who will be recommended by Meir Group and will be acceptable to Delek Capital and Delek Investments. Currently, five directors recommended by The Phoenix are serving on the Company's Board of Directors, out of a total of nine directors (including two external directors). In addition, the agreement sets forth, inter alia, the terms for purchasing the shares, the manner in which the purchase is to be carried out, and an obligation by Delek Capital concerning future indemnification and insurance in The Phoenix. 1.12.3 General information on the operating segment A. Structure of the operating segment and changes therein The Phoenix was incorporated in 1949 as a private company and became a public company in 1978. Currently, The Phoenix 1 share is traded under the Tel Aviv 75 index, the Tel Aviv 100 index and the Tel Aviv Finance-15 index.3 At the date of the report, most of The Phoenix's activity is in insurance, including various sub-segments, and is carried out through the subsidiary, The Phoenix Insurance Company Ltd. ("The Phoenix Insurance"). This activity includes operations in life insurance and most sectors of general insurance, compulsory automobile insurance, property vehicle insurance, and other general insurance, and health insurance. The Phoenix Insurance also holds The Phoenix Agencies, which coordinates The Phoenix's insurance agent operations. In addition, The Phoenix engages in the management of provident funds, mainly through Excellence Investments Ltd. ("Excellence")4 and pension funds, as well as various finance-related activities on the capital markets. Alongside its insurance and finance operations, The Phoenix, through The Phoenix Investments and Finance Ltd. ("The Phoenix Investments"), which in addition to serving as the investment arm of The Phoenix Insurance and The Phoenix Pension and Provident (investing both Nostro and member funds), provides non-bank credit, and engages in venture capital investments, investments in companies, investments in real estate, artworks, and other investments. In managing its above operations, The Phoenix employs risk management methods. The Phoenix focuses on managing the risks to which it is exposed, so as to identify and assess their potential influence on the future financial positions of the various companies in The Phoenix Group. As of December 31, 2010, total assets under The Phoenix's management (including Excellence) amounted to approximately NIS 105 billion, divided as follows: approximately NIS

1 Following the liquidation of Delek Capital in 2010, its holdings in The Phoenix were transferred to Delek Investments. 2 In this section, "The Phoenix" refers to The Phoenix Holdings Ltd. and all the companies consolidated in its financial statements. 3 On January 21, 2010, the TASE Board of Directors decided to transfer The Phoenix's shares of NIS 5 par value ("The Phoenix 5 Shares") to the preservation list commencing January 25, 2010. This transfer was due to failure to meet the public holdings requirement (the public's holdings in The Phoenix 5 Shares are less than 15% as required by the preservation rules). Should The Phoenix fail to meet the terms for resuming trading in The Phoenix 5 Shares under the main list by January 24, 2012, these shares will be delisted from trading on the TASE on January 26, 2012. 4 Excellence was first consolidated in The Phoenix's financial statements on March 31, 2009, at a rate of 80.88%. For details regarding the agreement pertaining to the acquisition of control in Excellence, see Note 14 to the financial statements. As of the date of the report, The Phoenix holds 73.32% of Excellence's issued share capital, after having acquired the "first installment" (as determined in the settlement agreement) of Excellence shares to the amount of 20.44%, in return for approximately NIS 342.6 million, and after acquiring additional shares through transactions outside the TASE.

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21 billion in life insurance, not including guaranteed-yield policies (and approximately NIS 31 billion including guaranteed-yield policies); approximately NIS 20 billion in provident funds; approximately NIS 5 billion in pension funds; approximately NIS 19 billion in ETFs; approximately NIS 19 billion in mutual funds; approximately NIS 7 billion in portfolio management; and approximately NIS 4 billion in other nostro accounts. The Phoenix is active in four principal segments: 1. Life insurance and long-term savings – life insurance is primarily intended for the long- term and guarantees insurance coverage for the occurrence of the insured event, including, inter alia, the death of the policyholder or the policyholder reaching the age set forth in the insurance policy. In addition, coverage for various risks during the lifetime of the individual (such as illness, handicap and/or disability) may be added to the aforesaid policies. These policies may also include, at the insured party's discretion, a savings component. Life insurance including a savings component constitutes one of the three main alternatives for long-term savings – life insurance, pension funds and provident funds. Provident funds are savings instruments which do not include an insurance component, which in the past offered policyholders a capital track. Today, under the 2008 legislation, these funds offer an allowance track. In addition to its life insurance activities and its provident fund activities (mainly carried out through Excellence 1) which are of a substantial scope in The Phoenix, The Phoenix also conducts pension- related activities. Pension funds grant the policyholder a monthly allowance upon his retirement or earlier, and also permits insurance coverage in the event of death and/or disability. 2. General insurance, including three insurance sectors: Compulsory vehicle insurance – this includes the provision of insurance coverage for bodily harm caused through the use of a motor vehicle. The coverage is required under the provisions of the Motor Vehicle Insurance Ordinance (New Version), 1970 and covers physical injury resulting from the use of a motor vehicle. Vehicle property insurance – this includes the sale of insurance policies for property damage to the insured vehicle, which includes cover for property damage to the vehicle (for example, resulting from an accident and/or theft) (“Comprehensive Insurance”) and cover for property damage caused by the insured vehicle to third parties. (“Third Party Insurance”). Other general insurance – this includes the sale of various insurance policies in three main sectors: property insurance for physical damage to the policyholder’s property (such as apartment insurance and business insurance); third party liability insurance (such as third party liability, employer liability, professional liability including directors and officers liability and liability for faulty products) and other general insurance areas (such as personal accident insurance and contract work insurance). 3. Health insurance – this includes individual and collective illness and hospitalization insurance as well as dental insurance. The policies sold in these areas of insurance cover various forms of harm sustained by the policyholder due to illness and/or accident (except for death). It also includes nursing care insurance and insurance for chronic illness, travel insurance, foreign employee insurance and sick days insurance. 4. Financial services – This segment includes the Excellence Group's activities providing the following financial services: marketing and management of investments for customers, underwriting and investment banking, issue of structured products, issue of financial products, management of mutual funds, issue of ETFs and portfolio management, and provision of stock exchange and trade services.

1 It should be noted that in addition to the provident funds, Excellence manages pension funds and short-term savings (through Excellence Invest policies – savings policies which do not include an insurance component).

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Following is a summary of financial data for the areas of insurance provided by The Phoenix for 2009-2010 (in NIS millions):

2010 2009 Profit (loss) from life insurance and long-term 64 146 savings Profit (loss) from general insurance 220 118 Profit from health insurance 104 163 Profit from financial services 112 13 Total profit (loss) from operating segments 500 440 Income less expenses not attributed to (9) (93) operating segments Profit (loss) before income tax 491 347 Tax benefits (income tax) 159 99 Net profit (loss) for the period 332 248 Attributable to: Profit (loss) for The Phoenix shareholders 309 227 Profit (loss) for minority interests 23 12 Net profit (loss) 332 248

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Structure of the principal holdings in insurance and finance in Israel:

The Phoenix Holdings Ltd. (PC)

100% 100% 100% 100%

AD 120 Senior Citizen The Phoenix Investments The Phoenix Shekel100% Insurance Agency (2008) Ltd. Residential Centers Ltd. and Finances Ltd. Insurance Company Ltd.

60% Agam Leaders 73.32%* Holdings (2001) Ltd. Excellence Investments Ltd. The Phoenix Insurance 100% 75% Agencies Ltd. 1989 +41.42% 25% Agam Leaders (Joint Insurance Agency (2003)100% Ltd. control) Mehadrin Ltd. (PC) The Phoenix Veteran Balanced 100% Pension Funds Management Ltd. 85% Kela Insurance Agency (1987) 49% Ltd. Gama Management and Clearing Ltd. The Phoenix Pension and 100% 66.67% Compensation Funds Ltd. (Joint 100% The Employee Benefit Experts, control) Phoeniclass Ltd. Benefit Ltd. The Phoenix Capital Raising 100% (2009) Ltd. 52% 100% Cohen-Givon Insurance Atara Technology Ventures Agency Ltd. Ltd.

50% Granit Insurance Agency HISH (1991) Ltd.

25% Ramon Granit Insurance Agency (1994) Ltd.

50% Oren (Israel) Insurance Agency (2009) Ltd.

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B. Legislation, standardization and special constraints 1. Insurance activities are subject to comprehensive regulation under law, as well as to supervision by the Capital Market Commissioner and the Commissioner of Insurance (“the Commissioner"). The extensive regulation is a factor which has considerable influence on activity; in recent years, regulation increased considerably and changed the nature of activity and competition, mainly in life insurance and long-term savings. For details of regulations governing insurance in general, see section 1.12.17 below; for details of regulations governing life insurance and long-term savings, see sections 1.12.2 (e). and 1.12.3(A)(2) below. 2. Restrictions on the distribution of dividends and capital requirements C According to the provisions of the various laws, insurance operations in The Phoenix are subject to minimum equity requirements. In accordance with the Supervision of Financial Services Regulations (Insurance) (Minimum Equity Required from an Insurer) (Amendment), 1998, an insurer will be required to increase, until the date of publication of the financial statements, its equity in respect of the difference between the equity requirements provided under the regulations, before and pursuant to the amendment ("the Difference"). The difference will be calculated for each financial statement date. Equity increases shall be carried out as per the following dates and amounts: until the date of publication of the financial statements for December 31, 2009 at least 30% of the difference; until the date of publication of the financial statement for December 31, 2010 at least 60% of the difference; until December 31, 2011 the full amount of the difference will be completed.

The aforesaid amounts will be increased by 15% at the date of publication of the half-year financial statements following the above financial statements. The minimum equity required of The Phoenix Insurance as of December 31, 2010 according to the Commissioner's regulations and directives amounts to NIS 1,982 million. The equity balance as of the aforesaid date, calculated according to the equity regulations amounts to NIS 2,954 million (NIS 1,847 million basic tier 1 capital, and NIS 397 million hybrid tier 2 capital and NIS 710 million in deferred tier 2 capital). Of the above amounts, NIS 299 million are non-distributable surpluses. The minimum equity required of The Phoenix as of December 31, 2010, taking into account the new requirements set forth under the amended equity requirements, had these come fully into effect as of December 31, 2010, is NIS 2,292 million. (1) In November 2009, an amendment to the equity regulations was published, which added requirements for the following categories, in addition to the existing capital requirements: operating risks; market and credit risks, as a proportion of assets according to the amount of risk characterizing the various assets; catastrophe risks in general insurance; capital requirements in respect of collateral. Furthermore, capital requirements were increased for guaranteed-yield life insurance policies which are either partly or wholly not backed by designated debentures and for the insurer's holdings in companies managing provident funds and pension funds.

In addition, reliefs were granted, subject to the Commissioner's approval, pertaining to the manner of calculating capital for information technology development expenses, deduction of tax reserves created in respect of unrecognized assets held in violation of the investment regulations or in violation of the Commissioner's instructions, and reduction of the capital requirements under certain conditions. (2) The amendment introduced changes in the definitions for basic capital, tier 1 capital and tier 2 capital, and added a definition for tier 3 capital. Consequently, and pursuant to the Commissioner's intention to adopt in the future the European Union directive for guaranteeing insurer solvency (Solvency II), a third draft circular was published in January 2011 regarding the composition of recognized equity for insurers. The first part of the draft circular details rules and principles concerning the composition of an insurer's equity and the characteristics of its components. These rules and principles coincide with the European Union directive for guaranteeing insurer solvency (Solvency II). The rules set forth in the draft circular will serve as the basis for determining equity composition for insurers, upon the directive's implementation in Israel, including such changes and updates as are made to the directive. The second part of

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the draft circular incudes temporary provisions concerning the equity composition for insurers, which will apply until the directive's implementation in Israel, at such time as announced by the Commissioner. (3) In January, 2010, a second draft of the Supervision of Financial Services Regulations (Provident Funds)(Minimum Equity Required of a Management Company), 2010, as well as a third draft of a circular regarding the equity requirements for managing companies. These new equity requirements include requirements according to the scope of assets under management and the manner in which they are held, but in any case no less than an initial equity of NIS 10 million. Management companies may only distribute dividends if their equity is at least equal to the equity required under the regulations. Furthermore, rules were set forth regulating the investment of the required equity. Under these instructions, a management company, whose required equity at the date of publication of the regulations is less than the equity required under the instructions, will be obligated to increase its equity to the amount stated in the regulations by the reporting date.

The Phoenix Pension and Provident's equity for all pension and provident fund operations as of December 31, 2010 amounts to NIS 69 million; Excellence Provident and Pension's equity for all provident fund and pension operations as of December 31, 2010 amounts to NIS 71 million. If the proposed amendment for increasing equity requirements for pension and provident fund management companies is passed, The Phoenix estimates that the equity requirements for the management companies will increase by NIS 66 million. (4) In March 2009, the Commissioner issued a letter stating that as of the financial statements for 2008 and until December 30, 2010, insurance companies and managing companies will not distribute dividends except with the Commissioner's prior approval. According to this letter, as a general rule, no approval will be granted for the distribution of dividends exceeding 25% of the distributable profit. Following this letter, a clarification was issued in March 2010, detailing the criteria for approving the distribution of dividends by an insurer. Under these criteria, insurance companies will be entitled to submit a request for approval to the Commissioner for the distribution of dividends, starting from the date of publishing their periodic reports for 2009, subject to the fulfillment of equity requirements as detailed in the clarification, and upon submittal of an annual earnings forecast for 2010 and 2011, an updated debt service plan approved by the board of directors of the holding company holding the insurance company, an action plan for raising capital approved by the insurance company's board of directors, and minutes of the meeting of the insurance company's board of directors in which the distribution of dividend was approved. However, the clarification states, that a company whose total equity after distribution of the dividend is higher than 110% of the amount required in the clarification, may distribute the dividend without need for the Commissioner's prior approval, provided that such company has notified the Commissioner to that effect, and has submitted the required documents prior to distributing the dividend.

The Phoenix's board of directors has decided that no dividend be distributed for 2009, following examination of the Company's financial resources, its investment needs and the Commissioner of Insurance's requirements. It should be clarified that this decision shall not detract from the board of directors' authority to distribute dividends in the future, as it shall deem fit at any time.

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(5) Repurchase of shares – In the ordinary course of their business, Excellence's ETF companies and profit-sharing policies buy shares in The Phoenix and the Company. For information on the application of Section 309 of the Companies Law in connection with these activities, see Section 1.4.3 above.

(6) On March 24, 2011, after reviewing The Phoenix Holdings' results for 2010, its NIS 1.5 billion in distributable surpluses, and after examining The Phoenix's solvency position, The Phoenix Holdings' Board of Directors approved the distribution of a cash dividend to the amount of NIS 50 million.

C. Changes in the scope and profitability of segment operations The most material changes in the insurance business are taking place in life insurance and long-term savings. This is due, inter alia, to a series of far-reaching regulatory initiatives, which began with the Bachar legislation, which was approved in 2005 and continued with additional reforms which were approved subsequent years, and in planned future reforms. For details, see section 1.12.2(D) below. In addition, operating results are materially affected by the economic situation and the capital markets in Israel and abroad - in 2010, The Phoenix's operations were influenced by the continued recovery from the 2008 global economic crisis. The 2008 crisis resulted in sharp drops in the capital market in Israel, and adversely affected The Phoenix's results for that year. Economic recovery, which was reflected in sharp increases in the capital markets from early 2009, and encouraging macro-economic data coming in from the second half of 2009 and in 2010, positively affected The Phoenix's operations, including through growth in total assets under management, yields in various operating segments, new sales turnover, cancellation rates, etc. In 2010, results from The Phoenix's segments of operation amounted to a profit of approximately NIS 500 million (compared to a profit of approximately NIS 440 million in 2009, and a loss of approximately NIS 366 million in 2008). D. Market developments in the operating segments The Bachar reforms In July 2005, legislation was enacted for implementation of the Bachar Commission recommendations: the Increase of Competition and Reduction of Centrality and Conflicts of Interests in the Israeli Capital Market Law (Legislative Amendments), 2005 (“the Competition Law"); the Supervision of Financial Services Law (Provident Funds), 2005 (“the Provident Law"); the Supervision of Financial Services Law (Activity in Pension Consultancy and Pension Marketing), 2005 (“the Consulting and Marketing Law"). These laws (“the Bachar Legislation") were intended to implement the Bachar Commission recommendations in the following areas: 1. A structural change in the capital market, with the aim of separating activities with a potential for competition, and especially the enactment of a prohibition against the holding of provident funds, trust funds or insurers by banks. 2. Reduction of the centrality and conflicts of interests in the capital market, especially due to holdings by major banks in trust companies, provident funds and underwriting companies. 3. Distinction between a consultant and a marketer, and regulation of their roles and duties towards the client. 4. Establishment of a new sales model and the duty of best advice – that is, adapting the product to the client's needs. 5. A permit for banks to provide consultancy and distribute pension savings products. 6. Establishment of the employee's exclusive right to choose a provident fund or a pension scheme. For additional details with regard to the Bachar Legislation, see section 1.12.17(C). below. The laws entered into force in the fourth quarter of 2005 and the first half of 2006, and caused material developments in a number of areas:

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A) The banks sold most of the provident funds and trust funds which they had previously owned. Most of the provident funds were acquired by the various insurance groups. B) Along with the separation of the provident funds and trust funds from the banks, the Bachar Legislation enabled banks to enter the field of consultancy and distribution of pension products. This possibility was opened to the banks gradually, subject to their compliance with various conditions. In 2006 - 2008, several medium-sized banks began to deal in pension consultancy, with regard to pension and provident funds and the large banks also received licenses to give pension advice. C) The institutional entities have developed systems which support the Best Advice model, in cooperation with the banks, and have trained their employees to comply with the licensing requirements for pension marketing. D) Public awareness regarding the yield of the financial products has increased – among other things, due to the handling of this subject by the media, including quotation of monthly and annual yields, and due to the introduction of systems which compare financial savings products. Amendment No. 3 to the Provident Fund Law January 28, 2008 was the date of publication of Amendment No. 3 to the Provident Fund Law, which has material implications for the activity in the field. The amendment includes a series of amendments to the Provident Fund Law, the Supervision Law and the Income Tax Ordinance. The objective of the amendment is to ensure a more transparent and sophisticated market for all persons saving up for retirement, by unifying the taxation rules applying to pension products, making significant decisions by savers close to retirement age with regard to the amounts in savings, ensuring that all savers have a pension component in their savings, and increasing competition in the pension market for the benefit of consumers. The amendment sets forth, inter alia, provisions regarding the classification of provident funds into two types of pension provident funds: a pension provident fund which pays a pension directly to eligible persons, pursuant to the fund regulations, and a pension provident fund which does not enable direct withdrawal of monies deposited therein, except for monies from the severance pay component, monies from pension components that were deposited prior to December 31,2007 and monies unlawfully withdrawn from the pension component, unless by transfer of those monies to a provident fund which pays a pension. Portability of pension savings On March 24, 2008, the Knesset Finance Committee approved the Supervision of Financial Services (Provident funds) (Transfer of monies between funds) Regulations, 2008, which govern transfers between the various pension savings products: provident funds, life insurance schemes and pension funds. The new regulations enable consumers to move from one pension savings product to another, or to replace the entity which manages the savings with another managing entity, at any time, without payment when transferring monies between the products and in accordance with their preferences. The objective of the law is to encourage competition, increase the efficiency of the pension products, and improve the service given to consumers. The guiding principle of the pension portability plan is that pension monies can be moved from one pension plan to another and from a capital plan to a pension plan, but it they cannot be moved from a pension plan to a capital plan. This is in line with government policy, which encourages pension channels over capital channels, as also expressed in Amendment No. 3 to the Provident Fund Law, as set forth above. The provisions of the regulations governing the portability of pensions include, inter alia, provisions concerning the relevant dates for transfer of monies and insurance liability from the transferor fund to the recipient fund, the calculation method for the transferred amounts, the transfer method of the monies, consolidation and splitting of accounts, the status of members in the transferor fund (active / inactive), and the types of funds.

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Compulsory pension arrangement On November 19, 2007, a general collective agreement for pension insurance in Israel's economy was signed by the Coordination Office of Economic Organizations and the New Histadrut – Israel General Federation of Labor. The agreement includes a requirement for employers to deposit monies in a pension provident fund on behalf of their employees, as set forth in the collective agreement, starting in January 2008, and thereafter. On December 30, 2007, the Minister of Industry, Trade and Labor enacted an expansion order for comprehensive pension insurance pursuant to the Collective Agreements Law, 1957 (“the Expansion Order”) which expands the application of the provisions of the collective agreement to all employees and employers in the market, applied retroactively from January 1, 2008. As of the reporting date, a significant number of additional employees have joined as policyholders in the pension funds, and The Phoenix believes that there is potential for further growth in deposits in light of the gradual increase in the deposit rate under the collective agreement. Adapting the pension savings track to member characteristics ("the Chilean Model"). In July 2009, the Commissioner of the Capital Market, Insurance and Savings issued a first draft circular concerning the adaptation of savings tracks with member characteristics. This circular aims to determine the manner of members subscribing to the various savings products according to their unique characteristics, as well as the conduct required of institutional entities in order to adapt the savings products to the needs of the members, throughout the entire savings period. Institutional entities will be gradually be imposed with a duty, starting January 2012, to set a model for classifying all members into default tracks, and define investment tracks which will be defined as defaults and adapted to the savings period at the time of joining, and during the savings period. The aforesaid circular requires that special attention be given to persons aged 55 and above, aged 60 and above, and persons receiving pensions. As part of the adaptation of investment tracks to the savings period, adjustments will be made to volatility and risk. It is noted, that from discussions between the institutional entities and the Commissioner, it seems that a solution has yet to be found for legal and operational issues raised upon examination of the new requirements, and as of the date of this report the matter is still under discussion. It is further noted, that The Phoenix is ready to implement the above provisions through "The Phoenix Method" products (for details, see Section 1.12.3(a) below). The long-term savings clearing house In 2010, The Long-Term Savings Clearing House Ltd. was established, under joint ownership of several banks and insurance companies. The purpose of this company is to establish and manage an information and payment clearing house to serve customers, distributors, and manufacturers in the long-term savings market. According to the Ministry of Finance Capital Market Division, a pension-savings clearing house will streamline activities related to the transfer of information and funds, by providing a common technological base for all entities involved in the pension-savings market, and regulating work processes. The Government is promoting the clearing house's establishment through legislation. The Phoenix believes that the clearing house's effects on the pension savings market are not clear at this stage, due to the fact that the process is still in its relatively early stages. It seems that full implementation of the clearing house's operations will lead to increased transparency in the industry and increased competition. This, in turn, will facilitate the activities of pension-savings consultants in general and in the banks in particular. On the other hand, in the short term, it may limit or delay development of new products or technologies due to operational constraints in the clearing house. The scope and nature of these effects depend, inter alia, on the final manner in which the clearing house will operate. Ministry of Finance plan for increasing competition in the pension-savings market On November 30, 2010, the Minister of Finance presented the highlights of his plan for increasing competition in the pension savings market.

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The Ministry of Finance intends to reduce the differences between pension savings products, so as to assist policyholders in comparing different products. Furthermore, in order to facilitate decision making after joining a pension-savings program, the Ministry of Finance will act to maximize transparency in institutional entities for policyholders. Publications indicate that the pan will apply to pension-savings products, except for those sections of the program covering remuneration and commissions, which are to apply to all sectors - pension-savings products, health insurance programs, and elementary insurance programs. Main actions include: applying a uniform model of maximum management fees for pension savings products which include savings components; allowing provident fund management companies to market ancillary products for pension savings; increasing transparency when implementing changes in management fees; prohibiting the raising of management fees agreed upon with a customer for a period of at least two years; providing customers with the right to choose their agent; automation and consolidation of forms; payment of distributor commissions upon customers switching distributors; limiting awards, benefits and volume commissions to insurance agents, and imposing a uniform distribution commission to pension consultants for all pension savings products. The Phoenix believes, that in light of the fact that at this stage only the highlights of the program have been published, without details concerning the proposed legislative amendments, regulatory amendments, or Commissioner circulars, and in fact without issuing a draft of these proposed actions and even before these measures have been approved by the Knesset, it is too early to assess the overall effect of the program, as may ultimately be implemented, on the pension savings market in general and on The Phoenix Group in particular. However, it is reasonable to assume that implementation of the program as published, may adversely affect sales volumes and profitability in the life insurance and long-term savings segments. Aside from the aforesaid material developments, the following trends in long-term savings have become evident in recent years: increased transparency of pension products; encouragement of savings for pension purposes; increase in consumers' awareness and heightened competition; changes in regulations with regard to the investment management; and increased enforcement by the Capital Market Division. E. Critical success factors in the field of activity The critical parameters for success are: economic, employment and capital market conditions; regulation, including supervision on prices; market competition; customer loyalty and portfolio retention; investment management quality; financial risks quality; distribution channels, including their ability to increase demand and create new markets; the range of products and the ability to adapt products to market conditions and customer needs; quality of service to policyholders, members, and agents; The Phoenix's positioning as a leading company in the life insurance and long-term savings market, while creating a brand that will strengthen its competitive standing; recruitment and retention of quality human capital; IT and technological resources; operational efficiency and operating, marketing and sales expenses; effective controls; integrity and stability. Specifically, the following success factors can be named for insurance and pension operations: underwriting quality; management fees permitted by law and actually charged; actuarial quality in determining costs and reserves; the frequency and scope of claims, including disasters; quality of the various aspects of the claims management process; hedges and reinsurance costs; changes in life expectancy; the scope of tax benefits granted to customers (in the life insurance and long-term savings segment. F. Principal entry and exit barriers in the segment The principal entry barriers for the insurance operations are: licensing for The Phoenix, pursuant to the provisions of the Supervision of Financial Services (Insurance) Law and the licensing requirements for provident funds; legislative and regulatory requirements with regard to insurers' equity; expertise, knowhow, and experience required in insurance operations, mainly in the fields of actuary and risk management. Familiarity is also required with segment markets, including the reinsurance market; minimum size (critical mass) - a minimum amount of revenue is required to cover the high fixed operating costs required to operate insurance and investment mechanisms, including the need to meet changing regulatory requirements in the various segments.

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The principal exit barriers are long-term liabilities towards policyholders and members, the long period of time required in some sectors for settlement of past claims (runoff), and regulatory requirements. G. Substitutes for products in the segment and changes therein In the general insurance segments, substitutes for The Phoenix's products are being offered by other insurance companies issuing similar products. The principal differences between the products in these fields are rates and scope of coverage. In the long-term savings segment, there is a relatively high level of substitution between the pension savings products (except for study funds). This interchangeability of products is due to their meeting similar needs for the same target audience, in particular as regards executive insurance and comprehensive pension. A lesser level of substitution exists between segment products and other financial products (such as long-term deposits), as these products usually do not include two material elements (which are found in segment products - tax benefit and combining risk with savings). In the financial services segment, substitutes are the selection of an alternative management method, financial instruments offered by banks and other investment houses, raisings on overseas exchanges, and issue of loans from banks or non-bank organizations. H. Structure of competition in the segment and changes therein According to data from the Ministry of Finance, there are 24 insurance companies in Israel (including Avner), of which 13 are active in life insurance. The five major insurance groups in the insurance market (which, as set forth above, also hold pension funds and provident funds) are The Phoenix Group, Clal Group, Migdal Group, Harel Group and Menorah – Mivtahim Group. In 2010, these groups held a joint market share of approximately 94% of life insurance premiums and approximately 71% of general insurance premiums (including health insurance). Further details of the competition structure appear in the description of the various sectors below.

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1.12.4 Products and services Financial information with regard to the insurance segments in 2009 and 2010 (in NIS millions):

Life insurance and long-term savings1 Compulsory vehicle Property vehicle Other general Health 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 Gross premiums 3,065 2,647 389 360 668 595 893 876 1,085 1,032 Premiums less reinsurance (on 3,002 2,578 374 345 668 595 496 487 925 832 retention) Payments and changes in liabilities for insurance and investment 5,364 6,707 368 391 420 388 540 500 783 742 contracts, gross Payments and changes in liabilities for insurance and investment 5,317 6,645 375 367 420 383 280 318 632 578 contracts (on retention) Pre-tax profit (loss) 64 146 52 20 60 45 109 52 104 163 Total insurance liabilities, gross 29,527 25,644 1,977 1,898 416 399 2,193 2,093 1,316 1,135

The following table summarizes the financial results for the finance segment, as presented in The Phoenix's financial statements starting 2009:

2010 2009* Revenues from investments, net 1 5 Revenues from management fees 200 136 Revenues from other financial services 197 169 Total revenues 398 310 Total expenses 301 302 The Phoenix's share in the net results of an investee company 15 5 Pre-tax profit 112 13

* Operations in this segment are carried out through Excellence, for which The Phoenix has consolidated its results starting 2009.

1 Including Excellence provident and pension funds.

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A. Life insurance and long-term savings 1. General: The Phoenix operates in all long-term savings areas and in all types of pension funds and provident funds, including study funds. Most of The Phoenix’s operations at this date are in life insurance and provident funds (provident fund activities are mostly carried out through Excellence) and it operates in a more restricted fashion but in increasing volumes, in the pension sector. Life insurance - A range of life insurance policy products are offered to customers, including an option of integrating insurance covers (e.g. insurance against death, work disability as well as other coverage) with retirement savings which the customer can redeem upon retirement or at another time. This allows the policyholder to choose the most appropriate component in these policies from the insurance covers (“Risk”) and the financial accrual for retirement (“Saving”). Until January 1, 2008, policyholders also had the option of choosing policies known as insurance funds, pursuant to the provisions of the Income Tax Regulations (Rules for Approval and Management of Provident Funds), 1964, how benefits would be received – a capital track allowing a one-time withdrawal of funds from the age of 60 or an allowance track offering the policyholder a monthly allowance from the age of 60. Following Amendment No. 3 to the Provident Fund Law, at January 1, 2008, it is no longer possible to choose between a capital track and a pension track and retirement savings are offered on a pension track only (except for the severance pay component). Policies with a savings component are divided into several major types, which are distinguished by the way investments are made by the insurance companies, the types of cover and the management fees or expenses charged by the insurance companies. The activity in the life insurance sector includes a combination of sales of new policies and provision of service to policyholders under existing policies which have been sold from the starting date of The Phoenix's activity until this day . The life insurance sector has undergone extremely significant changes, starting in 2000, with regard to a number of aspects. These include the types of schemes operated, the rules of taxation which apply to the insurance schemes, and how the monies of policyholders are invested. The year 2005 was characterized by considerable changes in regulations, including the Bachar Legislation, which led to a comprehensive structural change in the capital market in general and the long-term savings sector in particular. In addition, in 2007 and 2008, the life insurance sector underwent additional significant changes as a result of the reform which enabled mobility of pension savings, Amendment No. 3 to the Provident Fund Law and the compulsory pension arrangement. For further details concerning the aforementioned reforms, and additional reforms, see section 1.12.2(E) above. In life insurance and long-term savings, The Phoenix markets executive insurance, individual life insurance, group life insurance, work disability insurance, a range of insurance plans and savings policies. Provident funds – A provident fund is a long- or medium-term savings instrument, which benefits from tax benefits granted under the Income Tax Ordinance and in provident fund-related legislation. Provident funds are a "pure" savings instrument, where funds are saved and their yield is paid to the policy holder upon his reaching retirement age, without any insurance component. The moneys kept in the provident funds are invested according to the Supervision of Financial Services Law (Provident Funds), 2005. Following amendment 3 to the Provident Funds Law, starting from January 1, 2008, provident funds also became an allowance-based savings instrument. Yields are divided among the members of the fund according to their share in the fund's assets. There are several types of provident funds: provident funds for personal compensation and remuneration in which, for employees, both the employee and the employer make regular monthly deposits from the employee's salary, while for self-employed individuals, the member deposits funds without any additional payment from an employer; personal compensation funds, in which the employer deposits funds to guarantee severance pay for employees (the employer is the fund member, and moneys are accumulated in a coordinated manner in the employer's name on behalf of his employees); provident funds for sick-leave, in which the employer accrues moneys for payment of sick leave. In addition, provident funds also include study funds which do not constitute a pension savings instrument, but rather a medium-term savings instrument. Study funds allow members to accrue funds for continuing education, and offer members tax benefits.

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Funds accumulated in a study fund are redeemable for study purposes starting after three years of membership in the fund. After six years' membership, the funds can be withdrawn for any purpose whatsoever. Companies managing provident funds charge management fees, which serve as their source of income. The Phoenix manages provident funds and study funds through The Phoenix Pension and Provident Fund and through Excellence Provident and Pension, which manage remuneration and compensation funds, study funds, and a central compensation fund. In addition, The Phoenix manages pension funds on a smaller, although gradually increasing, scale. Pension funds, like life insurance savings policies, is a savings instrument used to pay members a monthly allowance for the rest of their lives following their retirement. Pension funds allow the following insurance coverages: old-age pension is an allowance paid to members from their retirement and for the rest of their lives. In addition, following the entitled member's death, their spouse, as defined in the fund statute, is entitled to a certain percentage of the allowance received by the member, for the rest of their life; disability pension is an allowance paid to members who have lost their ability to work, according to the decision of the fund's medical committee; survivors' pension is an allowance paid to the survivors (widow and orphans) of members who have died during the insurance period. Pension funds are divided into three types: senior pension funds (under special management/ ordinary management), new comprehensive pension funds, and new general pension funds. Remuneration fees received from pension fund members are divided into risk components (in the event that insurance coverage was purchased), a savings component, and a management fee component. Companies managing pension funds derive their revenues from management fees (from the remuneration fees and from the accrued amounts), and the profit margin is the difference between the net management fees (after discounts) and actual operating and marketing expenses. The entire yield on the investment of member funds, less of management fees, benefits paid to the policyholders as made according to company policy. Pension fund claim payments (including annuity payments) do not directly affect the managing company's profits, as the insurance is mutual insurance and the policyholders bear the risk for claim payments. 2. Regulation: Aside from the legal provisions set forth above, life insurance and long-term savings activities are subject to two principal legal frameworks: The first framework includes the Insurance Contract Law, 1981; the Supervision of Financial Services (Insurance) Law, 1981; the Provident Funds Law; the Consultancy and Marketing Law; and regulations, orders and Commissioner's circulars issued by virtue of those laws. This legal framework governs material issues in The Phoenix's activity in the field of conclusion of an insurance contract, the duties of the parties to an insurance contract, terms and conditions of insurance schemes, due diligence for policyholders, and ways of operation for insurance agents, pension marketers and pension consultants. The legal framework also governs issues such as the corporate regime of institutional entities, the rules of investment, reports to policyholders and to the public, and so forth . The second legal framework deals with the tax benefits of the pension instruments and includes the Income Tax Ordinance and the Income Tax Regulations (Conditions for Approval and Management of Provident Funds), 1964 (“the Provident Fund Regulations"). This legal framework confers a special status on provident funds, which also include pension funds and insurance funds, with regard to tax credits and deductions and exemptions from capital gains tax, with the aim of encouraging the public to save for retirement by means of provident funds and insurance funds. Life insurance schemes which include an insurance component, and which are recognized as insurance funds ("managers’ insurance policies" and "benefit policies for self-employed persons"), also benefit from the special status conferred upon provident funds by the Income Tax Ordinance and the Provident Fund Regulations. The Income Tax Ordinance and the regulations enacted by virtue thereof, generally speaking, set forth rules and tax provisions with regard to insurance schemes marketed by The Phoenix. Within the framework of Amendment No. 3 to the Provident Funds Law, the tax rules which apply to the various pension savings products were unified, such that all products entitle savers to the same tax benefits, so that the public are able to make decisions based on their pension needs, with no bias due to tax considerations. The tax benefits primarily include the possibility of a tax credit for the policyholder / member, as well as a

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deduction permit for the employer. In addition, savings for retirement, pursuant to the tax provisions, enable exemptions from pension tax and capital gains tax. It is further noted, that in February 2011, a committee was established headed by the Director General of the Ministry of Finance, for examining the tax benefits model for pension savings. The committee is to examine the feasibility of the "Life Cycle" model, which allows policyholders greater flexibility in enjoying tax benefits throughout their years of employment, and also grants tax benefits to some employees who do not currently receive them. The committee is also to examine the ability of the various organizations to implement this model quickly, and to recommend a tax benefit model for pension savings from among the alternative models. The committee is expected to submit its recommendations by July 1, 2011. 3. Changes in the scope of activity and profitability: The scope of activities in the long-term savings segment has a high correlation to the conditions in the local economy. Life insurance - The profitability of the life insurance sector is affected to a great degree by the results of investment in the capital market. According to data from the Ministry of Finance, at December 2010, total life insurance assets in the sector increased by approximately 13%, compared with the corresponding period in 2009, due to yields for the year, as well as additional net accrual during the year. It should be noted, that due to the negative yield in profit-sharing policies, accrued during the prior period, no variable management fees can be charged until a positive yield is achieved which will offset the negative real yield so far accumulated in profit-sharing policies between 1991 and 2003. Therefore, in 2008 and 2009, The Phoenix did not charge management fees. At the end of 2010, The Phoenix charged variable management fees to the amount of NIS 15 million on policies which recorded a positive real accrued yield. As of December 31, 2010, the estimated uncharged management fees due to negative yield until a positive yield was achieved as aforesaid, amounted to NIS 38 million, and NIS 44 million as of the end of February 2011. This will have a negative effect on future collection of management fees and profitability in The Phoenix. Provident funds – According to Ministry of Finance data, the total assets managed in provident funds increased in 2010 by 9% over 2009, as compared to an increase of 27% in 2009 over 2008. The significant growth recorded in 2009 is due almost entirely to high positive yields during that year, which followed significant negative yields recorded in 2008 which led to a decrease in assets under management. Pension funds – According to Ministry of Finance data, total assets in the pension segment grew in 2010 by 11% over 2009, with accelerated growth continuing in the new pension funds segment, which grew by 27% in 2010, companied to 2009 following 47% year-on-year growth in 2009 companied to 2008. It is safe to assume that this elevated growth rate in assets is due to the rise in public awareness to pension savings in general and to retirement pension in particular, transfer from other long-term savings channels (mainly the pension funds segment), entry of insurance agents who began selling pension plans, and the coming into effect of the compulsory pension arrangement. Furthermore, the pension segment enjoyed positive yields throughout 2009 and 2010. 2010 saw a 26% increase in remuneration fees and a 38% increase in assets under management in The Phoenix's new pension funds. This increase in assets under management, was due to net current accruals and the yield on investments. In the reporting year, remuneration fees to provident funds managed by The Phoenix decreased by 8% compared to 2009, while assets under management of The Phoenix's provident funds grew by 7.6% year-on-year. This increase in assets under management was mostly driven by capital market gains in the reporting year. 4. Competition: In recent years, there have been changes in the long-term savings sector which have increased competition. The sector has become affected by substitute products that meet the need for retirement savings. The Bachar reform, which separated the provident funds and trust funds from the banks and allowed them to enter the pension product sector, also contributed to increased competition in the sector. Other reforms, such as annulment of the capital savings tracks under Amendment 3, increasing transparency and the mobility regulations also serve to increase market competition.

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Life insurance - In Israel, there are five principal insurance groups in the life insurance sector: The Phoenix, Migdal, Clal, Harel and Menorah, as well as a number of smaller insurance companies. According to data provided by the Ministry of Finance for the first nine months of 2010, The Phoenix is in fourth place with regard to insurance premiums, with a market share of 16%, compared with market shares of 14.9% and 14.8% in 2009 and 2008, respectively. The market shares of the other principal groups in 2010 were as follows: Migdal (30.6%); Clal (22.8%); Harel (14.6%); and Menorah (10.1%). Provident funds – The requirements set forth by the Bachar legislation for the sale of provident funds (and trust funds) by the banks, has led to a structural change in ownership in the provident funds segment, and a large portion of the provident funds offered for sale were acquired by the various insurance groups. Furthermore, due to expected regulatory demands by the Ministry of Finance, such as a increased equity requirements, and a requirement to reduce the number of funds held by a managing company (one fund of each type), the decline in the number of organizations managing provident funds continues. According to Ministry of Finance data, while the number of controlling corporations totaled 74 in 2007, this number went down to 58 in 2008 and 48 in 2009 and 2010, respectively. Pension – The pension funds segment is characterized by increasing competition. As pubic awareness of pension savings has gone up, so has the public's focus on investment management quality in the pension funds and on the yields delivered, as important factors when choosing a fund. The main players in the pension market (2010 data) are Menorah Mivtachim, (31.9%), Makefet Personal (Migdal Group) (25.8%), Meitavit – Atudot (Clal Group) (17.5%), Harel Pension (13.2%), and The Phoenix Pension and Provident Fund (6.5%). 5. Investment management: Investment management operations are subject to the provisions of the Supervision of Insurance Law and the Supervision of Financial Services Law (Provident Funds), 2005, and the regulations enacted thereunder, and are carried out through a number of designated investment managers. A distinction is made between the Nostro funds of the Group's companies, and management of policyholder and member funds (in The Phoenix Insurance and The Phoenix Pension and Provident Funds). In profit-sharing policies issued since 2004, the yield on the investments is attributed to the policyholders, while the insurer is entitled to fixed management fees only. In profit-sharing policies issued up to December 31, 2003, the yield on investments is attributed to the policyholders, while the insurer is entitled to fixed management fees and variable management fees on the real yield after deduction of the fixed management fees. In non-profit-sharing life insurance policies (for that part of the life insurance portfolio which is not backed by designated bonds), there is no direct correlation between the linkage basis prescribed for assets and the linkage basis for liabilities. In pension and provident funds, the yield on investments, less of management fees from accrual after discounts, is attributed to members. In 2010, The Phoenix's investment policy focused on achieving exceptionally high yields in each of the investment tracks, while keeping proportions between the various tracks similar to the market average, in each of the main tracks: the State of Israel, overseas shares, and domestic bonds. In member portfolios, the share component was increased and as of the second half of the year higher-risk bonds were minimized in light of the decrease in risk margins. 6. Principal segment products: In the life insurance segment, The Phoenix markets executive insurance, individual and group life insurance, disability insurance, a range of insurance plans and savings policies. The Phoenix offers the following basic insurance policies: Executive insurance: This insurance includes a retirement savings component and consists of provisions made by both parties - both employee and employer (compensation and remuneration components). Premiums paid on the insurance policies are assigned to the various risks (mainly - death and disability) and to retirement savings. The retirement savings component could have been withdrawn as a capital component until December 31, 2007. Following Amendment 3 to the Provident Funds Law, retirement moneys can now only be withdrawn through an annuity track, except for the capital savings component for retirement accrued up to December 31, 2007, which

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remains a capital component. These policies target employers and their employees. Executive insurance is approved as an insurance fund under the Income Tax Regulations, and is entitles both employers and employees to various tax benefits. Personal insurance: There are two types, intended for the self-employed and private individuals: compensation for self-employed individuals - pursuant to the law of self- employed worker compensation insurance, i.e., that enjoy tax benefits; personal insurance policies not approved as provident funds, which do not enjoy tax benefits, apart from a 25% credit for premium paid for death coverage. The terms for the personal policies were brought in line with those for executive insurance. Other insurance policies offered by The Phoenix are pure risk life insurance, work disability insurance and more. Guaranteed-yield policies carry a charge for the difference between the guaranteed yield for the insured and the actual yield. In profit-sharing policies, management fees are charged according to the particular policy. These management fees are calculated according to the Commissioner's instructions based on the policies' yields, and are charged from the accumulated savings of the insured in the profit-sharing portfolio. Management fees for policies sold until December 31, 2003 include fixed and variable management fees, and management fees charged for policies sold from 2004 onwards include only fixed management fees. These fixed management fees are calculated at fixed rates from the accumulated assets. The variable management fees are calculated as a percentage of the real profit for the policy net of the fixed management fees charged for that policy. Only positive variable management fees can be charged, at a rate of up to 15% of the real profit achieved, net of any negative sums accrued in the previous years. During the year, the variable management fees are recorded on an accrual basis according to the real monthly yield, provided that such yield is positive. In months where the real yield is negative, the variable management fees are reduced according to the monthly yield, up to their negation. Negative yields for which the management fees were not reduced during the year will be deducted for the purpose of calculating the management fees from positive yields in the future. For information regarding the estimate for management fees not charged due to negative yields, see section 1.12.3(A)(3) above. The Phoenix operates in the pension and provident fund segments through The Phoenix Pension and Provident Funds and through Excellence Nessuah Provident and Pension. Provident funds are operated according to the Income Tax Regulations (Rules for Approval and Management of Provident Funds), 1964. The main provident fund products are personal provident funds for rewards and compensation, which serve for reward and compensation payments for salaried employees and self-employed individuals. Excellence offers personal funds under various tracks according to the level of savings chosen by the member; central provident funds for compensation, which target employers seeking to accumulate funds to guarantee severance pay for their employees. These funds are closed to new members as of January 1, 2006, and as of January 2011 no new moneys are deposited in these funds; and study funds, targeting salaried employees and self-employed individuals, and which allow members to accumulate moneys for continuing education and to receive tax benefits. Moneys accumulating in the fund can be withdrawn for continuing education purposes starting three years after the initial deposit. After 6 years of membership in the fund, the moneys can be withdrawn for any purpose. The Phoenix Pension and Provident manages five provident funds Excellence Provident and Pension manages 18 personal remuneration and compensation funds, 7 study funds, and 5 central compensation funds. In 2006-2008, Excellence acquired the provident fund operations which were previously managed by Mizrahi-Tefahot Bank, as well as additional provident funds managing assets whose value is not material for Excellence. The Phoenix Provident and Pension manages the following pension funds: The Phoenix Comprehensive Pension, which in 2010 operated 14 insurance channels differing in their level of coverage, the nature of coverage, and the retirement age, and 5 investment channels; The Phoenix General Pension, which operates together with the comprehensive pension fund and any deposits above the aforesaid maximum are made to this fund. The fund operates two savings channels, is not entitled to designated debentures, but is not subject to restrictions on maximum deposits, and permits one-time deposits. Furthermore, the Amit Pension Fund for Veteran Associates, which is closed to

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new members, is managed by The Phoenix Pension Company For Managing Balanced Pension Funds Ltd. Excellence Provident and Pension manages the following two pension funds: Excellence Nessuah Pension, a comprehensive pension fund which includes the three pension components (old-age, disability, and survivors) and offers, in addition to its savings component, a variety of pension channels, including insurance coverage for disability and death; and Excellence Nessuah Pension Savings, a basic-type (savings) general pension fund. The fund does not include the insurance components, and so allows greater accumulation of monies for savings. Furthermore, the fund permits one-time deposits. The fund invests 100% of its assets in non-guaranteed investments. "The Phoenix Method" for investment management – In 2009, The Phoenix launched "The Phoenix Method" for managing long-term savings. This program implements a well- known methodology implemented around the world (mainly in the United States and Europe) for managing pension savings investments. "The Phoenix Method" is based on the establishment of personal pension savings portfolios using the Life Cycle method, which is customized to the preferences and characteristics of each particular client (based on the client's risk range and risk perception). Asset allocation for each client is carried out using indices. Assembly of the client's long-term investment portfolio is carried out based on a unique model developed by The Phoenix, in collaboration with members of academia, and based on research in Israel and abroad. It should be noted that the method fits the possible future shape of the financial arrangement system as regards long-term savings, as determined by the Commissioner as detailed in section 1.12.2(D) above. Policies whose investment portfolios are managed according to "The Phoenix Method" accounted for the bulk of The Phoenix's total executive insurance sales in the reporting year. As of December 31, 2010, insurance schemes whose investment portfolios are managed according to "The Phoenix Method" accumulated NIS 450 million. Furthermore, from the date of implementing The Phoenix Method in The Phoenix's pension fund in 2010, the sales of pension schemes managed according to The Phoenix Method accounted for 70% of all sales in the fund. 7. Clients: The Phoenix markets its products to a wide range of customers, divided into three main groups – employers and employees, individuals and self-employed and cooperatives. The Phoenix Insurance is not materially dependent on any single customer. In 2010, the breakdown of life insurance premiums was as follows: employers (executive insurance) – 74%, individuals and self-employed – 23%, collectives – 3%. In the pension segment, the number of policyholders in The Phoenix Pension and Provident grew by 28% in 2010 compared to 2009. This increase was due, inter alia, to new policyholder subscriptions following the compulsory pension arrangement. Excellence Provident and Pension saw a decrease of 4.91%. In 2010, members in The Phoenix Pension and Provident and in Excellence Provident and Pension's provident funds were distributed according to the following types: in study funds: employees - 74% and 80%, respectively. Self-employed individuals - 26% and 20%, respectively; in funds for compensation and remuneration: employees - 66% and 26%, respectively. Self-employed individuals - 34% and 76%, respectively. In remuneration and compensation funds: employees – 91% and 0%, respectively. Self- employed individuals – 9% and 0%, respectively. Employers – 0% and 100%, respectively. 8. Marketing and distribution: Until the Bachar reforms, most life insurance plans were sold by insurance agents, including individual agents and independent agencies, and agencies owned by insurance companies. The Bachar legislation in general, and the Consultancy and Marketing Law in particular, led to changes in the sale and distribution of life insurance schemes and pension and provident fund products and is expected to lead to additional material changes in the future. The aforesaid legislation prescribed two tracks for distribution of pension products: pension consultancy (a person or corporate entity providing consultancy to an individual with regard to the feasibility of savings for that individual by means of a pension product to which the person or entity providing consultancy has no affinity); and pension marketing (which is carried out through a pension insurance agent or a pension marketing agent, defined as the employee of an institutional entity, with an affinity to the pension products which he or she markets). Pension consultants, including banks, will receive a distribution commission at the rate of

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up to 0.25% of the assets and will distribute pension products including all products in the sector, which they will be required to adjust to the client's needs. There is a limit on the commission for pension consultants, whereas there is no limit for pension marketers who may receive various commissions. On January 1, 2008, an amendment to the Consultancy and Marketing Law came into effect, allowing pension consultants who are banking corporations to give advice in respect of all long-term savings products – pension funds, provident funds and life insurance and they will receive a uniform distribution commission for this from the institutional entities. In light of the Bachar reform, banks can serve as pension consultants and as a distribution channel for pension products (subject to those limitations prescribed under the Consultation and Marketing Law, pertaining to pension consultancy licenses granted to banks). The banks' entry into the pension consultation market can potentially lead to a significant increase in the sales of segment products due to new target markets being exposed to the institutional entities. However, it is also liable to significantly cannibalize existing marketing channels. The Phoenix life insurance policies are marketed mainly by agents who receive handling fees and commissions at various rates. The rate of the commission is determined by the type of product, the scope of performance of the agent, the profitability of each agent's insurance portfolio, and according to negotiations with each agent. The commission paid is determined as a percentage of the management fees, the premium and/or accrual or the margins on each policy. Commissions are also paid for the sales activity of the respective agent. The percentage of commissions paid to agents with regard to all kinds of life insurance and long-term insurance mentioned above varies (some commissions are paid as advances during the first year of the lifespan of the policy). Starting January 1, 2004, changes have been made in new life insurance schemes marketed by The Phoenix, which are based in part on reducing the premium component for coverage of expenses and profit. Reducing the premium component for expenses as set forth above led to changes in the commission agreements with the agents, principally involving a reduction in the commissions paid to agents in the first year of the policy and an extension of the period over which the commissions are spread out. As a result, most of the commissions and handling fees for new "track" policies are spread out over the lifespan of the policy, on an ongoing basis, as long as the policy remains in force. The insurance agents work with sales managers, who are employed by The Phoenix Insurance in order to provide guidance on sales and solve problems as they arise. In addition, The Phoenix customarily provides loans in various amounts to its agents (irrespective of their commitment to performance). The loans to agents are secured with various collateral. The regulations for investment methods and the Commissioner of Insurance's circulars set limits on the granting of loans to agents. The Phoenix Pension and Provident's pension funds are usually marketed through agents, and The Phoenix Pension does not have any exclusivity agreements with its agents. The remuneration structure for agents usually consists of handling fees to a certain percentage of the management fees, and in certain cases a volume-based commission at a variable rate from new sales. Following the Bachar legislation, in the period 2006-2008 The Phoenix Pension and Provident signed distribution agreements for its products with most of the banks. Under these agreements distribution of pension and provident products is carried out in consideration for a distribution commission at the maximum rates prescribed by the consultancy regulations. Provident funds are marketed through agents. The provident funds have not granted exclusivity to any particular agent. Agent commissions in the segment are comprised of a certain percentage of the management fees. Excellence's pension and provident funds' activities are marketed through a number of primary distribution channels: (1) pension marketers for Excellence Nessuah Pension and Provident Funds, through self-initiated contact with potential customers, and mainly by contacting companies and organizations employing a large number of employees; (2) insurance agents and independent marketers; (3) investment consultants and pension consultants in banks, working with those banks that have signed a distribution agreement.

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B. Compulsory vehicle insurance 1. General: Compulsory vehicle insurance is required of every person using or allowing others to use a motor vehicle, pursuant to the Motor Vehicle Insurance Ordinance (New Version), 1970 (“the Motor Vehicle Insurance Ordinance"), and covers physical harm resulting from the use of a vehicle, to the driver, passengers and/or a third party. The insurance scheme is in line with the provisions of the Motor Vehicle Insurance Ordinance, and the insurance benefits are pursuant to the Road Accident Victims Law, 1975 (“the Road Accident Victims Law"). Pursuant to the Motor Vehicle Insurance Regulations (Establishment and Management of Databases), 2004, a database operator has been established in the compulsory vehicle insurance field, who is responsible for managing the database and producing user reports, inter alia, to assess the risks in the compulsory vehicle insurance sector and determine the pure risk cost on the basis of which the compulsory insurance tariffs are determined. Circulars issued by the Commissioner of Insurance establish various parameters which the insurer may use in setting the tariff, such as engine capacity and driver age and/or sex and driving experience, and the procedures according to which the insurer is required to act in all matters relating to approval of premium and maximum tariffs which may be collected by the insurer ("Differential Tariff"). The insurance companies have been permitted to use different tariff formulas for vehicle fleets and collectives with approval from the Commissioner of Insurance. The following entities are also active in compulsory vehicle insurance: (a) the "Pool" – the Israeli vehicle insurance pool, which includes Karnit and all of the insurance companies operating in the field. The members of the Pool participate in its losses and profits according to their relative share of the field. The Pool provides insurance to vehicle owners that no commercial insurance company is prepared to insure. The Phoenix's relative share of the Pool in the 2010 underwriting year was 7.9%, and in the 2011 underwriting year it will increase to 8.9%. (b) Karnit – The Fund for Compensation of Road Accident Victims – a corporation established under the Road Accident Victims Law to pay compensation to road accident victims who are entitled to compensation under the law but cannot claim compensation from the insurance companies. Pursuant to the provisions of the Compensation for Road Accident Victims Ordinance (Financing of the Fund) (Amendment), 2003, the insurance companies are required to transfer to Karnit 1% of the risk premiums for compulsory motor vehicle insurance policies which come into effect. Standard policy – In January 2010, the Minister of Finance published the Supervision of Financial Services Regulations (Insurance) (Terms of a Motor Vehicle Insurance Policy) 2010 ("the Regulations"), which replace and annul the Motor Vehicle Insurance Regulations (Insurance Certificates) 1970. The Regulations prescribe minimum mandatory terms for compulsory vehicle insurance (the Standard Policy) and include, inter alia, provisions regarding the form and terms of the insurance certificate including the requirement for special emphasis of those sections detailed in the Regulations and the option to emphasize additional sections. Furthermore, the Regulations state that insurance companies may add an expansion appendix regarding the scope of coverage, but are prohibited from changing the wording of the standard policy or the insurance certificate, or changing the order of the sections in the standard policy. 2. Characteristics of compulsory vehicle insurance: The sector contains one product: insurance cover under the Motor Vehicle Insurance Ordinance for the owner of a vehicle and its driver against any liability which they might incur under the Road Accident Victims Law and any liability which they might incur following bodily harm caused by or as the result of use of the motor vehicle to the driver of the vehicle, passengers therein or pedestrians injured by the vehicle as the result of use thereof. The characteristics include absolute liability of the insurer, limit of compensation, entry of the insurance into force only after full payment of the premium, legal proceedings conducted over a long period of time, uniformity of coverage and competition on tariffs, obligation to insure, and separation of grounds (persons granted grounds for claims under the Road Accident Victims Law, must sue for damages strictly and only under this law). As aforesaid, in January 2010 the Commissioner of Insurance published the Supervision of Financial Services Regulations (Insurance) (Terms of a Motor Vehicle Compulsory Insurance Policy), 2010. These regulations prescribe a standard policy for compulsory motor vehicle insurance and the wording of the compulsory insurance for trading in vehicles.

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3. Clients: The Phoenix's clients are private clients, business clients, collectives, large vehicle fleets, and Israel Railways. In 2010, the distribution of (gross) insurance premiums paid by The Phoenix's clients was 14.2% by large vehicle fleets, collectives and Israel Railways, and 85.8% by the remaining policyholders (mostly individual policyholders), compared with 14.7% and 85.3%, respectively, in 2009. 4. Competition: All insurance companies offer compulsory vehicle insurance. As the insurance coverage is uniform and market volume is limited, competition in compulsory vehicle insurance focuses on insurance tariffs, service provided to the policyholders, the percentages of commissions paid by the various companies to their insurance agents, and correct segmentation of the population groups of drivers and pricing of the policies offered to them. According to data from the Ministry of Finance for the first nine months of 2010, The Phoenix's share of the compulsory vehicle sector in 2010 grew by 1.4% for gross insurance premiums for the sector (9% in 2010 as compared to 7.6% in 2009). The Phoenix is ranked fourth after Clal (12.8%), Menorah (13.2%) and Harel (13.3%).

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5. Distribution of profit (loss) on retention in the field of compulsory vehicle insurance in 2009 and 2010 (in NIS millions):

Underwriting Profit (loss) for Adjustments for Activity not year released in underwriting year underwriting years included in Profit (loss) for the reporting released in year of released in previous calculation of Total profit / Year of report open years1 year report years 2 reserves 3 (loss) reported4 2010 - 2007 3 49 - 52 2009 (6,332) 2006 (1) 34 (6) 20

6. Compulsory insurance – information on underwriting years 2003-2010 (NIS millions) Open underwriting years Closed underwriting years 2010 2009 2008 2007 2006 2005 2004 2003 5 Gross premiums 390 359 322 276 295 33 415 478 Profit (loss) in retention for underwriting year cumulatively until - - - (17) (10) (36) 35 31 the reporting date6

Surplus of income over expenses (in 5 29 12 - - - - - retention) 7 Effect of income from investment on profit / loss, cumulatively for 9 26 40 58 61 57 86 115 underwriting year8

1 2009 losses for the open underwriting years stem from the 2007 underwriting year. In 2010 there is a surplus for the 2008, 2009 and 2010 underwriting years. The improvement in underwriting results in the open years is due to an improvement in the underwriting process and a focus on more profitable target audiences. 2 Adjustments due to changes in the actuarial assessment of contingent claims and changes in the ROI for these reserves. 3 Mainly constitutes a difference between the real recognition of income from investments for the open years at a rate of 3% and actual income (losses) from investments for those years. Furthermore, this item includes expenses which are non-accruable. The balanced result for 2010 is due to returns on investments alongside recognition of a real yield of 3% for accrual which was offset against administrative expenses which are non-accruable. 2009 losses are due to non-accruable expenses. 4 The "pool's" losses reduced the Company's reported profit for 2009 and 2010 by NIS 16 million and NIS 18.9 million, respectively. 5 The decrease in gross premiums between 2003 and 2007 is due to price reductions in the sector and the cessation of business with collectives and vehicle fleets. The increase in premiums from 2008 onwards is due mainly to an increase in The Phoenix's sales. 6 The increase in profit (surplus revenues over expenses in retention) in the open underwriting years, as compared to the closed underwriting years, is due to an improvement in the underwriting process and a focus on more profitable target audiences. It is noted, that the erosion in profit margins which took place between 2003 and 2007 was due to increased competition and price reductions which significantly undermined profitability in those years. 7 In 2010, the surplus reflects the premiums earned over a six month period only. The decrease in profitability as compared to 2009 is due mainly to the fact that, as yet, no material returns have accumulated on investments for 2010. 8 The decrease in income from investments throughout the underwriting years is due mainly to the fact that no gains have as yet accumulated on investments.

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C. Property vehicle insurance 1. General: Vehicle insurance (known as CASCO or comprehensive insurance) is the most common optional insurance within the field of general insurance. Property vehicle insurance includes cover for property damage to the insured vehicle (“Comprehensive Insurance”) and for property damage caused by the insured vehicle to third parties (“Third Party Insurance”). 2. Characteristics of property vehicle insurance: The Phoenix markets property vehicle insurance which covers property damage caused to the insured vehicle and property damage caused by the insured’s vehicle to a third party. As aforesaid, property vehicle insurance is optional insurance. The insurance policy for a private vehicle and a commercial vehicle weighing up to 4 tons is based on the terms of the standard policy which are determined in the Supervision Regulations of Insurance Businesses (Terms of a Private Vehicle Insurance Contract) 1986. The wording of the standard policy is binding and it is possible only to improve its terms and add expansions in respect of the scope of cover, risks, property and liabilities of policyholders. The property vehicle insurance tariff is a differential actuarial tariff (variable and risk-adjusted) which is subject to approval from the Commissioner of Insurance. This tariff is determined on the basis of a number of parameters which include, among others: model of vehicle, engine capacity, year of manufacture, protection type, number of drivers, sex and age of the drivers, experience, and previous claims. Standard policy terms include coverage in case of accident, theft, fire, malicious damage, damage by natural elements, property damages caused to third parties, etc. The Phoenix Insurance offers various expanded coverages, such as coverage for earthquake risks, riots and strikes, as well as ancillary services such as towing, replacement vehicle in case of accident or theft, and glass breakage insurance. The Phoenix also offers a variety of insurance options for commercial vehicles weighing more than 4 tons, at terms which are customary in Israel and at tariffs which are reviewed periodically. The size of the potential market is limited to the number of vehicles in Israel and so the market is relatively stable and the competition focuses on reducing tariffs and improving service. The sector is also characterized by the short period of time taken to complete the processing of claims. 3. Clients: Most of The Phoenix's clients are individuals, corporate clients, collectives and vehicle fleets. The bulk of The Phoenix's premiums in this sector are derived from individual and corporate clients (92.3% in 2010 and 93.5% in 2009), while the remaining premiums (7.7% in 2010 and 6.5% in 2009) come from large vehicle fleets and collectives. 4. Competition: The property vehicle insurance sector is characterized by fierce competition which is reflected mainly in the reduction of tariffs and the granting of special reductions. The competition is principally focused on insurance tariffs, service, the percentages of commissions paid by the various companies to their insurance agents, and correct segmentation of the population groups of drivers and pricing of the policies offered to them. The Phoenix focuses on increasing its market share while maintaining adequate profit margins. The primary means of achieving this goal relevant pricing structures, targeted marketing and recruiting agents. According to data from the Ministry of Finance, in the first nine months of 2010, The Phoenix’s market share is 11.7% (fourth place in the sector), an increase of 1.2% over 2009, after Harel (16.6%), Menorah (15.6%) and Clal (12.2%). 5. Financial data for products and services in the property vehicle segment in 2009 – 2010 (in NIS millions):

2010 2009 Gross premiums 668 595 Premiums less reinsurance (on 668 595 retention) Gross claims 420 388 Claims on retention 420 383

D. Other general insurance 1. General: Other general insurance includes a wide range of insurance cover, which may be divided into three principal sectors: Property insurance: Provides coverage against loss or physical damage to property owned by the policyholder or for which he is responsible. It includes insurance for residences, business

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premises, and engineering insurances. The principal risks covered by property insurance policies are fire, explosion, and risk of burglary, earthquake and natural disasters. Property insurance includes coverage for direct damages to the policyholder's property caused by the realization of those risks set forth in the policy, and coverage for indirect damages. Generally speaking, the term of the policy is one year, with a limitation period of three years from the entitling event for property insurance claims. Claims against property insurance policies are clarified shortly after the occurrence of the insurance event (and so this sector is considered as having a "short claims tail"). Liability insurance: In the case of liability insurance, the insurer indemnifies policyholders for their financial liability towards third parties prescribed by law, up to the limit of liability stated in the policy. Liability insurance includes third-party liability insurance, employers' liability insurance, professional liability insurance (including directors' and officers' liability insurance) and product liability insurance. The limitation period in liability policies does not end so long as the third party's claim against the policyholder remains valid. In general, the term of the policy is one year, but in light of the long period of time which passes from the date of the incident, and the formulation and filing of the claim, as well as the length of time required for factual and legal clarification of the claim, this sector is considered as having a "long claims tail", and recognition of profits is postponed for a period of at least three years. In some types of liability insurance (primarily third-party liability insurance and employers' liability insurance), the cover is on a per-event basis. In other words, cover is given to events which occurred during the term of the insurance, and the claim may be filed after the term of the insurance has expired, subject to the statute of limitations. In other types of liability insurance (primarily professional liability insurance, product liability insurance, directors' and officeholders' liability insurance), the cover is based on the date the claim is filed. In other words, cover is given to claims which were initially filed during the term of the insurance, even if the grounds for these claims arose prior to the term of the insurance, but after the date prescribed in the policy. Other insurance: This category includes types of insurance coverage which are not property or liability insurance, such as short-term personal accident insurance (which covers death or permanent full or partial disability resulting from an accident and/or temporary work disability resulting from an accident or illness) or contractor work insurance (coverage for losses or unexpected physical damage to the project). The scope of activity in the field of other general insurance is related to factors such as the frequency of the event insured (for example: increase in the number of burglaries of business premises or residential properties), the economic situation of the potential policyholders, their willingness to take out insurance policies, as against other means of managing and reducing risks, and the overall scope of economic activity in Israel. Insurance policies in this field often provide insurance packages ("umbrella" insurance) which include various types of cover – both property and liability insurance. 2. Clients: In 2010, most of The Phoenix's clients in the other general insurance sector were private policyholders and business clients (95.9%). The remaining 4.1% of the gross insurance premiums come from large corporate clients. The comparative figures in 2009 were 97.2% and 2.8%. 3. Financial data of "other general insurance" products for 2010-2009, broken down by sectors (in NIS millions): Property insurance

2010 2009 Gross premiums 531 507 Premium less reinsurance (on retention) 242 230 Gross claims 266 264 Claims on retention 85 103

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Liability insurance

2010 2009 Gross premiums 329 333 Premium less reinsurance (on retention) 238 241 Gross claims 256 209 Claims on retention 185 206

Other insurance

2010 2009 Gross premiums 33 36 Premium less reinsurance (on retention) 15 17 Gross claims 18 27 Claims on retention 10 10

4. Competition: The general insurance sector is characterized by fierce competition which is reflected in the adaptation of the insurance policies to clients' needs, entry into specific insurance niches, reduction of tariffs and special discounts. The Phoenix’s competitors in the general insurance sector are most of the insurance companies. According to data from the Ministry of Finance for the first nine months of 2010, The Phoenix is in third place in this field, with 12.4% (compared to 12% in 2009) after Clal (21.5%) and Harel (18.5%). E. Health insurance 1. General: Health insurance policies are intended to indemnify or compensate policyholders for medical expenses in cases of harm to their health. These policies include cover for transplant expenses, medication which is not subsidized by the state, private medicine and hospitalization expenses. Moreover, this segment includes nursing care insurance, insurance for serious illness, dental insurance, sick day insurance, travel insurance, insurance for Israelis overseas, insurance for foreign workers living in Israel, and personal accident insurance. For the above insurance schemes, the insurance term is greater than one year (personal accident insurance for periods of up to one year is included under general insurance). Health insurance in Israel is divided into three layers: first layer - state-subsidized health services; second layer - additional health services, which expands or substitutes the state-subsidized health services and is provided solely by the HMOs; third layer - private health insurance purchased from insurance companies. The health insurance market is a growing market, which is a part of the total national expenditure on health in Israel, and the percentage of persons purchasing private insurance policies is constantly increasing. The Phoenix offers a range of insurance plans which are updated in accordance with the rate of technological progress and medical treatments in Israel and worldwide. The health insurance policies marketed by The Phoenix are under the "Health Line" brand. The Phoenix also operates a customer relations center which handles enquiries from policyholders, answers questions regarding the various insurance plans, and markets and operates the various policies. According to Ministry of Finance data, in the first nine months of 2010, there was an 11% increase in gross insurance premiums in the health insurance sector compared with the corresponding period in 2009. This compares with a 16% increase in 2009 over 2008. Premiums for The Phoenix Insurance’s health insurance activities increased in 2010, amounting to NIS 1,085 million compared with NIS 1,032 million in 2009, an increase of 5.2%. The increase is due mainly to marketing efforts of insurance to collectives, as well as an increase in private policyholders. Activity in health insurance, similar to other fields of insurance, is subject to the legal provisions which apply to insurers and the directives from the Commissioner of Insurance. The trend in regulation in recent years has been toward standardization of the

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basic terms of the insurance policy and increased transparency in the terms of insurance policies. 2. Principal products: The Phoenix markets health insurance, illness and hospitalization insurance, nursing care insurance, dental insurance, insurance for foreign workers living abroad, chronic illness insurance, sick day insurance, insurance for Israelis overseas, travel abroad insurance, and persona accident insurance (for periods of more than one year). Health insurance includes compensation or indemnification for expenses related to surgery, transplants and/or special treatments in other countries, cover for drugs which are not included in the State "health basket", alternative treatments, compensation for serious diseases, medical services using advanced technologies, ambulatory medical services, etc., all according to the insurance schemes purchased for or by the policyholders. Supplementary products are added to the insurance schemes which offer a wide range of options for expanding the insurance cover in accordance with the needs of the policyholder. 3. Clients: Health insurance clients can be divided into three principal groups: individual policyholders who can construct a customized insurance scheme, both as regards insurance coverage and as regards premium payments; group insurance for employees and families and employees, unions and major companies in Israel; members of Israel's HMOs who purchase coverage for additional health services. The Phoenix's additional health service operations include nursing care coverage to Meuhedet Healthcare Services members as part of the "Meuhedet Gold" coverage plan. Until the start of 2010, these operations also included insurance coverage for medication not included in the subsidized health services for Maccabi Healthcare Services' "Gold Shield" additional health service program. In 2010, the distribution of premiums was as follows: 48% from private clients; 37% from group insurance clients; and 15% from members of Israel's HMOs, compared with 46%, 34% and 20%, respectively, in 2009. 4. Competition: The health insurance segment is characterized by stiff competition due, inter alia, to the numerous competitors and the similarity between products. The share of the collective insurance schemes in the segment is growing consistently. The dominant insurance group in the field of health insurance is Harel. At the end of 2010, Harel held 40% of that market. This market share is due, inter alia, to Harel's holding 100% of Dikla Insurance Co. Ltd., which provides group nursing care insurance for the members of the Clalit Health Services HMO, as part of that HMO's additional health services. The other main competitors in this area are Clal, Migdal and Menorah and the supplementary service programs of Israel's HMOs. The Phoenix has increased its market share in recent years. According to data from the Ministry of Finance for the first nine months of 2010, The Phoenix is ranked third in this field from the standpoint of gross insurance premiums, with 21.1%, after Harel (41.3%) and Clal (23.9%), which provides nursing care insurance for Maccabi and Clalit members as part of those HMOs' additional health services, and before Midgal (10.9%). The Phoenix copes with competition in the field by pricing its products properly, taking into account, among other things, distribution and sales commissions, operating costs, cost of risk, the existence of high-quality information concerning risks on the basis of past experience and the analysis thereof, use of reinsurance contracts for the transfer of risks, aggressive marketing, improving service, and offering attractive products to policyholders, including policyholders with special coverage needs. In 2010, The Phoenix launched a new nursing care product - fixed premium Nursing Care 360 - life-long private nursing care insurance at a fixed rate starting from the entry date and including surrender value. 5. Financial data of health insurance products for 2009-2010 (NIS millions):

2010 2009 Gross premiums 1,085 1,032 Premiums less reinsurance (in retention) 925 832 Gross claims 784 742 Claims in retention 633 578

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F. Financial services 1. General The Phoenix operates in the financial services segment through Excellence, 73% of whose shares are held by The Phoenix as of the report date1. Excellence is a public company and its shares are listed for trading on the TASE. Excellence, through companies under its control (jointly: "Excellence"), is involved in a variety of activities in the capital market. The company’s principal fields of activities are marketing and management of investments, underwriting and investment banking, issuing of structured products, issuing of financial products, and provision of stock exchange and trading services. In addition, Excellence is engaged in the management of provident and pension funds as detailed in section (A) above. A) Investment marketing and portfolio management for clients – This field includes the following Excellence activities: marketing and investment management services in Israel and abroad; management of mutual funds; and a real estate investment trust (REIT). Investment portfolio marketing and management operations are carried out through Excellence Nessuah Investment Management, which is licensed to manage and market investments under the Consultation and Marketing Law. In addition, some of the portfolio management activities are carried out through a strategic partner Invesco Asset Management Ltd. Trust fund management operations are carried out through Excellence Nessuah Trust Fund Management utilizing the majority of available investment channels. On June 9, 2009, Excellence and the companies under its control finalized their agreement with Prisma Investment House Ltd. ("Prisma") to acquire Prisma’s trust fund, index-linked certificates and portfolio management operations. Under this agreement, Excellence acquired Prisma's trust funds, which as of the contract date bear a financial debt to banks totaling NIS 130 million, in return for an allocation of shares to Prisma constituting 45% of the issued and paid-in capital of an Excellence investee company. Prisma will sell the allocated shares to Excellence in 2014-2017 at such rates as prescribed in the agreement and for such consideration as will be calculated according to the formula prescribed in the agreement. Furthermore, Prisma will retain a capital note of NIS 78 million, for which it shall receive payments according to a formula set forth in the agreement. In addition, Excellence acquired Prisma's index—linked certificates and financial instruments companies, for a sum equal to the equity of the acquired companies plus NIS 7 million. Starting from June 10, 2009, upon completion of the transaction, Excellence, which until June 9, 2009 managed 36 trust funds in the majority of investment channels available, manages 124 trust funds through Excellence Trust Funds (formerly Prisma Trust Funds Ltd.). B) Underwriting and investment banking – Excellence, through Excellence Nessuah Underwriting (1993) Ltd., provides services in underwriting, management, consultancy and distribution for public and private offerings in Israel. The company engages in securities transactions (including offers of sale) and distribution of securities, brokerage and consultancy in securities transactions. Excellence also takes part in the management of IPOs and serves as manager of an underwriter or distributor consortium and/or as an underwriter or distributor, as applicable. C) Issue of structured products – Beginning in 2002, Excellence is involved in the issue of negotiable structured securities on the TASE. All structured securities were issued through a private company whose shares are not listed and shall not be listed for trade on the TASE and the company’s sole activity is the issue of bonds and dealing with assets mortgaged in favor of those holding the bonds (in this section; "the Issuing Companies"). The issuing companies are controlled by Excellence and are special purpose companies (SPCs) established for the issuing of bonds, and which are prohibited from undertaking any other activity.

1 Regarding the Excellence transaction, in which The Phoenix will purchase a further 15% of Excellence's share capital, see Note 14 to the financial statements.

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D) Issue of financial instruments – Excellence, through a number of KSM companies, is involved in the issue of and trading in index-linked certificates, composite certificates, short certificates, commodity certificates and coverage options for the public. Each of the series of index-linked certificates was issued through a company with just one commercial activity – the issuing of index-linked certificates and dealing with assets mortgaged in favor of those holding the certificates. The KSM companies specialize in the management of index-linked products. Excellence began issuing certificates of deposit in 2004, through KSM Jambo, Paz Foreign Deposit Ltd., Paz Foreign Deposit 2 Ltd. and KSM Currencies Ltd. Furthermore, Prisma Currencies Ltd. was purchased in 2009. All certificates of deposit are issued through a company with just one commercial activity – the issuing of certificates of deposit and dealing with assets mortgaged in favor of those holding the certificates of deposit. Certificates of deposit are linked to the rate of exchange for a variety of currencies against the Israeli shekel and bear interest. E) Brokerage and trading services – Excellence, through a TASE member company, is involved in marketing and investment services and brokerage services (trading in securities and derivatives) for local and foreign customers in Israel and abroad. Excellence specializes in all trade channels including shares, bonds in Israel, bonds abroad, derivatives, foreign securities, issues and distributions. Excellence Nessuah Brokerage Services Ltd. ("Excellence Nessuah Brokerage" or “the TASE Member”) is licensed to market investments pursuant to the Consultancy Law and it has been a member of the stock exchange since August 1978. The TASE Member provides services in investment marketing and securities trading on the TASE and in overseas markets and market making in shares and government bonds for local and foreign clients. Details of the Excellence's revenue, by field of activities, the costs attributed to each field of activity and the operating profit from each field, at December 31, 2009 and 2010 (in NIS millions)1 :

1 Data taken from Excellence's financial statements.

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Investment TASE and trading Issue of structured Provident and underwriting and Investment Issue of financial services products pension funds banking management products December December December December December December December December December December December December 31, 2010 31, 2009 31, 2010 31, 2009 31, 2010 31, 2009 31, 2010 31, 2009 31, 2010 31, 2009 31, 2010 31, 2009 Total revenue 46 63 20 34 230 222 20 9 200 137 120 77 Costs Variable costs that are not revenue in another segment 4 5 4 3 41 36 5 2 64 36 18 11 Fixed costs that are not revenues in another segment 26 27 10 11 114 101 3 3 73 65 43 37 Total costs 30 32 14 14 155 137 8 5 137 101 61 48 Operating profit 16 31 6 20 75 85 12 4 63 36 59 29 Total assets 271 383 1,210 1,439 426 449 23 11 410 418 18,127 15,755 Minority interest in segment revenues ------3 2 5 3

In 2009 and 2010, Excellence’s total assets amounted to NIS 18,598 million and NIS 20,651 million, respectively. Total liabilities amounted to NIS 18,038 million and NIS 19,949 million respectively. Turnover amounted to NIS 547 million and NIS 637 million, respectively. Operating profit amounted to NIS 211 million and NIS 231 million, respectively, and net profit amounted to NIS 129 million and NIS 148 million, respectively. The volume of assets managed by Excellence is influenced, inter alia, by changes in capital market indices in Israel and abroad, and from exchange rates to which some of the series issued by the special purpose companies are linked.

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2. Limitations, legislation, standardization and special constraints Excellence's operations in various areas in the capital market are subject to comprehensive regulation. The trust fund management segment is regulated under the provisions of the Joint Investments Trust Law and regulations made thereunder. Supervision of entities in this field and the enforcement of legislation are carried out by the Israel Securities Authority. Furthermore, the Bachar legislation set forth limitations on holding the means of control and on market shares for mutual fund managers. The underwriting and investment banking segment is regulated under the Securities Law, and the regulations made thereunder, and specifically under the Securities Regulations (Underwriting), 2007. In addition to the provisions of the securities legislation, underwriting operations are subject to limitations prescribed under antitrust laws, and are also influenced by provisions applicable to institutional investors. Operations in the issue of structured products and financial instruments segment are subject to the provisions of the Securities Law and the regulations made thereunder. These operations are further subject to the provisions and limitations set forth under deeds of trust signed by each SPC issuing structured products or ETFs with the bondholders' trustee. Furthermore, each of the "Haharim" companies, which carry out issuings of structured vehicles, is obligated towards the ratings company to act according to certain principles and obligations. It is noted that the Israel Securities Authority has issued interim recommendations submitted by an inter-departmental team charged with examining the preparations mandated by the significant increase in the production and marketing of hybrid financial products to the general public. The team recommends to apply various regulatory mechanisms which, inter alia, will route hybrid, high-risk financial products to the 'TACT Institutional' market, and so apply comprehensive regulation for management entities and increase supervision of financial brokers. As of the reporting date, Excellence is negotiating with the Israel Securities Authority so as to allow the issue of structured vehicles to the general public in a manner similar to the way these vehicles were issued in the past. The outcomes of these negotiations are, at this time, uncertain. Operations in the ETF and deposit certificates segment are subject to the Companies Law, the Securities Law and the regulations made thereunder, and the directives issued by the TASE; the main laws which apply to the trade and brokerage services segment are the provisions TASE rules and regulations, the Consultation Law and the Israel Securities Authority directives issued thereunder, as these apply to licensed marketers of investments and/or analysts, and the provisions of the Prohibition on Money Laundering Law and the Prohibition on Money Laundering Order (duty of identification, reporting, and maintaining records of a TASE member), 2001. The TASE member operates according to the TASE members' statute, and is subject to supervision by the TASE; The provisions of the Provident Funds Law, the Supervision Regulations, and the Provident Funds Management Regulations apply to the provident fund segment. Provident funds are subject to supervision by the Commissioner of Capital Markets, Insurance and Savings in the Ministry of Finance. In addition to these laws, various reforms and legislative amendments that have taken place in recent years affect Excellence's operations. The Bachar reform, which is described in Section 1.12.2(E) above, has led to material changes in the capital market, including changes in the structure of ownership in the capital market, and to reforms in all matters related to consultation and marketing of financial and pension-related products and trust funds. In 2007 and 2008, the TASE enacted changes in the TASE statute, which affected the structured products and financial instruments segments. Furthermore, in July 2007, a reform was carried out in the underwriting industry, which mainly dealt with changes to the method of underwriting and the manner of offering securities in Israel. 3. Changes in the scope of operations and profitability of the segment Excellence operates in various segments in the local capital market, which are characterized by high volatility, inter alia due to the effect of political, security-related and economic factors in Israel and abroad, which are outside of Excellence's control. Inter alia, this volatility affects the scope of the public's activity in the capital market, and the prices of securities and financial products. In light of the market's emergence from the global economic crisis of 2008, the economic recovery of 2009, and market stabilization in 2010, the volume of assets managed by Excellence grew, as did the scope of its operations, mainly in the underwriting and asset management segments. As of December 31, 2010, total assets managed by Excellence amounted to NIS 63.5 billion, as compared to NIS 55 billion on December 31, 2009. On the other hand, 2009 and 2010 were characterized by mergers and acquisitions between

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financial entities in general and between investment houses in particular. In light of the above, in 2009 Excellence acquired Prisma Investment House Ltd.'s funds company. In the investment marketing and management segment, 2009 brought positive changes in the performance of the various indices (government bonds, corporate bonds, and shares), which entailed significant improvements in the performance of the investment portfolios, which recorded positive yields. Market corrections brought customers back to the capital markets through managed portfolios and through the various distribution channels. In 2010, market stabilization contributed to an additional increase in assets under management, and to continued improvement in the investment portfolios' performance. The investment banking and underwriting segment showed signs of recovery from the end of the first half of 2009. The slowdown in trade volumes on the TASE accelerated in the second half of 2009, and was accompanies by sharp gains. Accordingly, since the end of Q2/2009 and throughout 2010, there has been an increase in Excellence's scope of operations and revenues in the underwriting segment which corresponds to the increased number of issuings and the volume of capital raising carried out in Israel. Following the exacerbation of the financial crisis during 2008, the exposure of the special purpose companies increased in the structured products segment, due to risks of dependents on proceeds from notes as a sole source of financing. 2008 and 2009 saw early redemptions of structured bonds according to the issuers' notifications. In Q4/2009, the Company resumed the issue of structured products, and carried out NIS 250 million in issues. In 2010, Excellence did not carry out any additional public issues of structured products, other than the issue of two "Atzmon" series early in the year. For details concerning the Israeli Securities Authority's publications in connection with the issue of structured financial vehicles to the general public, see Section 1.12.3(F)(2) above. The scope of operations in the financial instrument issuing segment is derived from the condition of the capital market, the range of issued instruments, the awareness of the investing public and the marketers of financial instruments, the issuing rate and the volume of investment, and changes in public preferences as regards investments specializing in overseas markets, commodities and financial derivatives. 2010 was characterized by continued growth in assets under management, which began in 2009. Operations in the trade and brokerage services segment are also influenced by the capital market conditions. 2010 was characterized by continued erosion of the brokerage commission rates, which erosion began in 2009. The year was further characterized by increased competition between TASE members and against the banks. In addition, in 2010, Israel was classified as a "developed economy", which resulted in a decrease in foreign clients' involvement in Israel, including in Excellence's TASE member. 4. Customers Customers in the trust funds, structured products and financial products segments are the general public. Structured products which are not listed for trade on the TASE are sold mainly to institutional customers. Customers in the portfolio management segment include both institutional and private customers. Customers in the investment banking and underwriting segment are mainly private and public companies seeking to raise capital or offer securities to the public. Customers in the trade and brokerage services segment are mainly institutional entities in Israel and abroad, as well as individual customers and customers whose moneys are managed by portfolio managers. 5. Marketing and distribution In the investment marketing and management segment, portfolios are marketed through Excellence employees, a distributor network of independent agents, and a telemarketing mechanism which recruits customers through cold calling. Mutual funds are marketed mainly to investment consultants in the various banks, as well as through advertising on the various media. The structured and financial instrument issuings segment is subject to advertising restrictions as issuings are made according to a prospectus. Marketing efforts in this segment are concentrated immediately prior to issuing, and include presentations to institutional entities, to investment consultants and to portfolio managers. Investment banking and underwriting operations are marketed through Excellence employees, and targets the management of large-scale enterprises and the managers of their finances. Operations in the trade and brokerage services segment are marketed mainly by Excellence employees, as well as through independent agents who are entitled to commissions for customers recruited.

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6. Competition The following is a short description of the competition in Excellence's segments of operation: Investment management and marketing – There are numerous organizations in Israel specializing in portfolio management and in the provision of investment marketing services. In recent years, there has been a significant increase in the number of organizations operating in this market, which has increased competition. Clal Finance, Peilim Capital Markets, Psagot, IBI, Meitav, Gaon, DS, and Migdal Capital markets are portfolio managers which Excellence estimates to be its main competitors in the portfolio management segment. Excellence estimates that it is among the leading companies in the portfolio management segment in Israel. Excellence believes its main competitors in the mutual fund segment are primarily those companies which were formerly controlled by the banks, such as Psagot Mutual Funds, Harel-PIA Trust Funds, Menorah Mivtahim Mutual Funds, DS Mutual Funds, and privately-owned companies (which were not controlled by the banks) including Meitav, Clal Finance, Migdal Capital Markets, IBI, Analyst, Altshuler-Shaham, Epsilon and others. Issue of structured products – Competition comes from other investment houses, and from banks offering similar products through structured deposits. Excellence estimates that there are 5 other organizations which have issued structured bonds traded on the TASE, led by Clal Finance Underwriting, Global Finance and Expert. To the best of Excellence's knowledge, it is the largest player in the structured products market. Issue of financial products – Excellence estimates that there are 5 other organizations which have issued index-linked certificates to the public, led by Clal Finance, Tahlit, Psagot, Index and Harel. Excellence estimates that it is the largest player in the index- linked certificates segment, with a market share of approximately 33.3%. Underwriting – In the underwriting segment, there are currently three dominant players (Clal Finance and Underwriting, Poalim IBI Underwriting and Issuing, and Leumi Partners), approximately three or four mid-size issuing managers (including Excellence), and other smaller organizations. Trade and brokerage services – Competitors are TASE members, some of whom are banking corporations in Israel and abroad, and others who are not banking corporations. Competition focuses on commissions, quality and diversification of services provided to customers. 1.12.5 Customers There are many and diverse customers in the insurance industry. No single insurance customer provides The Phoenix with 10% or more of the Company’s total income. For a description of the typical customer in each field of insurance, see above. 1.12.6 Marketing and distribution In the insurance industry, most marketing and distribution is performed by insurance agents and agencies. Most insurance agents work with a number of insurance companies in order to provide solutions for the wide range of their customers’ needs and they do not work exclusively with a single insurance company. When choosing the insurance company they intend to work with, the main parameters considered by the agents are the rates of commissions, the quality of service provided by the insurance company and the interest insurance products generate in the agent’s customers. The insurance company’s principal considerations when choosing agents to represent them are the agent’s fields of activities, specialties and relative advantages, the potential for commercial cooperation with the insurance company; rates of commission; the agent’s customer base; and the agent's integrity. The vast majority of insurance policies sold by The Phoenix Insurance are marketed through agents, most of which also market policies issued by other insurance companies. Insurance agents work directly with The Phoenix’s insurance clusters. The Phoenix Insurance also works through pension arrangement agencies and agencies employing sub-agents. As a rule, these agencies work with a number of insurance companies. The Phoenix grants such agencies issuing and underwriting authority at different levels. In most cases, when The Phoenix Insurance signs an agreement with an agency working with sub-agents, The Phoenix Insurance also signs agreements with the sub-agents operating through the agency.

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The Phoenix also operates an internet website which enables users to purchase automobile insurance (compulsory and property), travel insurance, and receive personalized and marketing information. Furthermore, The Phoenix operates a customer service call center. The Phoenix Insurance owns a number of insurance agencies. As is standard practice in the insurance industry, these agencies do not work exclusively with The Phoenix Insurance and work with a number of different insurance companies. In recent years, The Phoenix Insurance has focused on the purchase of agencies engaging in pensions, on the background of the changes in the long-term savings sector. In 2010, approximately 16% of all life insurance premiums, 29% of all remuneration fees from pension operations were received through insurance agencies controlled by The Phoenix. In health and general insurance operations, these agencies do not account for a material portion of The Phoenix's premiums. Agent activities are supervised by the Commissioner of Insurance, and interactions between agent activities is regulated under the Insurance Contract Law, the Supervision Law, and the Pension Marketing Law. 1.12.7 Seasonality Seasonality has no material effect on profitability in any of The Phoenix's sectors of activity. In the general insurance industry, seasonality in the premium payment cycle throughout the year is affected in the first quarter, because most policies (mainly vehicle insurance policies) are renewed at the beginning of the year. Seasonality in the payment cycles for premiums on profits is neutralized by the reserve mechanism for risks that have not yet elapsed. It is noted that a severe winter season may cause an increase in caims, especially in the property vehicle segment. The following table provides details of the general insurance premiums received in each quarter in the period 2009-2010: These details indicate that seasonality is not discernible in the premium cycles.

2010 2009 NIS millions % NIS millions % 1st quarter 661 33.9 608 33.2 2nd quarter 439 22.5 394 21.5 3rd quarter 439 22.5 423 23.1 4th quarter 411 21.1 406 22.2

Total 1,950 100.0 1,831 100.0

The following table provides details of seasonality in health insurance. These details indicate that seasonality does not affect the health insurance sector. Premiums in health insurance by quarter:

2010 2009 NIS millions % NIS millions % 1st quarter 269 24.8 237 23.0 2nd quarter 244 22.5 243 23.6 3rd quarter 251 23.1 250 24.2 4th quarter 321 29.6 301 29.2

Total 1,085 100.0 1,031 100.0

In the life insurance sector, revenue from premiums are not characterized by seasonality, However, as the provisions for life insurance benefit from tax benefits, a substantial part of the new sales is made at the end of the year. The following table provides details of the life insurance premiums received in each quarter in the period 2009-2010:

2010 2009 NIS millions % NIS millions % 1st quarter 751 24.5 663 25.0 2nd quarter 741 24.2 643 24.3 3rd quarter 731 23.9 648 24.5 4th quarter 842 27.4 693 26.2

Total 3,065 100.0 2,647 100.0

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1.12.8 Reinsurance The Phoenix takes out reinsurance to spread the insurance risks taken on by the Company. The Phoenix reinsurers have an influence on insurance capacity, policy conditions, tariffs and profitability. Insurance companies insure some of their transactions through reinsurance, mainly for general insurance, through reinsurers abroad. Notwithstanding the aforesaid, reinsurance agreements do not derogate from the contractual rights accruing to the insurance company’s policyholders and do not absolve the insurance company from any liability towards policyholders. Therefore, the stability of the reinsurers has an effect on the insurance company. Moreover, conditions to agreements made with reinsurers affect the insurance company’s profits. A possible deterioration in the position of the reinsurance market is likely to have a number of consequences: First, an insurance company which enters into a reinsurance agreement is directly exposed to the reinsurer’s ability to comply with its commitments if an insurance event occurs. Second, a deterioration in the robustness of a reinsurer is likely to cause the insurance company to request that it be replaced with another reinsurer. This entails the addition of costs to the original reinsurance costs and the risk that the original terms of cover will not be achieved, which in turn leads to the recording of an accounting loss because of a suspicion that the reinsurer will be unable to meet its obligations. Third, a deterioration in the position of the reinsurance market is liable to lead to a decline in reinsurance capacity which harms the insurer’s ability to conduct its insurance business, and a rise in reinsurance tariffs and other agreements terms with the reinsurer, thereby causing additional costs or harming the quality of the insurance cover. In addition to the aforesaid, an absence of the reinsurance required by an insurance company is liable to cause a failure in its ability to comply with its regulatory capital requirements. 2010 was characterized by a relatively high number of significant natural disasters worldwide. These included earthquakes in Haiti, Chile, and New Zealand, floods in Asia, and storms in Europe. On the other hand, improved conditions in capital markets worldwide and the growth in revenues from investments mitigated the decrease in profitability. Capacity in the reinsurance market is still high and prices are still showing relatively negative trends. At the start of 2011, two earthquakes occurred, in New Zealand and Japan, which will cause considerabe damages to reinsurers. At this stage, it is difficult to estimate the extent of these damages, and their effects on the reinsurers' stability. Since 2002, The Phoenix Insurance signs agreements with reinsurers graded A- and above, as rated by one of two rating companies – Standard and Poor’s and AM Best. It is noted that towards 2011, The Phoenix's Board of Directors updated The Phoenix's policy for managing its exposure to reinsurers. The reinsurer market at the ratings relevant to The Phoenix Insurance includes more than 200 insurance companies. The Phoenix Insurance regularly works with approximately 60 reinsurers. For further details about The Phoenix's largest reinsurers, see Note 28 to the financial statements. In general, the reinsurance rate in the life insurance sector is significantly lower than the reinsurance rate in the general insurance sector. This is due, inter alia, to the majority of insurance premiums in the life insurance sector including a savings component, for which there is no reinsurance. In the general insurance sector there is also variability in the scope of reinsurance acquired, with reinsurance being less prevalent in sectors characterized by high-dispersion homogenous risks (e.g. – the vehicle sectors - compulsory and property), and more prevalent in sectors characterized by high variance, low dispersion and large-scale risks (e.g. – other property insurance). Contracts are through various types of reinsurance1. Reinsurance contracts for the general insurance sector (excluding health insurance) are usually made on an annual basis. Reinsurance contracts in the life, health and nursing care insurance sectors are usually made for a set period

1 Contractual reinsurance, made between the insurance company and the reinsurer, is made according to a reinsurance agreement under which the reinsurer, according to certain prescribed terms, assumes all the risks/ businesses transferred to it by the direct insurer without need to approve each risk/ business separately. Contractual reinsurance is divided into relative reinsurance, in which the division between the assumption of risks (claims coverage) and the premium is identical, and non-relative reinsurance, in which the assumption of risk (claims coverage) by the reinsurer is not directly correlated to its share in the premium. Relative reinsurance is sub-divided into quota share contracts, in which the reinsurer undertakes coverage at a fixed portion of each claim in a certain segment for an identical fixed portion of the premium, and surplus contracts, in which the reinsurer undertakes coverage at a variable portion of any claim up to a predetermined limit for an identical portion of the premium. Non- relative reinsurance is sub-divided into excess of loss contracts, in which insurance is granted for single claims, where up to a certain predetermined residual amount the direct insurer incurs the cumulative damages, and above that amount the excess loss is incurred by the reinsurer, and into stop loss contracts, where the reinsurer indemnifies for a portion/ amount of damages in excess of the predetermined portion/ amount. In addition to contractual reinsurance, there is also facultative reinsurance, which is divided across a number of reinsurers.

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and apply for the entire lifespan of the covered policies issued during that period. In the life insurance sector, The Phoenix Insurance engages various reinsurers through relative reinsurance contracts, both for compulsory insurance and for optional insurances, for protection of the risk component in the life insurance portfolio only. Starting from mid-2005, a non-relative reinsurance contract is purchased, which protects from physical injuries, loss of life and disability due to catastrophic events. In the compulsory and property vehicle insurance sectors, The Phoenix Insurance undertakes "excess of loss" reinsurance contracts. In the general insurance sectors, The Phoenix Insurance undertakes the following types of reinsurance contracts: relative, excess of loss, and quota. In the health insurance sectors, The Phoenix Insurance undertakes quota-type relative reinsurance contracts, for protecting the risk components in the health insurance portfolio. A relative reinsurance agreement has been signed for a number of large-scale collective insurance policies. For more information regarding reinsurance, see Note 28 to the financial statements. 1.12.9 Suppliers and service providers The Phoenix enters into agreements with a large number of suppliers and service providers in different insurance fields, mainly claim settlement. These are selected on the basis of the nature and quality of their service, availability, and areas of expertise. The various types of agreements with these suppliers and service providers include payments according to all inclusive tariffs, by activity, according to a percentage of the risk, according to hourly rates and per opinion. These contracts are usually for indefinite periods of time and do not include exclusivity. The Phoenix also has IT agreements, with a range of hardware and software suppliers. The manner in which agreements are drawn up with those suppliers includes a fixed price for a project, hourly rates and agreed prices per unit. Due to the knowledge accumulated by suppliers in the course of providing services, a short-term dependence may develop on a particular supplier, as the replacement of IT service providers requires time and money. Such dependence may, for example, arise due to a need to complete a project within a limited time frame in response to regulatory changes or in a field in which the supplier’s accumulated knowledge provides that supplier with an advantage. 1.12.10 Actuarial responsibility and risk management The Phoenix's risk management system is founded on basic risk management and control principles and include involvement by The Phoenix's board of directors in managing risk, provision of tools for mapping, rating and assessing key risks and arranging for means for supervising and controlling such risks. The Control of Financial Services (Insurance) Law, 1981, determines that an insurer, including a company managing a pension fund, must appoint a responsible actuary for each field of insurance in which the company is involved and that the insurer and any pension fund under the insurer’s management must appoint a “risk manager”. The responsible actuary’s tasks include making recommendations to the Board of Directors and the CEO concerning the insurer’s level of insurance liabilities or concerning the actuarial balance in the pension fund managed by the insurer. Rules pertaining to the functions, powers and operation of responsible actuaries and risk managers, and the interactions between them have been detailed in a number of circulars published by the Commissioner. In 2012, the Solvency II regulatory directive is expected to come into force. The Solvency II directive regulates the capital requirements are risk management processes for insurance companies. Under the various circulars and letters to the market concerning the preparation for Solvency II, the Commissioner of Insurance required that companies initiate processes to guarantee organizational preparedness for implementing the proposed directive. The Phoenix is currently preparing for implementation of the directive according to the multi-year plan presented by the board of directors, and according to its 2011 work plan, and The Phoenix's board of directors monitors the progress of preparations for implementing the directive. 1.12.11 Property, plant and equipment Offices of The Phoenix Group, Derech Hashalom, Givatayim: The Phoenix Insurance holds the right to be registered as the owners of 15 floors of office space in 53 Derech Hashalom, Givatayim, with a total area of 18,745 square meters (gross), storerooms with a total area of 699 square meters and 308 parking spaces in an underground parking lot, which serve as The Phoenix's offices. According to The Phoenix's financial statements, the building’s depreciated cost amounts to NIS 192 million. As of the reporting date, certificates of completion are being issued for the building and the building is being registered in the condominiums registry. The Phoenix owns additional real estate assets with an immaterial adjusted value. Information Systems: The Phoenix has information systems which comprise hardware, software and additional equipment with an amortized cost at December 31, 2010 of NIS 536 million. In 2010, The

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Phoenix invested NIS 137 million in software and computers.The Phoenix's information systems- related current expenses totaled NIS 155 million in 2010, up NIS 30 million from 2009. This increase in current expenses stems primarily from increased depreciation of computers. The Phoenix’s IT department provides all IT services for The Phoenix in-house, and as necessary through subcontractors and various software suppliers. The Phoenix's IT infrastructure serves its employees throughout the country and provides The Phoenix’s pension funds with computer services and work environments using The Phoenix Group’s computer systems. The Phoenix Group’s central IT infrastructure is based on IBM UNIX computers and serves approximately 3,000 users simultaneously. The Phoenix’s IT center is in its main building in Givatayim. The Phoenix has a backup computing site in Netanya, which serves as a live backup site, including UNIX computers and data storage units. This site guarantees business continuity in the event that the main site goes offline. 1.12.12 Intangible assets "The Phoenix" name is a registered trademark. The Phoenix has trademarks for a number of brands and insurance products and operates databases registered as required by the Privacy Protection Law, 1981. These databases are vital to the running of The Phoenix business activities and include databases for the salary data of The Phoenix Insurance’s employees, life insurance, elementary insurance, policy expenses and claim payments. Through its employees and suppliers, The Phoenix develops software for in-house use and holds copyright for that software. In accordance with an agreement from August 2006 between The Phoenix Insurance and Excellence, Excellence granted The Phoenix Insurance the right to use “the Excellence” name for its “Excellence Invest” policies in consideration of the management fees stipulated in the agreement, for as long as the management agreement for management of the investment portfolios for the abovementioned policies remains valid. Furthermore, The Phoenix has recorded goodwill and surplus costs, mainly through the acquisition of Excellence, Prisma, and insurance agencies, to the amount of NIS 1,378 million. 1.12.13 Human capital A. Organizational structure The Phoenix is a holdings company and does not employ salaried employees. The Phoenix employees are employed by The Phoenix Insurance, with some employees being employed by the other investees. The CEO of The Phoenix also serves as CEO of The Phoenix Insurance and an additional subsidiary in The Phoenix Group, and answers to The Phoenix's Board of Directors. The Phoenix has the following main units: insurance segments - life insurance and long-term savings segment (including The Phoenix Pension and Provident); the general insurance and health segments; the customers division; and the headquarters and finance divisions. In addition to these divisions there are the claims department; the investments department; the IT division; the marketing and business development unit. The Phoenix's agency operations are coordinated by The Phoenix Agencies and by the Company's secretariat, which provide secretary services for both The Phoenix, The Phoenix Insurance, and additional companies in The Phoenix Group. The Phoenix's financial service operations are carried out through Excellence, which is a pubic company controlled by The Phoenix, which operates independently.

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B. Workforce at The Phoenix The following table provides details of The Phoenix workforce at December 31, 2010.

December 31, 2010 Management 19 Customer Division 819 General Insurance 76 Life Insurance and Long-term Savings 48 The Phoenix Pension and Provident 32 Health 39 Claims Department 195 Distribution Channels 389 Functional Headquarters, Headquarters and Finance Division, and 28 Other Headquarters Functions The Phoenix Investments 1 The Phoenix Insurance Agencies 1,646 Total for The Phoenix excluding The Phoenix-owned insurance 323 agencies and excluding financial services (Excellence) Financial Services (Excellence) 229 Insurance agencies controlled by The Phoenix 496 Total The Phoenix 2,694 . On December 31, 2009, The Phoenix had 1,483 employees (excluding Company-owned insurance agencies and excluding financial services - Excellence). The increase in employees in 2010 was mainly due to recruitment in the customer relations center and service departments in the customers division. These recruitments were aimed at improving the service given The Phoenix's agents and policyholders, inter alia, due to increased sales volume and the growth in operations. C. Benefits and employment agreements In accordance with the policies previously employed at The Phoenix, veteran employees are not signatories to any employment agreements whatsoever. Beginning in 2002, and after the Employee Information (Work Conditions) Law, 2002 came into effect, new employees are given a form listing their conditions of employment and as required by the law. New employees beginning work during 2004 were required to sign personal employment agreements which list their conditions of employment and the ancillary conditions, including social benefits and the employee’s rights and duties. The Phoenix’s employees are entitled to contributions, duly made to policies, pension and a central compensation fund. The majority of The Phoenix employees receive holiday bonuses (of one half of their monthly salary), paid twice a year. Furthermore, some of the Company's employees are entitled to a company car. Salary supplementation and employee remuneration are determined by The Phoenix's overall remuneration policy, which is determined by The Phoenix's Bard of Directors. D. Officers and senior management and option plans for employees and officers Officers and senior management staff are employed in accordance with personal employment agreements and benefit from of a range of remuneration methods, including wage increases and bonuses determined annually by The Phoenix's board of directors, principally according to business results. In 2007, The Phoenix adopted an employee and officer payment plan through which it can grant its employees and officers and those in the companies under its control, either directly or indirectly, at no cost, option warrants not listed for trading on the stock exchange. These options warrants are exercisable as ordinary shares in The Phoenix, each with a par value of NIS 1. In 2010, the option warrant allotment terms were changed as regards the rules for determining the base price for exercising the warrants. Furthermore,

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warrants were granted to 4 of The Phoenix's officers. On December 30, 2010, The Phoenix's board of directors adopted a compensation plan for The Phoenix's officers, based on the principles set forth in the Commissioner's circular for determining a company's compensation policy. The incentive package, which will come into effect starting 2011, is based mainly on the long-term results, The Phoenix's return on equity, and a series of individual parameters customized for each officer which are based on the board of directors' annual work plans. E. 2010 saw several changes in The Phoenix's senior management, which included changes in the composition of The Phoenix's board of directors, and personnel changes in some of The Phoenix's executive positions. Mr. Yahali Shefi served as CEO of The Phoenix and CEO of The Phoenix Insurance until May 31, 2009. Mr. Eyal Lapidot is serving as CEO of The Phoenix, The Phoenix Insurance, The Phoenix Investments and Finance, and other subsidiaries of The Phoenix Group. Mr. Lapidot's terms of employment went into effect on June 1, 2009, and will remain in effect for a period of five years. These terms include a monthly salary, social benefits, ancillary benefits, annual bonus, options, and reimbursement for expenses. For details regarding the terms of Mr. Eyal Lapidot's employment, see the detail according to Regulation 21 in Chapter D to this report. On July 21, 2010, Dr. Ehud Shapira's resignation as chairman of The Phoenix's board of directors (following his appointment as a director in Bank Leumi Ltd.) went into effect. As of the reporting date, a replacement has yet to be appointed in Mr. Shapira's stead. It is noted that under the settlement agreement signed in connection with the acquisition of Excellence, Mr. Roni Biram and Mr. Gil Deutsch completed their tenure as chairpersons of Excellence on December 31, 2010. As of the reporting date, a replacement has yet to be appointed in their stead. 1.12.14 Management of investments The Phoenix manages the following investments: 1. General insurance liability funds 2. Funds from life insurance policies with guaranteed yield 3. Equity and surplus capital 4. Funds from life insurance policies participating in the profits 5. Funds from members of pension funds 6. Funds from members of provident funds The monies for the different types of insurance liabilities are invested in a range of assets, according to the nature and type of liability and subject to the regulations on the manner of such investments, which determine, inter alia, provisions referring to the types of assets that an insurer is entitled to hold against the insurers various liabilities and various limitations and facilities adapted to the nature and types of the various liabiities. The Supervision Law and the provisions referring to the manner of such investments determine, inter alia, that the board of directors of an insurer shall appoint two investment committees. One committee shall manage the investment portfolio for the monies that will cover performance-based liabilities (monies belonging to members / policyholders – in the insurance company’s participatory portfolio) (the participatory investments committee). The second is the committee for the investment of the insurer’s equity and the investment of monies covering insurance liabilities, which are not performance-based liabilities (monies from general insurance, life insurance with a guaranteed yield, capital and surplus capital) (the "Nostro Investments Committee"). The Provident Funds Law and the Provident Funds Regulations prescribe methods for investments of savings as part of pension and provident activities, including the different types of assets, the limitations and the different investment frameworks. Investment management services in the Group are rendered through The Phoenix Investments. Accordingly, management agreements have been signed for investment management services for both member and nostro monies, and the operation of these investments in consideration for management fees. Such agreements have been signed between The Phoenix Investments and The Phoenix Holdings, The Phoenix Insurance, The Phoenix Pension and Provident, and The Phoenix Balanced. Investments are managed by a number of designated investment managers with separation between the management of the nostro monies belonging to The Phoenix companies and the management of the monies belonging to policyholders and members (in The Phoenix Insurance and The Phoenix Pension and The Phoenix Provident). The investment managers are supported

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by the internal economics department and use surveys and analyst reports from banks and investment houses in Israel and abroad. The Phoenix also engages in various financing operations, including various forms of commercial credit (debentures and non-marketable loans), with or without guarantees, structured financing including asset-backed debentures, other structured products, financial derivatives and hybrid assets, deposits and capital notes. In 2009, with the market's recovery from the economic crisis, efforts were directed towards new investments in non-maretable debt. This trend continued into 2010, focusing on issuing secured loans to the commercial sector. The Phoenix’s non-marketable credit portfolio, which includes non-marketable debentures, loans, and deposits, amounted to NIS 7.9 billion and NIS 8.1 billion at December 31, 2009 and 2010, respectively. The Phoenix makes specific provisions for doubtfull and bad debts so as to changing market conditions, and also employs internal controls so as to minimize the risks related to the extension of such credit facilities. In 2010, The Phoenix's investment policy focused on attaining surplus yields in each of the investment channels, while maintaining the relative proportion between the different channels. In each of the main investment channels - shares in Israel, foreign shares and Israeli debentures - yields exceeded the relevant benchmark indix, which led to over-performance as compared to the industry average. In the provident fund segment, yeilds also exceeded the industry average. However, in the pension segment, despite over-performance as comapred to benchmark indices, total yield was below the industry average. 2010 was characterized by continued recovery in the financial markets in Israel and abroad, continued decreases in yields and a reduction fo financial margins. In The Phoenix's nostro portfolios, the share component was increased selectively and duration changes were carried out in the debentures portfolio throughout the year. In member portfolios, the share component was increased and as of the latter half of the year the amount of higher-risk debentures was reduced due to decreased risk margins. In general, The Phoenix focused on expanding its loans and non-marketable credit portfolio and establishing the infrastructure for making real estate investments - as part of its investment management operations, The Phoenix seeks to expand its long-term income-generating real estate investments, in Israel and abroad. These activities are carried out through a direct investment in real estate controlled and managed by The Phoenix, and through a direct investment in real estate assets together with experts, mainly in those segments which The Phoenix's management believes to require expertise. The main segments in which The Phoenix operates are commercial real estate and offices. 1.12.15 Investments The Phoenix has investments in real estate, companies and a range of other assets. The major investments of The Phoenix include ownership of 41.42% in the public company Mehadrin Ltd, which is active principally in the agriculture industry, as well as ownership of 49% of the issued and paid-up share capital of Gama Management and Clearing Ltd. ("Gama"). Under a 2008 agreement signed between The Phoenix Investments and the shareholders in Gama, The Phoenix was also granted a call option for acquiring an additional 2% of Gama's share capital. The exercise period for the aforesaid option is until April 2011. Gama Management and Clearing Ltd. is a private company which engages, inter alia, in financing, discounting, clearing and management of credit card vouchers, in providing various types of credit facilities, in check clearing and factoring. Gama's main operations consist of credit card discounting services, which allow Gama's customers to sell goods against credit card payments and receive the sum of the transactions in cash. Furthermore, in recent years, The Phoenix Insurance has focused on acquiring agencies dealing in pension-related investments. These agencies include Shekel, Agam and Kela, which are some of the largest arrangement management agencies engaged mainly in the marketing and distribution of life insurance and long term savings and healt insurance. These agencies are held through The Phoenix Agencies, which is wholly-owned and controlled (100%) by The Phoenix Insurance. For details concerning these agencies' operations, see Section 1.12.5 above. 1.12.16 Financing A. The Phoenix finances its activities, inter alia, through external sources, including the issue of promissory notes and bonds, and through short- and long-term loans from banks and non- bank sources. The following table provides details of the average nominal interest rates for loans taken from bank and non-bank sources, valid during 2010, but not intended for exclusive use by The Phoenix:

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Average interest rate for for loans not intended for exclusive use by The Phoenix Deferred promissory Long-term Short-term Average Rate notes loans loans Banking sources* – CPI linked 4.58% 4.56% 5.05% 5.05% Banking sources – EUR linked 6.08% 6.08% Banking sources – non-linked 3.52% 5.23% 3.18% Non-banking sources** – CPI- linked 4.53% 4.24% 4.91% 4.00% Non-banking sources** - non- CPI-linked 5.49% 6.00% 4.73% 5.95%

* Including, inter alia, deferred promissory notes issued in August 2001 to institutional bodies, some of which were purchased by banks. ** Including bonds issued in 2007 to institutional entities, and including promissory notes issued by The Phoenix Capital Resources. B. Capital resources In August 2009, The Phoenix conducted a rights issuing of ordinary shares of NIS 1 par value for a total consideration of NIS 125.5 million. The Group exercised the full extent of rights offered it. C. Debt resources In August 2009, a special purpose company known as The Phoenix Capital Resources (2009) Ltd., which engages in raising funds in Israel for The Phoenix Insurance ("The Phoenix Capital Resources"), raised NIS 500 million through a prospectus, in which promissory notes (Series A) were offered to the public. Promissory notes are linked to the Israeli CPI, and bear an annual interest of 4.4% paid twice-annually each year between 2010 and 2018. The Phoenix Insurance undertook to meet the payment terms of the promissory notes (Series A) issued by The Phoenix Capital Resources. It should be noted that under the control permit, The Phoenix is subject to restrictions on the issue of "means of control". In September and October 2010, The Phoenix raised NIS 400 million in capital through the issue of debentures, half of which are repayable in one lump sum on September 30, 2022, (with an option for early redemption after nine years), bearing an annual interest of 3.6%, and linked to the CPI for August 2010; and the other half of which are repayable in one lump sum on September 30, 2020 (with an option for early redemption after 7 years), and bearing an annual interest of 6% (unlinked). The proceeds from the above bond issues was recognized by the Commissioner of Insurance as hybrid tier-2 capital for The Phoenix Insurance. D. Credit rating On August 25, 2010, Maalot upgraded its rating outlook for The Phoenix Insurance from negative to stable. Maalot further affirmed an ilAA rating for The Phoenix Insurance, and also affirmed the ilAA rating for its deferred promissory notes. Maalot also affirmed its ilA rating for The Phoenix. In November 2010, Maalot announced an Aa3 rating for The Phoenix Insurance's debentures (Series B and C). 1.12.17 Taxation See: Note 42 to the financial statements. 1.12.18 Restrictions and supervision of The Phoenix’s operations A. The Insurance Contract Law, 1981 (“the Insurance Contract Law”) The Insurance Contract Law mainly regulates the relationship between the insurer and the policyholder, including the status of the insurance agent, and also determines the main

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provisions in respect of the nature of the Insurance contract, the duty of disclosure and the results of non-disclosure, the insurance period and the terms for its termination or abbreviation, the status and rights of the beneficiaries, the provisions relating to the payments of the insurance premiums and their dates, provisions in the matter of changes in the risk of the policyholder, provisions for the manner of payment of insurance benefits including their prescription date, and various provisions relating specifically to the various types of insurance. B. The Supervision Law and its provisions The Phoenix and The Phoenix Insurance are subject to the regulations of the Financial Services (Insurance) Supervision Law, 1981 (“the Supervision Law” or “the Law”) and its provisions (“the Supervision Provisions”). The Supervision Law and the Supervision Provisions regulate, inter alia, the following matters: 1. Powers of the Commissioner of Insurance – According to the Supervision Law, the Commissioner of the insurance and savings capital market in the Ministry of Finance will be the Commissioner of Insurance. The Law determines the roles and powers of the Commissioner including empowering him to issue directives concerning methods of operation and management of the insurers, insurance agents, their officers and anyone in their employ, to ensure the proper management and preservation of the interests of the policyholders or clients and to prevent harm to the insurer’s ability to fulfill its obligations. 2. Business licenses in the various insurance fields – Engaging in insurance and insurance brokerage requires a license. The Supervision Law determines provisions in respect of licensing insurers and insurance agents, including the power to revoke licenses. 3. Holding means of control – The Supervision Law determines provisions for permits to hold the means of control of an insurer and insurance agency as well as provisions pertaining to prohibitions on material holdings in the long-term savings sector For information concerning the permit for controlling and holding the means of control in an insurer - The Phoenix Holdings Ltd. and its subsidiaries - issued by the Ministry of Finance Commissioner of the Capital Market, Insurance and Savings to Mr. Yitzhak Sharon (Tshuva) on December 30, 2010, see Section 1.6.4 above. 4. Supervision of insurance businesses – The Supervision Law determines various provisions in respect of supervision of insurance businesses, including provisions pertaining to restrictions on business management, provisions in the matter of organs and officers in the insurer, handover of reports and directions in the matter of separation of life insurance businesses from other businesses of the insurer. The Law also qualifies the Minister of Finance to enact regulations in various matters connected with supervision of insurance such as types of assets to be held by the insurer against liabilities and methods of their investment; duty of the insurer to hold insurance reserves and the manner of their calculation, operating as an overseas insurer; determining insurance terms for insurance plans and premiums and provisions in respect of maintenance of stability of insurance companies. 5. Provisions in respect of policyholders’ interests – The Supervision Law qualifies the Minister of Finance to enact regulations pertaining to preservation of the interests of policyholders, including the Commissioner’s power to investigate public complaints, provisions regarding the rates of premiums and other payments which the insurer may collect from the policyholders; provisions regarding terms in an insurance contract and their wording as well as provisions regarding the structure and form of an insurance policy. The following regulations were promulgated pursuant to the Supervision Law: A) Supervision of Insurance Businesses (Minimum equity required of an insurer) Regulations, 1998 ("the Minimum Equity Regulations") regulate the minimum capital required of an insurer, pursuant to the various definitions relating to the capital of the insurance companies. For further details see Section 1.12.2(B)(2) above. B) Supervision of Insurance Business Regulations (Methods of investing an insurer's capital and reserves and liability management), 2001 ("the Investment Methods Regulations") include provisions concerning the types of assets that insurers are permitted to hold against various liabilities, restrictions regarding an insurer’s investment in a subsidiary or investee, a holder of means of control in that insurer, an principal shareholder, another insurer or in any other corporation engaged in insurance brokerage.

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C) Supervision of Insurance Business Regulations (Methods for calculating provisions for future claims in general insurance), 1984, include regulations concerning the insurer’s obligation to hold insurance reserves, the manner in which they are calculated and provisions for pending claims. D) Supervision of Insurance Business Regulations (Report details), 1998, provide for the content, details and accounting principles used to draw up an insurer’s financial statements. E) Supervision of Insurance Business Regulations (Ways of separating accounts and assets of a life insurer), 1984 determine guidelines for the methods used to separate the accounts and assets of life insurance businesses from the insurer’s other insurance businesses, and separation of assets of life insurance businesses participating in profits from assets from all other life insurance business assets. C. Legislation Implementing the Bachar Committee Recommendations As explained in section 1.12.2(D), in July 2005, legislation was passed for the implementation of the Bachar Committee Recommendations. The following are the principal points of law for implementation of those recommendations: 1. Increased Competition Law: The definition of long-term saving assets and the determination of a market share ceiling (15%, about NIS 49 billion); the determination that the banks shall act solely in an advisory capacity (pension and investment advice); definition of the roles of the advisor (pension / investment) and marketer (pension / investment) and a clear distinction between the two; mandatory licensing for institutional employees; a ban on a union of employees or employers serving as a pension agent; higher requirements for fiduciary duties of an agent and advisor; closer supervision of insurers. 2. Consulting and Marketing Law: Firm distinction between a consultant and a marketer and the same licensing obligations for both functions; the determination that a pension insurance transaction can be executed only within an advisory or marketing capacity; the obligation to adapt the product to the client’s needs; the licensee’s obligation to provide the client with written documents explaining why the pension saving scheme is worthwhile, the advisor's recommendation, the obligation of due disclosure concerning conflicts of interest; obligatory documentation of advisory and marketing activities; the license holder’s obligations to trust and due care; the obligation to drawn up a written agreement between the advisor and the client; the obligation to maintain confidentiality between a client and an agent; monetary and/or criminal sanctions for the breach of obligations by a licensee. 3. Provident Funds Law: Firm establishment of an employee’s right to choose the fund in which his or her pension savings shall be invested; application of the principle of mobility between provident funds for payments and compensation; instructions on investment of the annuity fund monies; the obligation to collect distribution commissions from the member for pension advice/marketing; wide-ranging obligations to supervise the managing companies; civil and criminal sanctions D. Additional legislation: 1. Streamlining of Enforcement Proceedings in the Israel Securities Authority (Legislative Amendments), 2011, published in January 2011, seeks to streamline the enforcement of those laws entrusted to the Israel Securities Authority (the Securities Law, the Regulation of Investment Consulting Law and the Joint Investments in Trust Law). The Law adds two new enforcement mechanisms as well as various sanctions. 2. On October 19, 2010, the Increased Enforcement in the Capital Market Bill (Legislative Amendments), 2010, was published. This bill aims to guarantee the proper management of institutional entities and to safeguard public interest in savings and prevent damage to the institutional entities' ability to meet their obligations. The bill proposes changes to the current enforcement arrangements under the supervision laws, expanding the Commissioner's supervisory powers, and granting him administrative inquiry powers in order to investigate violations of the supervision laws. 1.12.19 Material agreements For details regarding the agreement pertaining to the acquisition of Excellence, see Note 14 to the financial statements.

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1.12.20 Legal proceedings As part of the regular course of business of The Phoenix in the insurance sector, The Phoenix is involved in a number of legal proceedings. Furthermore, at the reporting date, there are a number of motions pending for certification of class actions suits against The Phoenix. The exposure from these lawsuits, and in particular if The Phoenix loses these class actions, if certified, could have a material effect on the results of The Phoenix’s operations. As of the reporting date, there are four claims pending against The Phoenix which have been approved as class actions, and 14 applications for approval as class action. 1.12.21 Business objectives and strategy The Phoenix aims to position itself as a leading company in the various insurance segments and in the finance segment, inter alia, as regards innovativeness and service, to expand its operations and increase its market share and profitability. Furthermore, The Phoenix seeks attractive investment opportunities while regularly examining its investments in non-core segments, and the suitability of such investments to The Phoenix's goals and core investments. 1.12.22 Risk factors A. Market conditions – The general market condition has an effect on The Phoenix’s businesses. A recession, also caused by a deterioration in the security or global economic situation, could cause a decline in the volumes of deposits in the various long-term savings channels and even withdrawal of pension and medium-term savings (study funds) to meet present needs, increase in lost debts, reduction of the cover purchased in insurance policies, increase in the number of insurance events and claims (because of an increase in the number of break-ins and frauds), filing of claims on earlier dates, and increasing competition in the various segments of operation. B. Employment level – The national level of employment has a significant influence on The Phoenix business interests in the field of long-term savings, as it influences the allocation of funds to the various savings channels. Furthermore, the drop in the number of employed (an increase in unemployment) and in wage levels has a negative effect on the volume of new sales and cancellation rates in insurance portfolios. C. Market risks – Changes in the principle market risks, such as: share risks, interest risks, spread risks, currency risks, and inflation risks, may lead to the devaluation of assets held by The Phoenix. 1. Capital markets in Israel and around the world – A significant proportion of The Phoenix assets portfolio is invested in securities in capital markets in Israel and other countries and in financial derivatives which typically suffer from fluctuations caused by market risks and political and economic events in Israel and around the world. The Phoenix Insurance manages the negotiable assets held, inter alia, against insurance liabilities, while taking into account market risks and the nature of the liabilities, such as linkages and the yield required. Sharp fluctuations in investment asset prices are liable to affect the reported value of the negotiable securities portfolio on The Phoenix’s capital and on its reported profits. In view of the investments in financial and other assets, changes in the capital markets and the value of capital market assets have a significant influence on The Phoenix’s results, both in terms of profits stemming from profit-sharing managers’ insurance policies and in terms of The Phoenix’s nostro portfolios. In addition, a crisis in the capital markets in Israel and abroad is liable to cause the collapse of key financial institutions and this increases the risk in The Phoenix’s agreements with these entities (counterparty risk). 2. Interest risks – Losses which could arise from changes in the interest curves in Israel and abroad. The Phoenix Insurance holds linked, shekel and foreign-currency debentures against its insurance liabilities. Therefore, a rise in the interest curves in Israel and abroad will result in losses in the portfolio caused by the drops in debenture prices. Furthermore, increased interest rates may increase proceeds in the long-term savings segment in general and in the guaranteed-yield policies in particular. 3. Spread risk – The loss that is liable to be generated as a result of changes in the spread risk between concern-related debentures and government bonds (no risk). Spread risk changes are meant to reflect the changes in accumulated borrower insolvency and changes caused by market volatility. 4. Exchange rate risks – The Phoenix Insurance’s investments abroad are exposed to changes in the exchange rates for those currencies in which the investments were made

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and principally, changes in the rates for the US dollar, euro, sterling and yen. Moreover, changes in exchange rates affect the value of assets in foreign currencies included in The Phoenix’s investment portfolio, insurance liabilities and activities conducted with reinsurers (when the cover price is in dollars). 5. Inflation risks – Among other things, The Phoenix holds non-linked financial assets and a rise in the CPI will result in the erosion of their value. Moreover, as the majority of The Phoenix's insurance liabilities are CPI-linked, holding non-linked assets may have a negative effect on The Phoenix's profitability in the event of an increase in the CPI (see also ALM risks below). 6. ALM risks - Risks due to a discrepancy between insurance liabilities and assets held by The Phoenix. Such a discrepancy may arise, inter alia, from timing differences (duration differences between liabilities and assets), in scope (a liabilities value which is materially higher than the value of assets), in currency (assets and liabilities held in different currencies), and in linkage to the CPI. The Phoenix is exposed mainly to inflationary risks (and duration differences in life insurance and long-term savings). D. Liquidity risks – Inability to sell assets immediately or without having a detrimental effect on their value due to low marketability may lead to losses upon realization of such assets. The Phoenix Insurance holds, inter alia, non-marketable assets and low-marketability assets. These holdings include corporate bonds, loans, non-marketable shares, low-marketability shares and alternative investments. The marketability issue is exacerbated in times of crisis, when deteriorating market conditions have a negative effect on the liquidity of assets. E. Credit risks – The risks for financial losses due to counterparts not meeting their obligations or a downgrading of their credit rating. The Phoenix invests part of its assets in the provision of credit, loans and mortgages to corporations, agents and various other borrowers; in various types of deposits in the Israeli banking system; in negotiable and non-negotiable securities; in financial instruments such as credit trusts, CDOs and more. Furthermore, The Phoenix is exposed to the risks of the reinsurers with which it has signed insurance contracts. Defaults on obligations by counterparts to the agreement as a result of insolvency, and impairment of the debt due to a drop in a borrower’s credit rating or in their repayment ability, will have an adverse effect on The Phoenix profits. F. Changes in public preferences – The public’s tendency to choose substitute products in the different fields (pension, provident funds, or executive insurance) or the public’s tendency not to undertake insurance policies may have an effect on demand for The Group’s products and its profitability in the different fields. G. Regulation – The Phoenix’s activities are subject to extensive regulatory demands. There is a continuing trend towards greater strictness and the addition of more regulatory demands as well as stronger enforcement of these demands. Non-compliance with regulatory demands might result in a range of sanctions and damage to the Company’s goodwill. These changes have an effect on financial reporting, the Company’s operations, and its profitability. Some of The Phoenix Group’s companies operate in accordance with permits and licenses granted to the companies in accordance with the law by the Commissioner of Insurance. Non-compliance with the license conditions might result in sanctions or even cancellation of the licenses. Furthermore, regulation in the insurance industry has a significant effect on the premiums collected for the different products. The provisions in law, instructions and agreements pertaining to the structure of savings in the economy and principally, those pertaining to pension savings, including the associated tax implications, have an effect on the volume of activity in the market and the substitutability of the different products, including their portability. As a result, these provisions affect both the life insurance and long-term savings portfolio of The Phoenix Group's companies, and their future sales. The Phoenix's insurance agencies are subject to regulatory directives, and changes in these directives may impact their operations and profitability. In addition to the regulation in the insurance and long-term sectors, The Phoenix is subject to the regulatory requirements of securities laws and Companies Law and noncompliance therewith is liable to generate various sanctions as well as damage to goodwill. As The Phoenix is controlled by the Company, it may be affected by the Commissioner of Banks in Israel's Proper Conduct of Banking Business Directives. These include, inter alia, restrictions on the scope of loans that a bank in Israel may issue to a single borrower, to the six largest borrowers and to the group of largest borrowers in the banking corporation (as these terms are defined in the above directives)

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The Phoenix Insurance is subject to equity adequacy requirements. Low equity levels (although conforming to equity adequacy requirements) may have a negative impact on the Company's operations and its ability to insure new businesses. In 2009, the minimum equity requirements for insurance companies were increased, and the rules for recognition of tier-1 and tier-2 equity were made more stringent. As part of the implementation process for the Solvency II directive, insurance companies may be required to supplement their equity. H. Legal precedents – The Phoenix is exposed to legal decisions that might constitute binding legal precedents in reference to insurance activities, change the scope of The Phoenix liabilities and incur unexpected costs for insurance policy transactions. I. Claims and class actions – The Phoenix is exposed to numerous claims in the context of the Company’s insurance activities (such as investments and extension of credit), and in particular is exposed to those lawsuits with the potential to become class actions, and The Phoenix might find itself obliged to pay very considerable sums. At the reporting date, The Phoenix Insurance is party to legal proceedings, including class actions, which may lead to its obligation to pay material amounts. J. Competition – Intensified competition in those fields in which The Phoenix is active might have a detrimental effect on The Phoenix’s profits. Increased competition might arise from fiercer competition between existing competitors; the entry of new competitors, or the entry of new distribution channels. Competition has an effect in terms of market share, product tariffs and The Phoenix’s costs. K. Policy retention – Activities in life insurance, provident funds and pension funds segments are vulnerable to policy cancellations and redemptions during the policy period. The ability to retain the existing client portfolio depends, among other things, on the terms of the policy, fund or trust as appropriate, the terms offered by competitors, the policyholders’ ability to transfer their money, market conditions, marketing activities and more. The Phoenix’s ability to retain its existing life insurance portfolio depends, inter alia, on its ability to achieve favorable results compared with its competitors. L. Operating risks – During its business activities, The Phoenix is exposed to many operating risks, such as failure of internal systems, failure of computing and information systems including a lack of information security, human error (employees, agents and suppliers), fraud, computer crime and external damage to The Phoenix (such as earthquakes). Specifically, a significant proportion of The Phoenix activities (business activities, regulatory demands and operations) rely on computerized information systems. Therefore, a lack of sufficient infrastructure or alternatively, failures in The Phoenix’s computing systems might cause significant damage. Actuarial errors have a significant effect on the adequacy of The Phoenix's rates and insurance reserves. Furthermore, possible errors in adapting reinsurance coverage to that given to policyholders, and in particular in large-scale insurance policies, expose The Phoenix to potential losses. M. Insurance risks – The Phoenix is exposed to risks associated with pricing and the assessment of insurance liabilities. The insurance policies sold by the Company cover a range of risks, such as death, life expectancy, disease, natural disasters and theft. Pricing of policies and the assessment of insurance liabilities are based on past experience, assessment of the legal situation, and assessment of existing risks and changes therein. Changes in risks, incident frequency and severity, and the legal situation may affect the results of The Phoenix's operations. Mistakes in the costing of liabilities could result from selection of the wrong pricing model (model risk), use of biased parameters in the pricing model (risk parameters) and an increased rate of cancellations of the existing policies. N. Reinsurance – The Phoenix buys reinsurance on international markets. The Phoenix ability to buy reinsurance on good terms is influenced by the company's performance in particular and global reinsurance capacity (dependent upon among other things on reinsurers’ stability and the incidence of catastrophic events around the world). Changes in the cost and scope of reinsurance offered in these markets have an influence on The Phoenix profits and its ability to expand the insurance volume and commit to certain insurance liabilities. Reinsurance does not absolve The Phoenix from its obligations towards its policyholders in accordance with the insurance policies and for that reason, reinsurers’ financial stability and credit ratings influence the business results of insurance companies. Therefore, non-fulfillment of a reinsurer’s commitments to The Phoenix might have a significant effect on the Company’s ability to meet its obligations to its clients (for example, in the event of a catastrophe).

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O. Damage to goodwill – The Phoenix’s goodwill and reputation constitute important factors in the scale of The Phoenix's operations and profitability, when The Phoenix conducts business with new clients and in the retention of existing clients. Embezzlement, legal proceedings against The Phoenix and irregular or illegal activities might damage the Company’s good name. P. Exposure to the financial integrity of The Phoenix, the value of its shares or its rating – Harm to the financial integrity of The Phoenix, the value of its shares or a lowering of its credit rating could make it difficult for it to operate and affect the future terms of its capital and debt raising insofar as needed which might be necessary in order to comply with capital adequacy requirements. 1.12.23 Risk factors table The following table gives details of the principal risk factors to which The Phoenix is exposed and their potential degree of influence on its business:

Effects of risk factors on The Phoenix's Risk factor activities Major Moderate Minor Macro risks Economic situation 9 Employment levels 9 Market risks 9 Liquidity risks 9 Credit risks 9 Industry risks Regulation 9 Legal precedents 9 Competition 9 Portfolio retention rates 9 Reinsurance 9 Insurance risks 9 Changes in public preferences 9 Risks specific to The Phoenix Damage to goodwill 9 Damage to The Phoenix's financial integrity, share 9 value, and rating Operating risks 9 Lawsuits and class actions 9

The degree to which the risk factors affect The Phoenix is based on the assessments made by The Phoenix’s management, while taking into account the scope and nature of the Company’s activities at the date of this statement. Changes in activity characteristics and/or market conditions might also change the degree of the effect.

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1.13 The Insurance segment in the U.S.

Delek Group's operations in the insurance sector in the U.S. was acquired in December 2006 for a total consideration, including transaction expenses, of USD 298 million, which was paid upon completion of the transaction. The following is a chart of the primary holdings in the insurance sector in the United States.*

Delek Group

100%

Delek Finance US Inc.

99.97%**

Republic Companies, Inc. (Republic)

Holdings in various companies in the field*

* All the held companies also controlled companies, and are consolidated in the financial statements ** The balance of Republic is owned by senior officers of the Company.

1.13.1 General information on the segment of operations A. Structure of segment of operations Republic Companies Inc. ("Republic"), an insurance holding company that was formed in Delaware, holds several subsidiaries and insurance agencies, mainly involved in property and general insurance. The company operates through a network of independent insurance agencies in the states of Texas, Louisiana, Oklahoma, Arkansas, Mississippi, California, and New Mexico. In addition to these states in which Republic runs regular operations, Republic also holds 45 additional insurer licenses in other states. Such licenses allow Republic to collaborate with some of the largest insurers in the segment who wish to expand their activities to additional states, and therefore find it convenient to utilize the licenses held by the company (in other words, Republic operates as front for said companies). Every year, contracts are usually signed with no more than a few companies. Republic has been operating under that name in the US insurance segment, since the turn of the twentieth century. Unless stated otherwise, in this chapter, the terms “the Republic Group” or the “Group” will be used to describe Republic and its subsidiaries and affiliates. The Republic Group classifies its operations under four categories: 1. Personal Lines – Insurance agents and agencies selling Republic insurance policies for homeowners and vehicle owners (“Personal Insurance Lines”). 2. Commercial Lines – Insurance agents and agencies selling Republic property insurance policies, motor liability insurance policies and workers' compensation policies to small and middle size businesses (“Commercial Insurance Lines”). 3. Program Management – Managing General Agencies (underwriting agencies) (“MGAs") which offer, alongside the Republic Group's standard insurance products, additional insurance products intended to segments and entities with special characteristics that

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are incompatible with the usual risk profiles provided by standard insurance policies. Unlike operations in the personal and commercial insurance lines, MGAs in the Program Management segment independently issue policies under the Republic name, or under the names of its subsidiaries and affiliates, exercising their discretion in respect of the terms and prices of the policies, wherein the reinsurance terms are established by mutual consent. Republic usually bears only a small part of the total liability (20% to 40%) and it is agreed that the agencies will handle the insurance claims while Republic supervises current claim settlements. 4. Insurance services – Insurance services for insurance companies (“Insurance Services”), involve cooperation with insurance companies not affiliated with the Republic Group, by providing fronting services allowing these companies to use the Republic Groups licenses and rights in the areas in which it owns licenses, in return for fronting fees, and subject to signing reinsurance agreements with these companies. Republic assumes liability for settling policyholder claims, but it is fully backed by reinsurance with said insurance companies. This segment also includes other operations and holdings ("Insurance Services). Property and liability insurance provide protection for predetermined incidents such as damage to property and third party claims. A distinction may be made between personal insurance lines (i.e. personal policies) and the sale of property and liability insurance in commercial insurance lines, i.e., (business policies). The Republic Group operates in both markets. Furthermore, a distinction may be made between the standard (admitted) market and the non-standard (non-admitted) market. In the admitted market, the policies and prices are usually supervised and the cover tends to be standard. In this market, the Republic Group focuses on the less competitive market segments, in which the large insurance companies are less involved due to factors such as type of business, location, nature of cover or size of policy premiums. Most of the Republic Group's operations, in all lines, are concentrated in the admitted market. The non-admitted market focuses on risks that are difficult to estimate and are covered by more flexible policies and prices. The cover in this market is usually unsupervised. The Republic Group is mainly licensed to operate in the non-admitted market, in vehicle insurance and liability insurance lines, especially Workers' Compensations. The reserves for such claims are also influenced by this type of operations, as they are usually calculated on a short-tail basis, except for reserves calculated for some of the liability liens that are naturally long-tailed. The Republic Groups does not operate in the health insurance and life insurance segments. For further particulars regarding the Republic Group's lines of operation, see section 1.13.2 below. The table below presents financial information pertaining to the Republic Group's main lines of operation. The operating income relates to the total income less claims, acquisitions and operating expenses but does not include interest expenses on debts, the non-controlling interest and capital gains in companies which are not consolidated, (data are presented in accordance with the US GAAP standards, in USD millions)1:

1 The figures, pursuant to the US GAAP are not materially different from the figures included in the business results of the Delek Group pursuant to the IFRS.

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For the Year ended December 31, 2010:

Insurance Gross premiums Investment Total Operating premiums earned results Other revenues profit1 Personal 213.8 150.9 12.0 1.6 164.5 17.8 insurance Commercial 129.3 88.4 10.1 0.4 98.9 5.7 insurance Program 223.3 75.7 7.3 1.7 84.7 6.6 Management Insurance 241.9 0 2.46 9.6 12.2 2.6 services Consolidated 808.3 315.0 32 13.3 360.3 32.7

For the Year ended December 31, 2009:

Insurance Gross premiums Investment Total Operating premiums earned results Other revenues profit2 Personal 221.3 173.3 13.5 2.5 189.3 (11.9) insurance Commercial 132.0 97.6 11.6 0.4 109.6 (10.3) insurance Program 268.1 94.3 8.0 3.5 105.8 9.1 Management Insurance 289.8 0 3.5 10.5 14.1 6.5 services Consolidated 911.2 365.2 36.6 16.9 418.8 14.0

For the Year ended December 31, 2008:

Insurance Gross premiums Investment Total Operating premiums earned results Other revenues profit3 Personal 210.6 158.9 3.1 1.6 163.5 (36.1) insurance Commercial 131.6 96.5 2.7 0.4 99.6 (6.3) insurance Program 269.6 119.8 2.2 4.8 126.9 2.2 Management Insurance 218.3 0 1.3 8.8 10.1 4.5 services Consolidated 830.0 375.2 9.3 15.6 400.1 (35.7)

In 2010 Republic's net premiums amounted to USD 803.3 Millions, as compared with USD 911.2 million in 2009 – a decrease of 11.3%. The Program Management and the

1 Operating profit refers to the profit before financing expenses and taxes and before one-time items and non- controlling interest 2 Operating profit refers to the profit before financing expenses and taxes and before one-time items and non- controlling interest 3 Operating profit refers to the profit before financing expenses and taxes and before one-time items and non- controlling interest

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insurance services lines were main source of the decrease in premiums. Most of the decrease seems to have been the result of the general slowdown in the US business section. The private, vehicle and property insurance lines have only decreased by 3%, and this too was a consequence of changes adopted in the underwriting policy, the results of which are prominently displayed in the company's balance for this line. It may be assumed that this policy, which was adopted in the course of the year, will also influence the results in this line for 2011. Fronting premiums in the insurance services line decreased by 16% in the course of 2011, and the decrease was mainly the result of an overall decrease in the business operations of the companies that collaborated with Republic in marketing these types of policies. The gross premiums in the Program Management line (underwriting agencies) have also decreased by about 16.7% in the course of 2010, mainly as a consequence of the decrease in premiums attributed to the workers compensation program in California. This decrease resulted from the economic slowdown in California, which caused many businesses to downsize their operations. In 2010, the gross premiums in the commercial insurance line decreased by about 2.1%. Considering the strong competition in the insurance market and the general slowdown, a decrease of no more than 2.1% constitutes a significant achievement for Republic, when compared to its competitors. This line continues to lose because of the strong competition and decrease in business activities. Republic is taking steps to optimize this portfolio. Republic's Share premiums in 2010 amounted to USD 333.6 million (deducting the cost of reinsurance), as compared to USD 326.6 million in 2009 – an increase of 2.2%. The increase in Share premiums, while the gross insurance premiums decreased, is attributed to the Quota-Share reinsurance agreement that encompasses 20% of Republic's private and commercial insurance lines, which was in effect during the period June 2009 to May 2010. In 2009, net premiums amounted to USD 911.2 million compared with USD 830.0 million in 2008, in other words, an increase of 9.8%. Although prices in the US insurance market continued to fall, particularly in commercial sectors, growth in the commercial insurance lines continued thanks to the inclusion of new products such as new policies for private car insurance and the expansion of a new plan for public entities in the commercial insurance lines, in addition to expanding into new geographic regions. The real growth was in the Program Management and insurance services lines. The following factors contributed to Republic's continued premium growth in 2009: − Continued growth from a new car insurance plan and insurance plans for low-value housing in Texas and in other States, and in addition, further growth in the volume of premiums in Mississippi, Arkansas and Arizona due to the acquisition of two general insurance MGAs in 2007 and 2008. − In the commercial segment Republic recorded continued growth in Louisiana, Arkansas, and Mississippi, a fact that prevented any significant change in premium levels compared to 2008, despite the decline in market prices in 2009 and conservative underwriting practices in the commercial agriculture line (farms and ranches), which decreased the activities in this line. − The Program Management segment remained mostly stable in 2009. The expansion of insurance plans in the workers’ compensation segment in California offset the loss of premiums from the termination of a large-scale plan of an MGA for commercial vehicles and liability plans for small business customers. The terminated plan was converted to a fully reinsured plan in the insurance services line, although with a lower premium turnover. − The premiums recorded in the insurance services segment (front policies) increased by 32.8% in 2009. Most of this growth arose from the transfer of operations from the terminated plan, which previously belonged to the Program Management line. Nonetheless, growth also continued in the private vehicles program of this line. − Republic's 2010 results are the best results in the last three years, with an operating profit or USD 32.7 million as compared with USD 14 million in 2009, and an operating loss of USD 35.7 million in 2008. The net income amounted to USD 18.8 million as compared with USD 6.7 million in 2009. − The increase in operating profits and net profit in 2010 mainly arose from a significant improvement in the underwriting results of personal insurance, which

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combined more conservative underwriting with a decrease in the scope of claims arising from the 2009 weather damages. − The 2010 results could have been even better had the company been less conservative and increased its reserves for contingency claims owing to the predicted worsening in contingent claims from previous years (mainly as a consequence of weather damages). − Exposure to weather risks − Republic's operation reflect a relatively high risk profile for weather risks, owing to the composition of the insured portfolio (most of it property) and the geographic area in which the company operates. For this reason, at the end of the year, the company's management began operations to decrease its exposure to weather risks, mainly through diversifying its marketing channels and products portfolio. The company is also considering expansion into geographic areas where the weather risks are lower. − 2010 was the best year as regards the scope of claims arising from weather damages - about USD 50 million (before reinsurance). In the year 2009, by comparison, claims amounted to about USD 80 million, while in 2008 they were USD 241 million. As regards reinsurance, the data are: 2010 – USD 23 million; 2009 – USD 57 million; 2008 – USD 79 million. The assets allocated to the various insurance lines as at 31 December for the years 2010 and 2009 (in accordance with the US GAAP standards, in USD millions) were1:

2010 2009 Personal insurance 376.8 390.1 Commercial insurance 269.5 263.5 MGAs 498.9 499.9 Insurance services 361.9 368.1 Consolidated 1,507.1 1,521.6

B. Legal restrictions, standardization and special constraints 1. Regulations applicable to the Republic Group due to its holdings in insurance companies and agencies: the Republic Group is the parent company of several insurance companies and agencies and is subject to the laws of the states in which these companies are registered, in particular, Texas, Oklahoma, Arizona, and California. In general, these laws require registration at the insurance departments of the states and reporting of the operations of the Group's companies. Furthermore, material transactions between the Group's companies including the reinsurance and insurance services agreements, are required to be fair and reasonable, and if these are material transactions or relating to specific categories, then they also require prior notice and approval from the local insurance department. 2. Changes of control: Insurance companies are subject to provisions limiting the acquisition or transfer of control. A potential buyer interested in acquiring control of an insurance company or agency requires prior written approval from the insurance department of the state in which the insurance company or agency is registered. The approval takes into consideration factors such as the financial strength and plans of the applicant. In view of the aforesaid, the Republic Group is not free to sell and/or transfer control of the companies it controls without receiving the appropriate approvals, and even control changes within Republic itself cannot be made without the appropriate approvals. 3. The National Association of Insurance Commissioners: The National Association of Insurance Commissioners (“NAIC”) is an organization formed by insurance commissioners of the various states to discuss and formulate policy in respect of

1 The total assets allocated to insurance lines pursuant to the US GAAP are not materially different from the total assets pursuant to the IFRS.

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regulation, reporting and accounting for insurance companies. NAIC has no legislative authority, but it is influential in determining the insurance laws of the various states. The association published recommendations for laws and regulations presenting minimum standards for regulation of insurance. Most states have adopted these recommendations in state legislature, including the NAIC rules for minimum capital in respect of their investments and operations. Pursuant to the Sarbanes-Oxley Act of 2002, the NAIC proposed additional standards for insurance companies, such as corporate management transparency, auditor independence and especially the implementation of some of the provisions of Section 404 of the Sarbanes-Oxley Act regarding internal auditing of financial reporting. These requirements came into effect in 2010. Addition risk- management rules and provision for conforming to equity requirements are currently being implemented. 4. Legislative and regulatory changes: From time to time, legislative and regulatory changes have been proposed that could adversely affect the insurance industry. Among others, the proposal of a federal insurance law is under discussion, which will be added on top of the current state laws, as well as proposals to apply NAIC rules to parts of state legislature. The process is expected to commence in 2011, and is part of the general trend of increased regulatory intervention in the business processes of the insurance segment. 5. Restrictions on policy terms: In 2002, the Terrorism Risk Insurance Act (TRIA) was enacted in response to the uncertainty that prevailed in the insurance and reinsurance markets following the terror attacks on the World Trade Center in New York. The act established a federal assistance program aimed to help the commercial insurance industry to cover claims relating to future terror-related losses and requires insurance companies to offer underwriting cover for damages and losses caused by certain terror acts. As a consequence of this law, the Republic Group is required to include damages caused by acts of terror in its insurance policies. In December 2007, TRIA was extended until the end of 2014, with certain modifications. Future federal and state legislation relating to insurance or reinsurance of terrorism may have an adverse effect on the revenue or financial position of the Republic Groups. 6. State regulation: The state insurance commissioners in the United States have broad powers to regulate the operations of insurance companies. The main purpose of these regulatory powers is to protect the policyholders. The extent of regulation varies from state to state, and could include, for example, business licensing, accreditation of reinsurers, supervision of business integrity and approval of policies and premium rates. Regulation also includes the obligation to file financial statements prepared in accordance with the accounting principles and requirements of state insurance departments, which will audit these statements. As part of the broad authority vested in them, state insurance commissioners may determine establish regulations for local issues or events. For example, for a certain period after Hurricane Katrina, the state of Louisiana prohibited insurance companies from canceling insurance policies when the reason for such cancellation was nonpayment of premiums by the policyholders. 7. Periodical audits by state insurance departments: State insurance departments are entitled to conduct periodical audits for various purposes, such as review of an insurance company’s financial position, operations and transactions with related parties. Statutory Accounting Principles (SAP) are accounting principles intended to help insurance inspectors supervise the solvency of insurance companies. Unlike the GAAP accounting principles, the SAP principles focus on valuation of the assets and liabilities of insurance companies in accordance with the relevant insurance laws. The SAP principles that were adopted in part by insurance commissioners in Texas, Oklahoma and Arizona, determine, inter alia, the retained earnings of the companies affiliated with the Republic Group, and therefore also have an effect on the dividends they are allowed to distribute. 8. Restrictions on dividend distribution: In Texas and Oklahoma, state insurance departments are required to approve the distribution of dividends if the dividend, together with all the dividends declared or distributed in the preceding 12 months, exceeds the greater of: (1) 10% of regulatory capital or policyholders' surplus (which is the SAP equivalent of GAAP equity) as at 31 December of the year preceding the distribution; or (2) 100% of the statutory earnings for the calendar year preceding the year in which the scope of the dividends to be distributed was determined. The Arizona insurance department must approve the distribution of dividends if the dividend, together with all the dividends declared or distributed during the preceding 12 months,

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exceeds the lower of the following: (1) 10% of regulatory capital as at 31 December of the prior year; or (2) 100% of net investment profits for said calendar year deducting capital gains. Furthermore, all Group subsidiaries and affiliates may only distribute dividends out of their retained earnings. It should be noted that there are also contractual restrictions prohibiting Group companies from distributing dividends if they are in breach of terms of debentures or loan contracts. The minimal capital limitations are also being considered. 9. Guaranty associations: In Texas, Oklahoma, Arizona, and other states, property and loss insurers are required to be members of Guaranty Associations that are intended to cover the cost of payments to policyholders on account of liabilities incurred by defaulting insurance companies. 10. Participation in obligatory insurance plans: Similar to Guaranty Associations, the Republic Group is required to participate in obligatory insurance plans for individuals and entities which otherwise would be unable to afford insurance, and to set aside funds for these plans. At the report date, to the best of Republic's knowledge, it is not in breach of any of the applicable laws. C. Changes in the scope and profitability of operations in the segment The property and liability insurance segment is given to cyclical fluctuations in the pricing and availability of insurance cover. Markets with surplus insurance capital may face fierce competition over prices. They may be forced to provide overly extensive insurance coverage, and suffer erosion of underwriting discipline and deteriorating operating results. Such market conditions would typically lead to a period of reduced coverage, after insurance companies leave fiercely competitive and unprofitable product lines or reduce their operations in such lines. Insurance companies then tend to implement more stringent underwriting discipline, increase their premiums and issue insurance policies with more restrictive terms. The insurance market in general does not necessarily operate in this or any other specific manner, and sometimes a certain segment may boom while another busts. The Republic Group endeavors to minimize the impact of such cyclical fluctuations by expanding its operations into geographic and demographic segments where competition is weaker and where there is a lower supply of insurance services and products. In 2004 and 2005, the property insurance market was significantly impacted by hurricane damage, including hurricanes Katrina and Rita which significantly impacted the regions in which the Republic Group operates (for further information in this matter see Section 1.13.19 below). In 2008, four rare tropical weather events struck Texas and Louisiana, including three hurricanes, Ike, Gustav and Dolly, all in the third quarter of 2008, and this was after the record Texas and Oklahoma weather damages (hail and storms) in the spring of 2008. Between 2003 and 2007 the Republic Group showed profits due to several initiatives including redesign of the personal products line, re-underwriting of the commercial insurance line, Program Management plans, and a focus on semi-urban, rural and small- to medium-sized town markets. Nevertheless, 2008 was an extremely fickle year, with record weather damages, in combination with a global economic crisis that had a significant effect on the value of the investment portfolios, because of the underwriting and operating losses sustained by many insurers. The global recession continued in 2010. While the financial markets recovered in 2009, with adequate results that continued in 2010, unemployment remained high and consumption has not yet returned to previous levels. Weather related losses were lower than the past average and non-weather related losses increased as a result of suspect fire and liability claims. Republic is taking measures to change the mix of its operations in order to vary and spread its focus on property insurance to types of insurance that focus on liability, aiming to balance its insurance portfolio. These measures were evident in the significant increase in work compensation plans in the Program Management line in the course of 2009, but the economic slump has led to a decrease in the work compensation plans in 2010. Should the economic crisis continue or worsen in 2011 or beyond, it may adversely affect the operations of insurance companies, including Republic. The implications of the economic crisis include higher unemployment, business and private bankruptcies, foreclosures on assets, damage to the financial robustness of reinsurers and reinsurance capacity, and an increase in reinsurance premiums. All these could have negative implications for the scope and profitability of operations.

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D. Market developments There were no significant market developments in the course of 2010, except for continued economic uncertainty, which continues to negatively impact Republic's premiums and operations in all insurance lines. Even though the financial markets stabilized in 2009, and continued to do so in 2010, market volatility persists and insurance sector evaluations continue to be low. This situation continues to affect the insurance sector in terms of the value of investment portfolios, harm to investments, lower yields, less liquidity, harm to intangible assets and goodwill, and limited access to capital markets. The unemployment and the many bankruptcies affect the premiums, and indirectly also the damages, as a result of the higher moral risk (i.e., the risk that a policyholder will fabricate a fraudulent or unlawful insurance claim). Though no great hurricanes occurred in North America in 2009, the substantial effects of the two large hurricanes, Ike and Gustav, and the smaller hurricane Dolly, which occurred in 2008, continue to impact the results of Republic's operations, as expressed in higher reinsurance premiums. Historically, after large weather catastrophes, reinsurers have been able to raise additional capital from public offers for sale. However today, in view of the crisis in capital markets worldwide, the only source of capital is from organic growth through higher reinsurance premiums. Even though access to new capital is more limited, the insurance sector manages to maintain record levels of capital. As a result, insurance premiums continue to be low, competition is fierce and the pressure on underwriting discipline is high. Most market analyses do not foresee changes in these market conditions until 2012 and beyond. E. Key success strategies in the insurance operations sector, and the changes taking place in the industry The highly competitive and intensely regulated insurance industry is divided into numerous insurance branches and different insurance populations. The Republic Group regards the following as critical success factors in its sector of operations: 1. Know-how and experience – Operating an insurance business requires, among others, extensive familiarity and ties with different entities operating in the area, including MGAs and independent insurance agents, a solid reputation with policyholders and a deep understanding of the market conditions. In view of the above, know-how and experience in the sector of operations are critical success factors and the Republic Group relies on its many years of experience and know-how in its areas of operation. 2. Focus on less-competitive insurance segments – In view of the competition in the insurance industry, including with major insurance companies with greater resources than the Republic Group, a focus on under-served insurance markets that have been neglected or ignored by larger companies and where Republic’s local knowledge allows the Republic Group to compete more effectively against its larger competitors. 3. Reducing operations in competitive sectors – Reducing operations in sectors or products where other, stronger insurers are active (such as auto insurance), and expanding operations in sectors where the company has a competitive edge (such as homeowner insurance). F. Main entry and exit barriers of the insurance operations sector, and their changes The key entry barriers to the industry are the various licensing requirements including greater equity requirements, the need to establish marketing systems or communication systems with other agents, and reputation. The main exit barriers are long-term commitments to policyholders, commitments to insurance agents and companies receiving insurance services from the company, approval of state insurance departments for transferring control in insurance companies and for withdrawal from certain product lines or geographic areas (state insurance departments may attempt to limit a company’s decision to stop insuring damages in coastal areas exposed to wind damages). G. Alternative products to those of Republic and changes therein Alternative products to those the Republic Group are mainly similar products provided by other insurance companies. The main differences between insurance products provided by different

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companies generally involve the extent of coverage and the cost of premiums, as well as the level of service provided in the underwriting and claims processes. H. Structure of competition in the sector of operations and changes therein The Republic Group competes with many companies in its product lines. The personal insurance market in Texas is dominated by a few large insurance companies (including their subsidiaries and affiliates), including State Farm, Allstate Farmers, LibertyMutual/Safeco, USAA , Central Mutual, Hannover Harford and Travelers. In the commercial market, the Republic Group competes, inter alia, with Allied, Cincinnati, America First, Hanover, Liberty Middle Market, Travelers, Union Standard, Hartford Central Mutual, CAN, Zurich and UBI. In general, the Republic Group' share of the Texas market is about 1%. The Republic Group has three direct competitors in the MGA market – Praetorian, Delos and Assurant. There are several competitors in the insurance services market, including State National Companies, Old American County Mutual Fire Insurance Company, Consumers County Mutual Insurance Company, and Home State County Mutual Insurance Company. Competition is based on pricing, offered covers, customer service, agent relations (including ease of doing business for agents, service provided to agents and commissions paid to them), size and financial robustness. The Republic Group seeks to distinguish itself from its competitors by providing a broad product line and focusing on markets where competition is relatively weak. Moreover, the company deals with competition in its areas of operation by fostering good, long-term relations with insurance agents and MGAs, applying its know-how and experience in its areas of operation and fostering its reputation with policyholders. The Republic Group also offers operational flexibility thanks to its various licenses and concessions, which cover a wide range of insurance activities. 1.13.2 Products and services The Republic Group operates in four major insurance segments: A. Personal Insurance Segments: In this segment, the Republic Group sells insurance policies to individuals through independent insurance agents and three affiliated insurance agencies. Insurance policies include homeowners, fire and low-value dwelling insurance, standard and nonstandard auto insurance and personal policies. Policyholders are located in Texas, Oklahoma, Louisiana, New Mexico, Mississippi and Arkansas, while unconventional vehicle policies are also marketed in Arizona, Oregon and Utah. The Republic Group focuses on geographic and demographic areas where the competition is relatively low. 1. Personal property and building insurance: Insurance against various damages, including damage to the building, property inside home, garages and other buildings on the property; fire insurance covering damages caused by fire, lightning, wind and hail storms, collapse of buildings and damages caused by water-related or electricity-related accidents. The Republic Group's home insurance policies provide an average coverage of USD 210,000, while the coverage provided low-value housing is usually more limited and provides an average of USD 71,000 (not including coverage of home contents). 2. Personal auto insurance: Standard auto insurance policies insure against bodily injury and physical damage to the vehicle. Coverage is limited to USD 500,000 per policy, but the average overall coverage of the policy is less than USD 200,000. This insurance is primarily marketed to policyholders who purchase other insurance cover from the company, such as property and homeowners insurance. 3. Nonstandard auto insurance: Nonstandard auto insurance policies cover bodily injury and physical damage to vehicles whose owners have driving records making it difficult for them to purchase standard car insurance, and are therefore required to pay higher than average premiums. Most nonstandard risks amount to USD 50,000 or less. A nonstandard auto insurance policy is still marketed by a general insurance agency affiliated to the Republic Group. 4. Personal umbrella insurance: Umbrella insurance policies offer additional insurance cover beyond the limits of homeowner and vehicle insurance. Most umbrella policies are limited to USD 5 million, and 95% of the risks involved are ceded to reinsurers. B. Commercial Insurance Segments In this segment, Republic sells insurance to small and medium-sized businesses through independent insurance agencies and an affiliated agency that insures farm and ranch

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businesses. The policies include, inter alia, auto, workers' compensation, property insurance (real estate), general liability and umbrella insurance, as well as farm and ranch insurance. The Republic Group focuses on markets where competition between insurance companies is relatively limited, such as garages, family restaurants, light industry and small workshops. 1. Property insurance: Insured properties are limited to a maximum property value of USD 20 million and insurance is not available for properties where the risks involve residences, such as apartments and hotels. The average property insurance coverage is USD 730,000 and all risks are reinsured. 2. Liability insurance: Commercial liability insurance provides third-party liability cover for businesses, including bodily injury, medical treatments and fire damages. This policy is limited (deducting reinsurance) to about USD 1 million per insurance event. 3. Commercial package: The commercial insurance package is a combination of property and liability policies. 4. Auto insurance: Commercial auto insurance policies insure against bodily injury and physical damage to vehicles, and may be extended to include medical payments, car rental and more. The policy is limited to USD 1 million per insurance event. 5. Workers' compensation insurance: The insurance provides employers with cover in order to meet statutory workers' compensation benefits for workers who are injured on the job. 6. Umbrella insurance: Commercial umbrella insurance policies provide additional liability insurance for businesses, beyond the limits of standard insurance coverage. Most umbrella policies are limited to a maximum of USD 5 million and the average coverage is USD 3.6 million. 95% of the risks involved are ceded to reinsurers. 7. Farm and ranch insurance: These policies are designed to meet the special needs of farm and ranch owners, providing coverage for dwellings, farm structures, equipment and liabilities. In addition to the Republic Group's regular areas of operation, these policies are marketed in additional areas, including the states of Arkansas, Kansas, Mississippi and Missouri. One large farm and ranch plan was terminated in 2009 due to low results. 8. Public Authorities insurance – property insurance policies for small local authorities and schools, marketed via an affiliated agency. C. Program Management Segment Unlike insurance segments marketed through independent agents, the Republic Group markets personal and commercial policies in the Program Management segment through contracts with unaffiliated MGAs. The MGAs have the capacity and authority to offer policies that they underwrite themselves, subject to specific guidelines set by the Group and these policies are binding for the Group. The Republic Group uses the term "program" to describe such an agreement with an MGA, wherein the Group provides the MGA with uniquely customized insurance products, some of which are directed at market segments that fail to meet the risk profile of standard insurers. The Republic Group requires MGAs to sell the policies according to its guidelines. MGAs provide policyholders with the services that any regular insurance company would provide them, including underwriting, billing and claims administration, yet they are prohibited by law from issuing their own policies. 1. Features of MGA agreements: MGAs issue insurance policies under Republic's name and therefore Republic is liable for the insurance risk. At times, Republic cedes part of this insurance risk to reinsurers. In both cases, Republic is directly liable to policyholders. In addition to bearing all or part of the insurance outcomes of each program, Republic may receive a fronting fee from the MGAs or from the related reinsurers. MGA commissions are based on program profitability. Relations with MGAs are based on years of experience and familiarity with products, markets and marketing of the programs. MGA agreements are generally for a one-year term and are automatically renewed annually, unless one of the parties chooses to terminate with 90 – 180 days prior notice. Republic operates various control mechanisms for overseeing MGA operations: It receives monthly reports from MGAs and conducts audits of each program at least twice a year, in order to evaluate MGA compliance with the guidelines provided. 2. Insurance products: Insurance policies sold through MGAs include workers' Compensation, commercial auto insurance, commercial liabilities (for small businesses), prize indemnity insurance (insurance covering nonpayment of prize money promised a

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participant in a contest or sporting event), insurance of loan collaterals and guarantees, and employer insurance. 3. Reinsurance: Reinsurers are all high ranking reinsurance companies and/or companies willing and able to provide letters of credit or trust account information to secure their reinsurance balances. D. Insurance services and corporate In this segment, the Republic Group provides insurance services to national and regional insurers that wish to use the company's concessions and licenses to access insurance markets in Texas and other states. According to the agreements with the insurance companies, Republic underwrites risks that are entirely ceded to the carriers in exchange for a fee. In other words, Republic does not bear the risk involved in these policies as long as the insurers meet their obligations towards the company, and in effect it could be said that that the company has full reinsurance. Nonetheless, the company is directly liable towards the policyholders. Most of the insurance policies sold under these agreements are personal and commercial auto policies. Republic limits such agreements to insurers rated A or higher by A.M. Best rating company, or companies with a lower rating or even with no rating at all, but which provide sufficient collateral. The above limitations have managed to curtail credit losses in this segment. The Republic Group also includes the income from the general agencies it owns for its transactions with insurance companies which are not affiliated with it, in this segment. In the results for this segment, the Republic Group also includes other expenses that have not been allocated to other segments. 1.13.3 Customers 1. Personal Insurance Segments: Policyholders are private individuals, and the policies are marketed via independent agents and general Republic-owned agencies. 2. Commercial Insurance segments: Policyholders are small to medium-sized commercial enterprises and businesses, typically in service segments such as garages, family restaurants, light industry, workshops and owners of farms and ranches. Policies are marketed via independent agents and general Republic-owned agencies. 3. Program management: Policies are marketed by unaffiliated insurance agencies (MGAs). Policyholders include private individuals and small businesses. 4. Insurance services: These policies are marketed by unaffiliated insurers rated A- or higher by the A.M. Best rating company, or companies with a lower rating or with no rating at all, but which provide sufficient collateral. Policyholders include private individuals and businesses. 5. About 61% of Republic's insurance policies are issued in Texas. Many customers reside in outlying areas, in relatively small towns with populations of no more than 100,000. At present, about 18% of premiums come from the state of California, through MGAs, as a result of the workers' compensation program. 1.13.4 Marketing and distribution 1. Personal lines and commercial lines: Republic's standard insurance products are marketed through a broad network of independent agents and MGAs. Independent agents do most of the marketing in the personal lines and commercial lines. The agents have no discretion as to the policy terms and they offer the policies with which Republic provides them. Republic prefers to maintain long-term relationships with insurance agents and agencies and more than a third of its agents have worked with Republic for 10 years or more. The Republic Group has a network of over 600 independent agents in the personal and commercial segments. In 2010, the largest Republic independent agency was responsible for less than 1% of the company's gross premiums. 2. the Republic Group’s marketing strategy focuses on segments where competition in the insurance market is relatively weak - mostly segments that cannot afford the premiums of other insurers, and segments located in rural or semi-urban areas, which larger insurance companies are not willing to develop and/or do not view as a strategic target. Furthermore, the company tries to market its range of products to policyholders who already own one or more of its products. 3. Insurance services and Program Management services: Underwriting is provided by 5 unaffiliated insurers. Insurance services are provided to eight unaffiliated insurers and additional earnings come from five affiliated MGAs.

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4. In 2009 and 2010 Republic's largest MGA was responsible for 22.6% and 23.3% of the total premiums, respectively. 5. One program in the insurance services segment accounted for 22.9% and 19.3% of gross premiums for 2010 and 2009, respectively. However, since this program is completely covered by reinsurance, no net premium is produced in the net share. 6. The Republic Group's product development and marketing strategy is based on dialogue and constant consultation with agents and agencies, MGAs and insurers marketing the company’s products in different segments. This strategy allows the Group to learn from the agents about market needs and to issue policies that sometimes cover risks not covered by the competition. 1.13.5 Seasonality and Weather Damages 1. The risks insured by the Group usually lead to a larger volume of claims during the second and third quarters of the year, due to a seasonal concentration of weather-related insurance events in the geographic region of operation. Although weather-related losses (including hail, windstorms, tornadoes and hurricanes) can occur during any quarter, historically the second quarter has the highest frequency of such weather events, causing losses that are not covered by reinsurance (hurricanes, by comparison, are more likely to occur in the third quarter, but the losses they cause are usually greater in scope so that they are often covered by reinsurance for large events). 2. Weather related claims following windstorms and hail were lower than average in 2010, compared to the years 2009 and 2008. This result stems from the fact that the average number of weather events during the year was high, but they did not take place in Republic's regions of operation. 3. In 2009, Republic's net loss caused by weather related damage (after reinsurance) was the second highest in the company's history, following the highest loss in 2008, when three hurricanes hit Republic's region of operation and caused record weather-related damage in Texas. Even though hurricanes are not common in Republic's region of operation, they can cause much damage. Hail storms do not usually affect such large areas as do hurricanes, but they can cause extensive damage, as occurred late in the season by non-typical storms in western Texas in September 2009, which caused damages amounting to USD 28.6 million, and USD 20 million after reinsurance. The Group purchases reinsurance to protect itself against the high frequency and severity of insurance events related to the weather. 1.13.6 Reinsurance1 1. Republic purchases reinsurance for its personal and commercial insurance operations, in order to reduce its exposure to insurance risks. The company also participates in material reinsurance agreements in the Program Management segment and the insurance services segment, based on its estimate of the potential risk and the premium leverage requirements. Republic's personal and commercial insurance segments are protected by reinsurance against weather related damages and catastrophes. 2. Republics weather damages and catastrophes reinsurance plan and its excess of loss type reinsurance in 2010 were similar to those of 2009, as regards both coverage and price. In 2009 Republic's said reinsurance contracts compensated for single-loss events up to an amount of USD 300 million, with a retention amount of USD 20 million per event, which was reduced to USD 15

1 For information pertaining to types of reinsurance see footnotes in section 1.13.6 above: Contractual reinsurance between insurance companies and reinsurers is carried out under a reinsurance contract according to which the reinsurer accepts, under agreed conditions, all the risks / transactions sent to it by the direct insurer, without necessitating approval for each risk / transaction separately. Contractual reinsurance is divided into relative reinsurance, whereby the risk (claim cover) is split into equal premiums and non-relative reinsurance whereby the risk (claim cover) covered by the reinsurer is not directly proportional to the division of premiums. Relative reinsurance is divided into a quota share, whereby the reinsurer covers a fixed percentage of claims in a specific sector in return for an equal share of the premium, and surplus contract, whereby the reinsurer covers a variable percentage of each claim up to a fixed maximum in return for an equal share of the premium. Non-relative reinsurance is split into excess of loss, according to which insurance cover is provided for individual claims whereby the direct insurer covers aggregate damages up to a fixed residual amount and the reinsurer covers the excess amount; and a stop loss contract whereby the reinsurer compensates for a preset amount / percentage of the claimed amount. Other than contractual reinsurance, there is also facultative reinsurance which is split among several reinsurers.

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million for second and third events, respectively. In 2010, Republic purchased the same coverage for cases of single loss (USD 300 million) but changed the USD 20 million net retention sums for coastal storm events and the USD 10 million for non-coastal weather events. Republic's personal and commercial segments are covered by excess of loss reinsurance contracts and facultative reinsurance. The personal, commercial and program management (MGAs) insurance segments are also covered by relative contractual reinsurance. As noted above, the insurance services segment operates in a manner whereby insurance payments to policyholders are fully (100%) backed by reinsurance which is covered by the insurance companies providing the insurance services in return for the fronting fees that Republic receives. Republic's reinsurers influence its insurance capacity, insurance terms and rates and its profitability. Reinsurance does not absolve Republic from its liability towards policyholders under the insurance policies, but only grants it the right to demand that its reinsurers reimburse it for its losses, and therefore the robustness of the reinsurers may impact the business results of insurance companies. See Section 1.13.19 for further information relating to the centrality of reinsurer influence on Republic's operations. Section 1.13.19 describes Republic's reliance on reinsurers in the context of hurricane damages sustained by the United States in 2008. Due to the global financial crisis, the number of reinsurers and their equity began to decline, leading to a decrease in volume as well as a drop in rating indicating damage to the robustness of reinsurers against the backdrop of heavy losses in assets portfolios and material equity write-offs. It should however be noted that Republic’s reinsurance for 2010 has not changed materially, though reinsurance prices have remained high following the large scale weather catastrophes occurring in 2008 and before, and on account of reinsurer inability to raise new capital in the financial markets. Republic's reinsurance program for weather related catastrophes and excess of loss contract for all risks in 2011 is similar to its program for 2010 as regards both coverage and price. In 2009, Republic entered a 20% quota share reinsurance program for its personal and commercial insurance segments. The objective of the quota share program is to provide underwriting flexibility and leverage resulting from continuous increase in other segments and in view of projected capital inadequacy in the event of losses following several large-scale catastrophes. The Republic Group chooses its reinsurers according to their financial robustness, operating and payment history and overall reputation. The Group contracts with a large number of reinsurers in order to minimize the risk involved in the failure of any reinsurer to meet its obligations. The Group only contracts with reinsurers rated A- (Excellent) or higher by the A.M. Best rating company or with reinsurers rated lower, on condition that they provide additional collateral. If a reinsurer’s rating drops below A, Republic will replace the reinsurer or require external collateral, such as a bank guarantee. As at December 31, 2010, approximately 91.7% of Republic's reinsurance was covered by reinsurers rated A (Excellent) or higher.

The table below presents a summary of reinsurance data relating to the various segments (in USD millions):

Personal Commercial Insurance Segment MGAs insurance insurance services 2010 2009 2010 2009 2010 2009 2010 2009 Gross insurance premiums 221.8 221.3 129.3 132.0 223.3 268.1 241.9 289.8 Reinsurance premiums 52.9 60.8 33.0 41.7 146.8 192.4 241.9 289.8 Share (%) covered by 24.8 27.5 25.5 31.6 65.7 71.8 100 100 reinsurance

The significant increase in 2009 was mainly due to the increase in reinsurance premiums purchased in order to protect coverage after the 2008 hurricanes in Texas and Louisiana. Another factor is a contractual program that covers 20% of the personal and commercial insurance segments. The increase in the MGA segment derives from the fact that Republic's work compensation retention is much lower compared to the commercial vehicle liability / small business liability plan which terminated.

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The purchase of reinsurance for 2011 is yet to be concluded, however the scope of reinsurance in general is not expected to be materially different from that purchased in 2010. For further details relating to reinsurance, see Note 29 of the financial statements. 1.13.7 Actuary The Republic Group's liabilities include liabilities for reported losses, liabilities for losses incurred but not reported (IBNR), and liabilities for loss adjustment expenses (LAE)1 which are intended to cover the final cost of claim settlement, including claim investigations and legal defense. The extent of liabilities for reported claims is based on estimates claim damages. The level of liabilities for IBNR and LAE is estimated on the basis of past damage costs, policy provisions and other factors. The process of estimating liabilities for IBNR and LAE is an imprecise science requiring discretion since these liabilities are influenced by factors that are subject to significant fluctuation. The Group applies actuarial models to determine its liabilities. The Republic Group employs seven certified actuaries with an average of over 18 years of actuarial experience in the different insurance segments. The actuarial models are also used by the company to price premiums in the various segments, as well as to examine reserves for past claims. 1.13.8 Fixed Assets and Facilities The Republic Group's main office is located in Dallas, Texas, where the Group leases a six-storey office building (covering a total area of 10,500 square meters). All of the Group's administration, finance, underwriting, IT, and other operations are conducted from there. Republic also leases a smaller area for its claim management operation, in an adjacent building. The lease period is until February 28, 2017, with an option to extend it for a further five years. Rent is not material. Furthermore, the Group also leases offices in Houston and San Antonio, Texas, in Phoenix, Arizona, and in Louisiana. These offices serve the Group's subsidiaries. The Republic Group uses several information systems. Among other systems, the Group uses the RepubLink system designed for its agents, allowing them to file personal policies for the company’s approval. The system also provides information relating to policies, such as prices and other terms. The system allows the Group to collect and obtain data relating to policyholders, such as history of claims and premium payments. The investment in IT systems is a material expense and is expected to continue as such due to the Republic Group's efforts to use new technologies for its customer services and to remain competitive in its operations. 1.13.9 Intangible assets Republic's intangible assets include the value of its connections with agencies, its trademarks, and the licenses and concessions to operate as an insurance company in the various states. 1.13.10 Human capital Organizational structure A. Republic's human resources – On 31.12.2010, Republic employed about 410 employees divided into the following departments:

Number of Department employees Commercial insurance 71 Claims 69 General agencies 65 IT Systems 58 Bookkeeping / Finance / Accounting 33 Personal insurance 32 Corporate services and billing 26 Underwriting and Actuary 21 Administration / Legal / Human resources 14 Marketing 13 Insurance programs / insurance services 8

1 Loss adjustment expenses (LAEs) are the estimated expenses for covering losses for claims filed but not yet concluded; these expenses are adjusted from time to time according to estimates of anticipated losses.

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Number of Department employees Total 410

In 2009 and 2008, about 424 and 413 employees were retained by the company, respectively. There are no employer-employee relationships between the Republic Group and the agents marketing its insurance products, other than the agents employed in the agencies owned by Republic. B. Senior management and officers – Republic employs about 27 officers, of which 13 are senior executives. The main compensation for company officers is a salary and periodic bonuses based on performance, as an occasional incentive. Mr. Uri Omid serves as chairman of Delek Finance US Inc and chairman of Republic, having replaced Danny Guttman, who served in this position for 4 years, in September 2010. Mr. Omid will serve as chairman as part of a contract signed with a management company on the 22.9.2010. Some of the conditions provided by the contract are: monthly management fees of USD 32,500, an annual bonus to be decided by Delek Investments' Board of Directors, a car (including the expenses involved in its maintenance and use), a phone, and the customary Delek reimbursement of expenses. Delek Investments will take steps to approve an options plan that will entitle Mr. Omid to receive a block of warrants amounting to 3% of Republic's issued capital at the time of signing. The exercise price will be based on a valuation of the company at USD 280 million. The warrants will mature in 5 equal lots every year, commencing from 21.9.2012 (on which date, the first two lots will reach maturity). Republic has employment agreements with certain executives. Apart from these, Republic's other employees are employees whose employment may be terminated at will. Republic provides employee health and life insurance as well as savings plans, profit sharing and other compensation plans. Republic has two defined benefit pension plans that were frozen on December 31, 2003. In December 2006 and November 2007, several senior executive officers at Republic were granted options that are exercisable into Republic shares over a period of five years, in consideration of an additional variable exercise price over the vesting period as set forth in the terms and conditions of the options. Furthermore, a plan for the allocation of restricted stock (representing 0.5% of Republic's share capital) was also adopted. As at December 31, 2010, the fair value of the restricted stock was still zero. Since the projected performance for 2009 and 2010 did not lead to the vesting of these shares, they were cancelled. The fair value of the options as at December 31, 2010 was USD 0.96 million. In the event that all warrants are exercised, Republic's holding rate is expected to decline to about 98%. 1.13.11 Investments As required under the regulations, in the investment plan and by the rating companies, Republic invests in low-risk investment channels such as government bonds, US state bonds, bonds issued by local government organizations, corporate bonds, mortgage bonds, and ordinary shares that pay dividends. Most of Republic's investment portfolio consists of fixed-income instruments, and in 2010 they were managed by Brookfield Investment Management Inc. (which has assets under management of more than USD 100 million and specializes in the management of insurance company assets). Brookfield has the authority and discretion to acquire and sell securities on Republic's behalf, subject to instructions it receives from Republic's investment committee. Republic Group's total investment portfolio, including cash and short-term investments, at December 31 for the years 2008, 2009, and 2010, was USD 586.5 million, USD 588.4 million, and USD 597.5 million, respectively. The investment portfolio earned a positive yield in 2010, despite the volatility of the capital markets, and this in view of the relatively low-risk nature of the investments. At December 31, 2010, the portfolio has a large balance of cash and short-term investments (USD 81.7 million) waiting for reinvestment, in the wake of the sale of a large number of securities in 2010 that was designed to attain significant profit in view of improved market conditions. The cash amount is reinvested slowly and for short periods due to concerns that the interest rate may be raised.

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1.13.12 Financing A. Republic has the following financing arrangements:

Amount Interest rate at (USD million) Dec. 31, 2010 Debt to bank 30 3.5% Subordinated loans 92.8 4.5% Other 4.4 4.0% Total 127.2 4.25%

USD 1.8 million is planned for payment during 2011, and the balance is a long-term debt. Following is a breakdown of the debt:

Amount Effective interest (USD rate at Dec. 31 Basis for determining million) 2010 the interest rate Maturity date Senior debt to 30 3.50% LIBOR for 1, 3 or 6 Quarterly bank months + 2.5%, or Prime payments of USD 9 M, from beginning of 2013 with a balloon payment in 2015 Subordinated 10.3 4.29% LIBOR for 3 months + 4% September 2033 loans 1 .Principal 2 . Principal 20.6 4.13% LIBOR for 3 months October 2033 followed by + 3.85%

3 . Principal 20.6 3.50% LIBOR for 3 months + November 2036 3.2% 4 . Principal 25.8 3.50% LIBOR for 3 months + June 2037 3.2% 5 .Principal 15.5 8.18% Fixed interest up to September 2037 September 2012, LIBOR for 3 months + 3.3% after that. Total 92.8

Other debts:

Original issue 4.4 4.0% OID note with 4% interest, Annual payment discount note 10% rate of charging of USD 1.5 M up to 2013 Bill payable .60 3.8% LIBOR for one year + 3% December 2011 acquired upon the consolidation of a partially owned subsidiary

B. Financial covenants In connection with a senior debt to a bank, the details of which appear in sub-par. (a) above, several covenants were determined, including the following financial criteria: 1. Republic's consolidated equity according to US GAAP shall be more than USD 250 million.

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2. The minimum statutory equity of Republic Underwriters Insurance Company (RUIC) (Republic's leading subsidiary) shall be more than USD 200 million. 3. The ratio of net premiums to required statutory equity shall be no more than 1:2.25. 4. RUIC's combined ratio for the last four quarters shall be no more than 110%. 5. The loss ratio from losses that are not weather related shall be no more than 60%. 6. The fixed charges coverage ratio shall be more than 1:1.25. In addition to the foregoing, provisions were prescribed restricting the creation of certain classes of debt or liens, restrictions on the issue of shares and the merging of certain assets, distribution of dividends, business changes, etc. Delek Finance and Republic are both in compliance with the specified terms of credit. C. Credit facilities Republic does not generally accept credit facilities, and finances its operations through equity and bonds. D. Credit rating The A.M. Best credit rating company gave Republic an A- (Excellent) rating in 2003, and in December 2010 it reaffirmed the rating with a stable outlook. This is the fourth level on A.M. Best's scale of 15 rating categories. Among other things, the rating is for the use of insurance agencies and reinsurance companies engaged with Republic. The rating is reviewed every year, unless there has been a transfer of control or a significant insurance event. E. Raising additional sources of finance Republic is of the opinion that it is capable of meeting the cash flow requirements for its ordinary business in the foreseeable future. Raising additional sources of finance may be necessary should Republic decide to perform acquisitions in the future. 1.13.13 Taxation For details concerning taxation, see Note 42 to the Company's financial statements. 1.13.14 Restrictions on and oversight of Republic's activity See Section 1.13.1.(b) above. 1.13.15 Material agreements The Republic Group has agreements with various entities, including agents, insurance agencies, MGAs, other insurers, reinsurers, credit providers and suppliers. Republic has no significant agreement that is not part of its normal course of business. 1.13.16 Legal proceedings Several applications for class actions in connection with Hurricane Katrina were filed against Republic. Most of the claims have been settled. In addition, an application for a class action was filed against Republic and other companies unrelated to Republic in connection damage to property resulting from poor construction standards. Republic is of the opinion that this claim does not contain exposure on a significant scale and that Republic is part to the action with a large number of other insutance companies. iFor details concerning legal proceedings, see Note 32 to the Company's financial statements. 1.13.17 Business strategy and objectives A. Focusing on short-tail insurance branches: Republic concentrates on short-tail insurance products1 (such property and auto insurance), in contrast with long-tail insurance products (such as product liability). This is due to the fact that Republic considers that it is easier to cost these products and their subsequent liabilities, thus reducing fluctuations in performance. B. Focus on markets that are less competitive: Republic provides agents and program managers with access to products and markets that large insurance companies usually avoid. As part of

1 Republic concentrates on short-tail insurance products1 (such property and auto insurance), in contrast with long-tail insurance products (such as product liability). This is due to the fact that Republic considers that it is easier to cost these products and their subsequent liabilities, thus reducing fluctuations in performance.

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this strategy, Republic has begun to issue policies for low-value homes and has embarked on ranching business insurance. C. Focus on those areas in which Republic has proven capability: Republic prefers to exploit the experience and knowledge it has acquired over many years to focus on worthwhile products, areas, and marketing channels, rather than enter unfamiliar markets. Republic operates, inter alia, to develop ties with new agents and MGAs as a way of expanding its business in preferred markets. Republic has more than a hundred years of experience in Texas and more than 40 years experience in Louisiana, Oklahoma, and New Mexico, and it tries to utilize its competitive advantage stemming from its seniority and reputation in these areas for entering markets in other areas with similar characteristics. D. Correct pricing of insurance products taking into account the cyclical nature of the insurance market: Republic tries to correctly cost its business with the intention of generating underwriting profits, by applying a high level of selectivity for the risks it undertakes, and it uses the risk-adjusted return approach to allocate capital. Republic allocates capital and other resources to its product lines in response to varying market conditions. Republic intends to expand the range of products it offers in market segments that have low insurance capacity and the potential for profit is high, and to reduce the number of products it offers in those market segments where competition makes it impossible to achieve desired profit and underwriting levels. In view of the above, the market segments in which Republic operates may change from time to time. 1.13.18 Risk factors A. Exposure to catastrophes and weather-related losses As an insurance company, and particularly taking into account the geographical in which it operates, Republic Group is exposed to risk resulting from natural or man-made disasters, such as hurricanes, hail storms, tornados, and fires. These include the exceptional hail storm in El Paso, Texas in September 2009, and Hurricanes Ike and Gustav in September 2008, as well as Hurricanes Katrina and Rita that occurred in August and September 2005. Despite the fact that in 2010 weather-related damage was the lowest for the last three years, in 2008 damage from wind, hail and tornadoes was the highest in Republic's area of activity for decades. There was a slight improvement in weather-related damage in 2009, so that these years are indicative of the risk inherent in the exposure to catastrophes and weather-related damage. It is difficult to predict the occurrence of such events with statistical accuracy, or to estimate the scope of the loss that may be caused. Republic's losses resulting from these disasters depend on various factors, including the exposure of the policyholders in the affected area, the volume of reinsurance and the increase in prices, unexpected changes in the insurance cover resulting from legal or regulatory proceedings as a result of a catastrophe, etc. B. Incorrect costing of premiums The Republic Group's performance depends, inter alia, on its ability to correctly cost the premiums for a broad range of risks. Underpricing on the part of Republic may affect profitability, while overpricing may adversely affect its competitive ability and the volume of its sales, in turn affecting profitability. C. Incorrect assessment of liabilities in respect of losses and loss adjustment expenses (LAE) Republic estimates its liabilities in an effort to cover all the losses and loss adjustment expenses caused in respect of its insurance policies. Republic Group must therefore prepare estimates for claims actually filed and for liabilities from IBNR claims. Estimating the liabilities naturally entails an element of uncertainty, and the actual losses and LAE in respect of these losses that Republic is required to pay may differ substantially from its estimates. D. Collapse of reinsurers, change in the capacity and tariffs of reinsurers Republic Group uses reinsurance to hedge against insurance risks or as a way of sharing the risks with the reinsurers. The collapse of reinsurers, a change in reinsurance capacity and in reinsurers' prices may affect the company's ability to pay policyholders or limit its ability to draw up insurance. In the insurance services branch, Republic Group issues policies in the name of insurance companies in return for brokerage fees. The risk in this branch is born by these insurance companies, however should they fail to meet their commitments towards Republic Group, Republic may be forced to bear payment of the loss without receiving indemnity.

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After the heavy losses incurred in the wake of the hurricanes in 2008, and together with the general economic crisis in all markets, reinsurance tariffs for 2009 rose substantially and remained high for policy renewals in 2010 and 2011. The reinsurers are must rely almost exclusively on higher tariffs in order to recoup the money they lost following the damage caused by the storms and investments. Traditional sources of capital that usually flow into the reinsurance market after major losses are currently not forthcoming due to changes in the global markets. Due to the higher cost of the reinsurance and the loss of capital, global capacity also declined. Accordingly, Republic's availability will lead to higher costs and less coverage on account of the higher attachment points (the maximum amounts of retention). E. Dependence on independent insurance agents who market Republic Group's products Republic Group's business depends on the success of independent insurance agents in marketing its insurance products. These insurance agents also markets the products of competing companies, and at some stage may give them precedence in their marketing efforts, adversely affecting the volume of Republic's sales. In addition, customers may choose to purchase insurance through other marketing channels such as the internet, and not through the insurance agents who market Republic's products. F. Dependence on MGAs Republic Group is assisted by MGAs operating under its instructions. The MGAs are responsible for issuing insurance policies in Republic's name and for handling claims in respect of these policies. Republic Group is exposed to the risk that the MGAs will not act appropriately with the authority that was delegated to them by it, or that generally accepted contractual conditions were not within their reach. In addition, MGAs may move over to competing companies or curtail their activity for Republic for a variety of reasons such as a change in tariffs or a change in the ownership of the agencies. One unrelated MGA was responsible for USD 182.1 million of gross premiums in 2010. This MGA was acquired by a third party in the fourth quarter of 2010. At this time, the company has decided to terminate its relationship with the agency during 2011, and concurrently has signed contracts with new agencies that should offset any loss in future premiums. G. Lowering of rating Financial strength ratings are important for the competitive status of insurance companies. Republic's insurance companies have an A- (Excellent) rating from A.M. Best, and this rating is periodically tested by the rating company. A lowering of the rating may adversely affect Republic's customer base and the willingness of independent insurance agents and MGAs to engage with it. H. Introduction of more rigorous policy conditions by the courts or regulators The Republic Group's insurance policies contain various exclusions aimed at limiting the scope of the risk and the potential liability for Republic. Rulings by the courts or the regulators to the effect that these exclusions are no longer valid may increase Republic Group's liability and affect its financial performance. I. The insurance market in Texas Given that most of the Republic Group's revenues from insurance premiums originate in Texas, Republic Group is exposed to events that may adversely affect the market in this state, such as economic recession, political instability, unemployment, more stringent regulations, stronger competition, war and terror-related events. It is worth noting that the economic crisis may, inter alia, lead to a decline in the volume of insurance drawn up, lower insurance tariffs, an increase in the number of insurance events on which policyholders file a claim. J. Competition The insurance industry is highly competitive. Republic Group competes with large insurance companies, including national companies that have much larger financial, marketing and management resources than Republic Group. The Group also competes with entities that insure themselves, particularly in the commercial insurance market. Another competitive risk to which Republic Group is exposed is the marketing of insurance products through the internet. K. Poor performance by Republic Group's investments Republic Group's investments are subject to a variety of investment risks such as economic conditions in the market, market volatility, fluctuating interest rates, liquidity risks, credit and

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insolvency. Republic Group is specifically exposed to losses that may be caused should an untimely need arise to exercise securities that it holds to cover insurance liabilities. The severe crisis in the capital markets increased the risk inherent in the Republic Group's investments. L. Regulation Republic Group is subject to comprehensive regulation and oversight in the states in which the Group's companies operate. The regulation addresses a variety of issues such as restrictions on the company's investments, accounting and reporting standards, and more. Regulatory changes or a failure by the companies that belong to the Republic Group to comply with permits and conditions, may adversely affect its business. In addition to existing regulation, from time to time legislative changes are put forward that may adversely affect the insurance industry. Among other things, a bill for federal insurance legislation is currently being discussed in addition to the existing state laws, as well as a bill to subordinate some of the state laws to laws that will be adopted by the National Association of Insurance Commissioners (NAIC). This process may create a situation in which the regulations are interpreted differently in each state, making it difficult for companies operating in several states, such as Republic, to implement the regulations. M. Information systems The Republic Group's activity is contingent upon the proper function of its information and communications systems. The company relies on these systems to recruit new customers, for customer service, the filing of claims, and billing. Should Republic Group's information systems malfunction or if it cannot unsuccessfully upgrade them from time to time, the Group's operations will be affected.

Extent to which the risk factor influences Republic Group's business Strong influence Medium influence Small influence Macro risks • Negative events in the • Poor performance by • Unemployment insurance market in Republic's investments, in part • Wars and terror Texas, including due to exchange rates, interest economic recession or rates, and inflation political instability

Sectoral risks • Catastrophes and • Regulation, including changes weather-related losses in regulatory capital • Collapse of reinsurers, requirements, accounting change in the capacity standards, or tax laws and tariffs of reinsurers • Competition

Risks specific • Lowering of rating • Actuarial issues including • Information to Republic Incorrect assessment of systems liabilities in respect of losses and LAE • Incorrect costing of premiums • Dependence on insurance agents • Dependence on MGAs

The extent to which the aforementioned risk factors affect Republic Group's activity is an estimate only, and in practice the degree of influence may be different. 1.13.19 Event or matter deviating from the normal course of the corporation’s business In the years 2008-2010, there were extraordinary events pertaining to exceptional weather-related losses and the economic crisis that affected the US economy and Republic's activity. In 2008, the US was hit by two major hurricanes – Ike and Gustav. Hurricane Ike was one of the most powerful hurricanes ever to hit the US, with major repercussions for the insurance industry in Texas. This was a Category 2 hurricane that hit one of the most densely populated regions of the state, causing heavy damage. Gustav was a very strong storm that mainly affected Louisiana's hinterland rather than its coastal areas. The estimated losses arising from these storms are USD 180 million and USD 40 million respectively, and the company's retention is USD 20 million for

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each insured event. The rest was covered by the reinsurers. Another hurricane, Dolly, hit the coast of Texas in July 2008, and the damage it caused is estimated at USD 11 million, that was not covered by reinsurance. Although the company's reinsurance plan provided most of the cover for the losses, the company nevertheless sustained losses of USD 42 million. Republic's net loss was substantially higher than its net losses following Hurricanes Katrina and Rita in 2005 due to the higher attachment points (higher amounts of retention) in the reinsurance in 2008, with USD 20 million instead of USD 5 million in 2005. The higher attachment point was due to the increase in the cost of the reinsurance, after the hurricanes of 2005. Furthermore, these figures do not reflect a further payment of USD 20 million in September 2008, in respect of replacing the reinsurance cover for catastrophes in an effort to hedge against the possibility of more storms in the fourth quarter. Moreover, after the hurricanes of 2008, the reinsurance tariffs on property insurance in 2009 also rose considerably. In addition to the high prices of 2009, the availability of coverage with possible tariffs dropped considerably due to a shortage of capital throughout the reinsurance world. Traditional sources of capital are currently unavailable due to the economic situation, and the reinsurance companies have therefore raised their prices and reduced their capacity. Accordingly, the attachment point (maximum amount of retention) for reinsurance cover in 2010 and 2009 is much higher relative to 2008. 2009 was a challenging year due to the prolonged economic slowdown that resulted in volatile (although somewhat improved) financial markets, rising unemployment, large-scale personal and business failures and bankruptcies, low premium prices, and the large scale property losses and doubtful liability. In addition, weather-related losses continued to be higher than average in the past. Although no hurricanes hit North America in 2009, an exceptional, unseasonal hail storm, hit a generally arid area of western Texas resulting in a loss of USD 20 million in September 2009. In response to the financial markets, Republic chose to sell a large part of its securities for investment in 2009 and recorded investment profit. As a result, an increase in capital was created for its insurance company subsidiaries. Nevertheless, there will be fewer future opportunities for investment income until stability returns to the markets and interest rates being to rise again. In 2010, the US economy remained sluggish, reflected in high unemployment, more receivership, uncertainty regarding fiscal policy and regulation, and continuing volatility in the financial markets. In addition, the insurance market was weak with capital surpluses that requires a corresponding premium – pushing down rates of insurance premiums, intensifying competition, and forcing the insurers to carry losses stemming from competition over market share at the expense of underwriting profits. In contrast, in 2010 the entire insurance industry suffered fewer losses from weather-related damage, and despite its volatility, the capital market offered an opportunity to realize capital gains, generating revenues and increasing the amounts required according to regulation. 1.13.20 Forecast for developments in the coming year Republic Group intends to continue to examine opportunities for expanding its business in the geographical areas in which it operates, and in other states. In the wake of the large-scale losses of 2008 after the storms, Republic applied to increase its premium rates to offset the anticipated high costs of reinsurance. These increases began to take effect in the second half of 2009 and in 2010. In view of the company's major losses that are not weather related, Republic's actuaries estimated that in 2011 there would be further price increases and these would be applied as actuarial requirements justify them. Republic also applies new underwriting tools and procedures to increase its discretion in underwriting with respect to defining the insured risks. Further measures are taken to reduce property exposure to hurricanes in some coastal areas, and to reduce the concentration of risk in El Paso, Texas, where an increase in losses was recorded due to hail storms in 2007-2009, despite the fact that in the past losses resulting from hail were infrequent. Republic will continue to allocate capital by the different operating segments, focusing on attaining the maximum yield relative to the capital that is holds back.

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1.14 The Automotive Segment

1.14.1 General The Group’s automotive segment is based on the activities of Delek Automotive Systems Ltd. and its subsidiary companies and corporations (Delek Automotive Systems Ltd., its subsidiaries and corporations are referred to collectively as “Delek Automotive”). Until 2010 the Company was the controlling shareholder in Delek Automotive with a holding (through Delek Investments) of approximately 55% of its shares. On October 20, 2010 Delek Investments sold 20,000,000 ordinary shares of NIS 1.0 par value each, which on the day of the transaction represented approximately 22% of the shares of Delek Automotive, to Mr Gil Agmon, CEO of Delek Automotive, in consideration of NIS 1 billion. As a result of this transaction, control of Delek Automotive passed from Delek Investments to Mr Gil Agmon who at the reporting date holds approximately 38% of the issued paid-up share capital of Delek Automotive. Shortly before the reporting date the Company holds approximately 32.5% of the shares of Delek Automotive. In the sale agreement Gil Agmon undertook (unilaterally) toward Delek Investments that as long as he is the controlling shareholder in Delek Automotive and as long as Delek Investments holds more than 20% of the share capital of Delek Automotive, he will act to appoint two directors recommended by Delek Investments, and as long as Delek Investments holds more than 15% (but not more than 20%) of the share capital of Delek Automotive, he will act to appoint one director recommended by Delek Investments. Pursuant to the Articles of Incorporation of Delek Automotive, up to ten directors can be appointed at Delek Automotive (including external directors). The parties also agreed to amend the Articles of Incorporation of Delek Automotive so that a resolution on the following matters would by passed by a majority of 75% of the shareholders attending a general meeting of Delek Automotive: allotment of shares or securities convertible into shares; sale, transfer or disposal of most of the assets of Delek Automotive or a material change therein; voluntary liquidation of Delek Automotive. For further details regarding the effect of the transaction on the Company's results and on the manner of presenting the holding in Delek Automotive in its financial statements, see Note 14C to the financial statements. Delek Automotive has been operating in Israel since 1994 as importer, distributor and seller of Mazda vehicles and vehicle parts. In 1999, the company started to import, distribute and sell Ford vehicles and vehicle parts in Israel. Delek Automotive also operates a central garage where it provides maintenance and repair services to its customers as well as support and guidance to a network of authorized garages (the “Service Centers”) and Mazda and Ford dealers throughout the country (for details, see sections 1.14.2(I) and 1.14.2(J)). Delek Automotive also has a franchise to market, distribute and sell Lincoln vehicles and vehicle parts in Israel. At the date of this report, Delek Automotive does not sell said vehicles and vehicle parts. Delek Automotive is a public company whose its securities are listed on the Tel-Aviv Stock Exchange Ltd. (“TASE”). The following chart describes the structure of the main holdings of Delek Automotive:

Delek Automotive Systems Ltd.

75% 100%99.5% 100% DSR Car Dealerships 25% Delek Motors Delek Motors DMR Properties Partnership Ltd. Parts (1987) Ltd. (1995) Ltd. (1994)

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1.14.2 General information about the segment A. Structure of segment of operation and changes therein The Israeli automotive market differs from most other automotive markets in the world because of its geographical isolation and high import taxes on vehicles. The motorization level in Israel is low compared to Western countries, owing to a relatively low standard of living, relatively high prices caused by high import taxes, poor road infrastructure and high population density. The automotive market comprises a number of vehicle importers that import vehicles manufactured in different parts of the world. Most importers import only two or three brands. The development of the automotive market in Israel is characterized by volatility stemming, inter alia, from changes in the macroeconomic environment. Among the characteristics and trends affecting the operations of Delek Automotive and its competitors are these: (a) dependence on suppliers - the business success of the vehicle importers depends on the financial and business positioning of the manufacturers and on new product strategies, global brand management, model and pricing policy and marketing support. (b) changes in consumer preference - preferences for certain models are based on technological advantages, environmental protection, price and marketability in the secondary market. (c) taxes - in Israel, purchase taxes and import duties on private cars – among the highest in the world – can amount to almost 100% of the price of the vehicle. These taxes affect the power to purchase new vehicles and consequently could affect Delek Automotive sales. (d) fuel prices - these prices can affect consumer preferences, resulting in a long-term impact on the type of vehicles sold, based on fuel type (diesel, natural gas or gasoline). B. Legal, regulatory, standardization and special constraints in the segment The vehicle market is influenced by legislative and regulatory requirements which are a significant factor that could affect the supply of and demand for vehicles in Israel. 1. Parallel import In 1999, the government introduced a reform in the Israeli automotive market. The Ministries of Finance and Transportation set up a committee to remove barriers and eliminate centralization in the automotive market and to open it up to competition. The committee recommended a series of steps which were implemented over the years in legislation. Their flagship reform was the Control of Commodities and Services Order (Import of Vehicles and Provision of Vehicle Services) (Amendment), 2010 which was published in the Official Gazette on March 7, 2010 and was designed to remove the principal barriers to the parallel import of vehicles (respectively, the “Amendment to the Order” and “Parallel Import”), and on April 6, 2010 most of the provisions of the Amendment to the order took effect. A Parallel Importer, as defined in the provisions of the Order, shall not import more than three vehicle models subject to the ability of the Director of the Vehicle and Maintenance Services Department in the Ministry of Transport or a person authorized by the Minister of Transport for that purpose to change the number of vehicles in compliance with the terms of the Order. To the best of the knowledge of Delek Automotive, in November 2010 the Ministry of Transport granted a leasing and rental company approval in principle until the end of 2011 to import vehicles together with another company holding a franchise for the import of the vehicles. The Ministry of Transport believes that Parallel Import will bring about reductions in vehicle prices and increased demand for new vehicles which will lead to a reduction in the average vehicle age. Delek Automotive estimates that Parallel Import is not economically feasible under current market conditions, with the exception of luxury and niche cars. Since most of the vehicles imported by Delek Automotive do not fall into these categories, Delek Automotive does not expect Parallel Import to have a substantial impact on its operations. The estimate of Delek Automotive’s management regarding the effect of Parallel Import on its operations is forward-looking information as defined in the Securities Law and it is based, inter alia, on the fact that consumer prices of vehicles in Israel which are not luxury or niche cars, less taxes, are among the lowest in the world. This is an estimate which might not be realized, inter alia, because of changes in vehicle import tax rates and regulatory changes regarding Parallel Import. A) Licensing groups Vehicles sold in Israel are divided into licensing groups based on their price as determined by the tax authority at the beginning of every calendar year. An annual

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licensing fee is paid on the basis of these licensing groups which until January 1, 2010 were also used to determine the use value of a vehicle purchased until this date. The use value of the car as defined in the Income Tax Order [New Version] is one of the benefits or allowances granted by employers to their employees (company cars), on which employees pay taxes calculated in accordance with the Income Tax Regulations (Value of Use of a Vehicle), 1987. The change in the price group affected prices of new vehicles because of the desire of vehicle importers to belong to a particular price group. In light of the change in the method of calculating the use value of a company car from the price group method to the linear method (whereby the use value will be a rate determined by the price of the vehicle to the consumer). As of January 1, 2010, a change in the price group no longer affects prices of new vehicles. B) Vehicle use value On December 31, 2007, the Income Tax (Value of Use of a Vehicle) (Amendment) Regulations, 2007 came into force. Under these regulations, the use value of a company car would be increased gradually in accordance with four brackets at the start of each calendar year, from January 1, 2008 to January 1, 2011. Along with the approval of these regulations, the tax rates for middle level income earners would be reduced, with the aim of partially offsetting the additional tax paid by the users of company cars. Delek Automotive believes that these regulations could have a long- term impact on the distribution of vehicle sales in Israel, and on the distribution of Delek Automotive sales between institutional customers (including leasing companies) and private customers. At the date of this report, the change has not affected sales in the automotive sector. C) Green taxation reform On November 25, 2009 the Knesset Finance Committee approved the green taxation reform which was applied as of August 1, 2009 in the form of a temporary order and includes the above-mentioned changes in purchase tax and use values subject to the following: (1) determination of a “green index” which grades vehicles in accordance with their pollution level and a purchase tax rate based on this grade was also determined. Instead of a vehicle purchase tax of 72% or 75% (private or commercial, respectively) it was decided to impose a purchase tax of 83% and reduce the tax by means of a fixed shekel benefit which would derive from the vehicle’s pollution level and also cancel the tax incentive granted to vehicles equipped with an electronic stability control mechanism. The combination of a higher tax rate and fixed shekel benefit do not necessarily increase the effective tax rate and in some cases it even reduces the tax burden. A reduced purchase tax of 30% was determined for hybrid vehicles and for non-polluting vehicles such as electric cars it was set at 10% for a limited number of year subject to the pollution levels of these vehicles. (2) It was decided to change the method of calculating the attribution of the vehicle use value of company cars from the price group method to the linear method so that the use value is a fixed rate of the vehicle’s consumer price. This method is only applied to new vehicles registered from January 1, 2010, while the price group method continues to apply to all existing vehicles and vehicles registered up to January 1, 2010. The monthly use rates for 2010 were 2.04% for vehicles priced up to NIS 130,000 and 2.48% for vehicles priced over NIS 130,000. The use value in 2011 is and is expected to continue to be 2.5% of the vehicle price. Moreover, since the 2010 tax year there has been a reduction of NIS 520 per month in the use value of hybrid vehicles irrespective of their purchase date. In August 2010 the Tax Authority published its intention to update its pollution grading classification in a manner which would impose stricter conditions for the relatively lower grades as of 2012. Delek Automotive believes that changes in recording income for the use of such vehicles could have a long-term effect on the ratio between sales to institutional customers (leasing and rental companies) and sales to private customers, as well as on all vehicle sales in Israel. Delek Automotive’s estimate of the effect of these taxation changes on its operations is forward-looking information as defined in the Securities Law and it is based on its past experience. This forward-looking information might not be realized because this estimate is not certain and it could change, inter alia, because of regulatory changes, changes in market conditions, etc.

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D) Prevention of restrictive arrangements Pursuant to an order agreed by virtue of Article 50B of the Antitrust Law, 1998, which took effect on April 24, 2003, restrictions and prohibitions were imposed on vehicle importers which were designed to prevent restrictive arrangements and to open the parts market to competition. For further details, see section 1.14.16(D). E) Import of generic spare parts On October 15, 2010 a new procedure issued by the Ministry of Transport took effect. It regulates the import of generic spare parts for vehicles and it permits the import into Israel of any spare part sold in Europe or the United States. F) Prohibition on Repairing Vehicles in an Unauthorized Garage Bill, 2010 To the best of Delek Automotive’s knowledge, the Knesset Economy Committee is reviewing a private bill placed on the Knesset table on June 28, 2010 which would prohibit vehicle repairs in garages not authorized by the Ministry of Transport. The bill was intended to eliminate repairs in unauthorized garages and increase the safety of vehicles on the roads for fear of repairs using unsafe and stolen parts. The bill provides that any person repairing his car in an unauthorized garage or operating such a garage will be charged with criminal offences and sentenced to a fine or 18 months’ imprisonment. G) Standardization Every year, the Standards Department of the Ministry of Transport’s Motor Vehicle Division defines the changes in the mandatory requirements for various vehicle types for the next model year, citing the amendments to European standards and the specific requirements for Israel. Mandatory requirements in Israel are based on EEC directives and US federal standards. The standards focus on air pollution and safety of vehicles, passengers and pedestrians. Vehicles that are not in compliance with these standards are not permitted to be imported into Israel. H) Consumer Protection Regulations (Cancellation of Transaction), 2010 (the “Transaction Cancellation Regulation”) On December 14, 2010 the Transaction Cancellation Regulations entered into force. They provide, inter alia, that a consumer may cancel an agreement to purchase goods provided that he returns the goods to the dealer undamaged and unused. The consumer may cancel the agreement within 14 days from the transaction date provided that the item has not yet been registered in the consumer’s name pursuant to the Traffic Ordinance [New Version]. The Transaction Cancellation Regulations are not expected to have an effect on Delek Automotive’s business because it has for years permitted cancellation of transactions, as long as the vehicle has not been registered in the consumer’s name, and because a vehicle is not delivered to the consumer before it has been registered in his name, pursuant to the Traffic Ordinance. I) Additional restrictions For further details of the legal restrictions and arrangements applicable to the importation of vehicles and spare parts, see section 1.14.13. C. Changes in the volume of segment operation and its profitability In recent years, market conditions have improved for Israeli consumers owing to favorable currency exchange rates and tax reductions. The slowdown trend in vehicle deliveries which started in 2008 continued in the first half of 2009 but was halted in the second half of 2009. Consequently total vehicle sales in 2009 amounted to 176,387 which represents a decrease of 11% in total vehicle deliveries compared with 2008. In 2010, alongside the continuing recovery in the global economy and in the Israeli economy in particular, there was a continuation of the growth trend in the vehicle import market and a significant increase in vehicle deliveries was recorded. Total vehicle deliveries in 2010 amounted to 221,010, an increase of approximately 25% compared with total deliveries in 20091.

1 This information is to the best of Delek Automotive's knowledge and is quoted from Vehicle Importers Association reports.

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Changes in the volume of activity in the automotive market were accompanied by changes in the mix of activity in this market, the most prominent of which was the increase in sales to institutional customers. These customers do not always service their vehicles at an authorized garage chain and some use non-original vehicle parts. Nevertheless, Delek has agreements for maintenance and supply of vehicle parts with a number of institutional organizations, such as leasing companies and the Ministry of Defense. Delek Automotive estimates that changes in the operational leasing sector, should they take place, will not have a material effect on its sales of vehicle parts. Delek Automotive believes that the effect of the changes in the operational leasing sector on its sales of vehicle parts is forward-looking information as defined in the Securities Law and this belief is based, inter alia, on past experience. It is not certain and it might not be realized, inter alia, because of events contrary to the Company's expectations. D. Technological changes which could have a material impact on the segment Recent years have seen the launch of hybrid vehicles combining gasoline engines with electric motors which consume less fuel. In December 2010 the Ministry of Transport approved for the first time the import of these hybrid vehicles. They emit much less carbon dioxide and their fuel consumption is greatly reduced. Despite the significant tax benefits, prices of hybrid vehicles are higher than those of the vehicles sold by Delek Automotive in the equivalent categories. Consequently, these vehicles do not constitute significant competition for those sold by Delek Automotive. The market share of hybrid vehicles in Israel is similar to that in other Western markets such as Europe and the United States (approximately 2%). Furthermore, there are now entities in the vehicle market as well as others which are engaged in the development of vehicles which will be powered by electricity only. Since at the present date the mileage between charges is low compared with that of gasoline vehicles, Delek Automotive does not expect these vehicles to constitute significant competition for its vehicles in the next few years until there are substantial technological advances. E. Critical success factors in the segment and changes therein Several significant factors contribute to the success of vehicle and vehicle parts importers in Israel: (a) new models and their branding among consumers; (b) trading conditions for the importer, and primarily the currency exchange rates applying to imports and the exchange rates of the currencies used by competitors; (c) marketing ability of the importer; (d) reputation and service level of the importer, vehicle parts supplier and garage; (e) good relations with the manufacturer; (f) commercial relations with leasing and rental companies; (g) resale value of vehicles in the used car market; (h) price, quality and availability of vehicle parts, F. Principal entry barriers to the segment In the opinion of Delek Automotive, the entry barriers to the vehicle import segment in Israel are relatively high for the following reasons: (a) strong ties between the importer and the manufacturer; (b) essential financial strength of the car importer; (c) great importance of the level of service provided by the importer and its past experience with its customers. However, in the opinion of Delek Automotive, there are no significant entry barriers to the vehicle parts import market. Among the reasons for this are that trading in vehicle parts requires a license from the Ministry of Transport and obtaining such a license does not entail a large investment of resources and effort. G. Alternative products and changes in the segment The Ministry of Transport is progressing with its urban transport development plans. In 2010 a fast lane project was launched at the entrance to Tel Aviv. The project is designed to increase the use of public transport and reduce traffic congestion at the entrance to Tel Aviv and inside the city. An exemption from payment for vehicles carrying a number of passengers encourages carpooling. The Ministry’s plans call for inauguration of the first line of the light railway in a few years and this will change the transport reality in the Tel Aviv metropolis after many years of delays and postponements. H. Competitive environment and changes therein Competition in the vehicle parts market is fierce. For details, see section 1.14.16. 1.14.3 Products and services A. Mazda and Ford vehicles

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Delek Automotive imports, distributes and sells a wide range of Mazda and Ford private and commercial vehicles under franchise agreements with the manufacturers. For a description of the franchise agreements, see sections 1.14.15(A) and 1.14.15(B). From the start of operations through December 31, 2010, Delek Automotive delivered 494.000 vehicles to Israeli customers, of which 373,000 were Mazda models and 121,000 were Ford models. The following tables illustrate the breakdown of vehicle deliveries by Delek Automotive in units for 2010 and 2009, by quarter and by manufacturer: 2010

Manufacturer Q1 Q2 Q3 Q4 Total Mazda 7,889 8,243 6,705 9,019 31,856 Ford 1,817 2,979 2,994 3,065 10,855 Total 9,706 11,222 9,699 12,084 42,711

2009

Manufacturer Q1 Q2 Q3 Q4 Total Mazda 6,169 6,462 9,278 9,776 31.685 Ford 3,325 2,024 4,203 2,937 12,489 Total 9,494 8,486 13,481 12,713 44,174

Delek Automotive imports, markets and distributes vehicles for different market segments: family sedans (Mazda 3 and Ford Focus), executive cars (Mazda 6 and Ford Mondeo), 4x4s (Ford Explorer and Ford Edge), transport vehicles (Ford Transit), minivans (Mazda 5, Ford S- MAX and Ford Galaxy), commercial vehicles (Ford F-350 and Ford Connect) and mini cars (Mazda 2 and Ford Fiesta). The market share of Delek Automotive in 2010 and 2009 was 25% and 19% respectively of all vehicle deliveries in Israel1. The decline in Delek Automotive’s market share in 2010 stems primarily from the damage to its ability to compete caused by the strengthening of the Japanese yen together with the weakening of the import currencies of its competitors. In 2009 its larger market share stemmed primarily from the launch of the new Mazda 3. Toward the end of December 2010 Delek Automotive launched the Mazda 2 sedan (4 doors) which is in a category hitherto unrepresented by Delek Automotive. Also launched was the new Mazda 5. December saw the launch of the new Ford Edge Delek Automotive also has a franchise for the marketing, distribution and sale in Israel of Lincoln vehicles and vehicle parts. At the date of this report, Delek Automotive does not sell these vehicles. B. Importation of vehicle parts and provision of garage services Delek Automotive markets and distributes all types of vehicle parts and accessories for the vehicles it imports. Delek Automotive also provides maintenance and repair services for its customers, and support and training for its network of dealers and service centers for Mazda and Ford vehicles throughout the country and at its central service center (the central garage) at Nir Zvi (for a description of the real estate asset on which the central garage is located, see section 1.14.7). The price and the method of providing services at the central garage and the authorized garages are based on “manufacturer hour” (the maximum tariff for the work hours required to carry out any job as defined by the manufacturer). The service centers comply with the standards defined by Delek Automotive and set out in their agreements. The service centers are supported and supervised by regional service inspectors, who visit these centers a few times a month, inspect compliance with the standards and solve professional problems.

1 Based on reports published from time to time by the Automobile Importers Association.

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1.14.4 Revenue and product segmentation A. The following table shows data for Delek Automotive revenues from products and services in 2010 and 2009 (in NIS millions), at % of the Group’s net revenue and at % of the automotive segment's revenue:

2010 2009 % of % of % of % of NIS Group segment NIS Group segment millions revenue revenue millions revenue revenue Import and sale of 4,191 9.4% 90.92% 4,360 9. 4% 91.93% vehicles Sale of parts and 418 0.9% 9.08% 383 0.9% 8.07% garage services Total 4,609 10.3 100% 4,743 10.3% 100%

B. Below is data for Delek Automotive gross earnings from products and services in 2010 and 2009 (in NIS millions), as a percentage of the Group’s profit and as a percentage of automotive segment profit:

2010 2009 % of % of % of % of NIS Group segment NIS Group segment millions revenue revenue1 millions revenue revenue Import and sale of 488 - 78.2% 379 5.9% 72.2% vehicles Sale of parts and 136 - 21.8% 146 2.28% 27.8% garage services Total 624 - 100% 525 8.18% 100%

C. The gross profit of revenues in the segment in 2010 and 2009 constituted 13.53% and 11.07%, respectively. D. On October 20, with closure of the transaction for the transfer of control in Delek Automotive from Delek Investments to Delek Automotive, Delek Investments stopped consolidating the data of Delek Automotive in its financial statements. 1.14.5 Customers A. There are two main categories of Delek Automotive customers: private and institutional. Institutional customers include car leasing and rental companies and the government vehicle administration. Below is the breakdown of sales to private and institutional customers for 2010 and 2009:

2010 2009 Private customers 33% 36% Institutional customers 67% 64%

This breakdown of sales does not stem from Delek Automotive's policy but from the structure of the vehicle market in recent years. In view of the large numbers of vehicles purchased by institutional customers, these customers are granted bulk discounts and preferential credit terms. Because of the difficulty in obtaining bank credit at the beginning of 2009 owing to the global slowdown, there was a material change in the credit terms offered by Delek Automotive to its institutional customers only. For some of them, the change took the form of a significant extension in the credit period compared with the norm until now (between eighteen months up to less than three years), and interest was charged to these customers on the balance of the

1 In light of the sale of Delek Automotive shares, as described at the top of section 1.10 above, Delek Automotive’s operating sales have been presented in the statement of income under the “Profit from discontinued operations” item, where the comparison figures have been reclassified.

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credit. To secure part of the longer credit the Company is granted a first lien on the customers’ rights in the vehicles sold and in some cases on their rights to receive funds for leasing those vehicles. (See also sections 1.14.9(D) and 1.14.20(E). At December 31, 2010 the balance of the debt partially secured by these liens amounted to NIS 200 million. B. Delek Automotive customers purchasing parts and garage services are mainly the service centers, distributors, customers of the central garage, institutional customers and also insurance companies providing repair services for their customers under existing insurance arrangements. 1.14.6 Marketing and distribution A. Delek Automotive markets and distributes the cars it imports by means of the eight showrooms it owns and by means of eight showrooms operated by six independent dealers. Delek Automotive sales are completed at its showrooms and it also sells directly by approaching institutional customers. B. Delek Automotive's showrooms are located around the country. They are rented from third parties, with the exception of the Mazda showroom in Tel-Aviv which is owned by Delek Automotive, and the Ford showroom in Tel Aviv which is leased from Delek Investments. C. Delek Automotive has agreements with six independent dealers that maintain and operate showrooms in major cities for displaying the cars it imports. These agreements do not grant the dealers exclusivity. However, there are specific areas in which Delek Automotive agrees there will be no more than one dealer (although Delek Automotive itself may operate in any area). The agreements with the dealers are for one-year periods from the date of signature and are renewed automatically for one additional year unless one of the parties gives three months' written notice of termination. Delek Automotive sets the commissions which it pays its dealers, and payments are made only after it receives full payment for the sale of the vehicle. D. Most Mazda and Ford vehicle parts are marketed by the company’s central logistics center at Nir Zvi and sold to 56 garages nationwide which have been certified as service centers for Mazda and Ford vehicles. Delek Automotive also sells parts through various dealers and distributors of vehicle parts in Israel. In recent years Delek Automotive has been upgrading the service centers. Under agreements between Delek Automotive and the service centers, the owner of a service center is required to operate, maintain and manage the center at its expense, in a manner, with an appearance and location to be determined by Delek Automotive in accordance with its instructions and subject to the provisions of any law. The owner is required to purchase and maintain permanent inventories of vehicle parts and accessories that comply with the quality and compatibility requirements and can satisfy the level of service required for Delek Automotive customers, as defined by Delek Automotive from time to time. The owner undertakes to repair, without charging the customer for labor and/or parts, any vehicle covered by a manufacturer's warranty and/or Delek Automotive service agreement, provided the repair is included in the warranty and/or service agreement and Delek Automotive approves the repair in advance. Delek Automotive pays the service center owner for services rendered under the warranty or service agreement, in an amount that includes the price for parts less a discount decided upon from time to time by Delek Automotive, plus labor costs as determined in the agreement. The agreements are valid for one year from the date of signature, and are renewed automatically for additional one- year periods. Notwithstanding the aforesaid, each party may terminate the agreement at any time and it will expire three months from the date of the notice. E. Delek Automotive also supports the marketing of its products through advertisements in the various media, at the discretion of its management and in compliance with the manufacturer's standard rules. 1.14.7 Competition In 2010 Delek Automotive’s market share was approximately 19% of total vehicle deliveries in the sector and approximately 22% of total private vehicle deliveries (compared with 25% and 28% respectively in 2009). The Israeli automotive market is oligopolistic and includes a number of importers representing various manufacturers. Competition in the vehicle market is between the various importers and is reflected in the wide range of car models imported from different parts of the world: Europe, USA and the Far East, but it is not reflected in the representation of a particular manufacturer by more than one importer. (For details of the parallel import reform and its application as of June 2010, see section 1.14.1(B)). Nevertheless, competition continues to be based mainly on brand, model, price, service quality, the vehicle’s resale value in the used car

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market and payment terms. The factors influencing competition in the sector are external and include competition in the global automobile market, vehicle manufacturers, exchange rates of the currencies in which the vehicles are purchased. Internal influences include the activities of the other importers in the Israeli market such as potential parallel importers. To the best of Delek Automotive’s knowledge,1 its main competitors are Union Motors (Toyota), Colmobil-Colmotor (Hyundai, Mitsubishi and Mercedes), Japanauto (Subaru), David Lubinski (Peugeot and Citroen), Moshe Carasso & Sons (Nissan and Renault), Champion Motors (VW, Audi and Seat) and UMI (Chevrolet, Opel, Saab and Isuzu), Mayer’s Cars and Trucks Ltd. (Honda, Volvo), Automotive Equipment and Vehicles Ltd. (Suzuki, Chrysler), and Talcar (Kia). There is intense competition in the vehicle parts and garage service markets. The competition to sell parts is waged against original parts imported by parallel import, generic parts, counterfeit parts, parts from scrapped cars, reconditioned parts and stolen parts. Authorized and unauthorized garages compete for business. Delek Automotive cannot estimate its market share in the service and vehicle parts market since there are no official data in this field, due to the numerous service providers, distributors, and small- and medium-size dealers. 1.14.8 Property, plant and equipment, and facilities Below is a summary of the main real estate and other material property, plant and equipment of Delek Automotive: A. The Mazda showroom in Tel Aviv is owned by Delek Automotive and the Ford showroom in Tel Aviv is leased from Delek Investments. B. Delek Automotive has a new logistics center comprising warehouses and offices situated on an area of 64 dunams near Moshav Nir Zvi. Delek Automotive has leasing rights to this land through 2045 (with an option for a 49-year extension). The Logistics Center, which was completed in 2004, is one of the most advanced of its kind and it was built with an eye on the future of Israel's car market. Activities in the center include vehicle storage, preparation and delivery of vehicles to customers, and marketing and sales of vehicle parts. Delek Automotive's management and service staff are also located in this center. The Logistics Center currently has capacity for storing about 2,500 vehicles, and will have a future capacity for another 1,000 vehicles. At the date of the report, Delek Automotive uses 100% of its maximum storage space. Delek Automotive does not expect to make another such significant investment in this property. For details of the central garage located in the logistics center, see sub-section (C). At the date of this report, all the buildings in the Logistics Center have received a Form 4. For details of legal proceedings pertaining to construction at the Logistics Center, see sections 1.14.16(A) below. On February 6, 2006, Delek Automotive received an enhancement levy assessment from the local Regional Planning and Construction Committee (“the Committee”) in respect of grant of a building permit for the Logistics Center, in the amount of NIS 21.6 million. Delek Automotive paid half of the amount of the levy. On March 8, 2006 Delek Automotive submitted a counter- assessment to the Committee, arguing that the principal charge under the assessment should be billed not to Delek Automotive but to the Israel Lands Administration (“ILA”) On February 17, 2008 a settlement agreement was signed between Delek Automotive and the Committee, whereby the enhancement levy is NIS 10 million at its value on the date on which Delek Automotive paid the Committee. Following this agreement, Delek Automotive, through its legal advisers, approached ILA requesting reimbursement of part of the enhancement levy it had paid. On December 8, 2008 a meeting on the matter was held with the CEO of ILA, but at the date of this report no response had been received from ILA. Delek Automotive will decide how to proceed in this matter in accordance with ILA’s response. C. Delek Automotive also purchased 78.5 dunams (gross) of land adjacent to the Logistics Center, as follows: 1. 71 dunams of which Delek Automotive purchased 58.5% (approximately 41.5 dunams) from Koor in accordance with an agreement from 2000. The leasing rights to this land expired on September 30, 2002 and since then legal proceedings have been taking place in order to extend is validity. They involve the conservation of the land as agricultural as well as its cultivation and regulation of the rights of the previous owner who is not active at present.

1 Based upon the reports published from time to time by the Automobile Importers Association.

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After this road was paved part of this land was also expropriated, leaving an area of 33.5 dunams leased by Delek Automotive. Moreover, another expropriation is expected and this would leave Delek Automotive with approximately 22.35 dunams. Delek Automotive believes that the expectation of another expropriation is forward- looking information as defined in the Securities Law, and it is based, inter alia, on a plan to upgrade the road in the area. This belief is not certain and it might not be realized, inter alia, because of changes in the above-mentioned plan. 2. 22 dunams of land to which Delek purchased the leasing rights from Koor pursuant to an agreement from 2000. After paving of a road, part of this area was expropriated leaving a leased area of approximately 12 dunams. 3. 15 dunams of the aforesaid land to which Delek Automotive has leasing rights until September 18, 2042 with an option for a 49-year extension. This is the land where Delek Automotive’s central garage is located. Following the above-mentioned settlement agreement between Delek Automotive and the Committee, on February 17, 2008 a Form 4 was issued for the central garage. The central garage has a business license through March 1, 2012. D. In addition to that stated in sub-sections B and C, Delek Automotive purchased 50% of the leasing rights (undivided interest) in a plot of land of approximately five dunams bordering on the plot on which Delek Automotive’s new Logistics Center at Nir Zvi was constructed, in order to enable convenient access to the center. For further details, see section 1.14.12(A). E. Under an agreement signed on January 28, 2008 between DMR Properties (1995) Ltd., a subsidiary of Delek Automotive ("DMR Properties") and Vitania Ltd. (“Vitania”), (a subsidiary of Delek Real Estate until December 29, 2010), of the first part and a third party, DMR Properties and Vitania acquired title to a 5-dunam plot of land ("the Plot”) for NIS 64 million, in equal parts and on the same conditions (50% for each party)1. On February 6, 2008, DMR Properties and Vitania entered into an agreement regulating the erection of an income-generating property together on the Plot and an adjacent plot, if acquired (“the Cooperation Agreement”). On the same date, a loan agreement was signed between DMR Properties and Vitania, in which DMR Properties undertook to grant Vitania a loan of NIS 32 million to finance the purchase of Vitania’s share in the Plot ("the Loan Agreement”). The Cooperation Agreement and Loan Agreement were approved by the general meetings of Delek Automotive and Delek Real Estate. At the reporting date DMR Properties and Vitania are erecting on the Plot an income- generating property which will be called Mazda-Ford House (the “Project”). The construction plan for the Project comprises two stages: (1) Stage A consists of the building of all the parking basements (which will also be used in Stage B), the showroom for Mazda and Ford vehicles on the basement floor as well as an innovative special-purpose display tower for Mazda and Ford vehicles in the eastern section of the Plot. The showroom and display tower will be leased to DMR Properties or another subsidiary of Delek Automotive for its operations. The Company believes that this stage will be completed in 2013; (2) Stage B consists of the construction of an office building in the western section of the Plot and the plan is for this building to be let but no decision has yet been made with regard to the exact timing of the start of the construction work. As for the costs of the Project, Delek Automotive believes at present that Stage A will cost NIS 150 million (in addition to the cost of purchasing the above-mentioned land) and Stage B is expected to cost NIS 100 million. Delek Automotive’s estimates regarding continuation of the Project and its construction costs are forward-looking information as defined in the Securities Law and are based, inter alia on the estimates of the professionals providing services to Delek Automotive for the Project. These estimates are not certain and could change, inter alia, as a result of dependence on external factors which are not under the control of Delek Automotive, such as a delay in obtaining building permits and/or approvals from other authorities as required by law, difficulties with suppliers, etc. In order to finance the construction of Stage A of the Project, in October 2010 DMR Properties and Vitania (jointly: the “Borrowers”) entered into a credit agreement with a bank (respectively:

1 The total cost of the land amounted to NIS 66 million.

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the “Credit Agreement” and the “Bank”), whereby the Bank would make a credit facility available to the Borrowers in a total aggregate amount of up to NIS 150 million (the “Credit Facility”). The Credit Agreement provides that the interest for the Credit Facility will be prime plus a margin of 0.45% per year1. It also provides that in order to guarantee repayment of the credit debts, the Borrowers undertook to provide the Bank with collateral which includes, inter alia, a first-grade mortgage in favor of the Bank on the land which is free of any encumbrance, except for as provided in the agreement1. The Borrowers undertook toward the Bank that they would comply with certain terms in the credit period to the satisfaction of the Bank. These include financial criteria, including a prohibition on any type of payments out of the Project’s revenues to interested parties, if these payments endanger the repayment ability of the Borrowers, unless the Bank has given its prior consent thereto, and also a requirement for minimum equity capital of Delek Motors (for details, see section 1.10.13(B). It was also agreed that the Borrowers would be equally responsible vis-à-vis the Bank so that each party would be responsible for reimbursement of only half of the liabilities to the Bank. 1.14.9 Intangible assets Delek Automotive has franchises from Mazda and Ford for the import of vehicles and parts, as described in sections 1.14.15A and 1.14.15B. Delek Automotive is materially dependent on these franchises. 1.14.10 Human resources A. At the reporting date, Delek Automotive has 270 employees, divided into the following departments:

Department No. of employees Management 7 Finance, IT, administration 26 Mechanics 75 Service 32 Sales 41 Logistics 49 Vehicle parts 40 Total 270

Delek Automotive is dependent on Mr. Gil Agmon, the controlling shareholder in Delek Automotive and its CEO, inter alia because any change in the active management of Delek Motors Ltd. (“Delek Motors”) (a wholly-owned subsidiary of Delek Automotive) requires prior written consent from Ford (for further details see section 1.14.15(B)). B. Benefits and the nature of those benefits in employment agreements As a rule, Delek Automotive employees, including senior officers, are employed under employment agreements. According to Delek Automotive policy and the Notice to an Employee (Terms of Employment) Law, 2002, new Delek Automotive employees are furnished with a detailed written description of their employment terms when they start work. Employees receive all the rights to which they are entitled under Israel’s labor laws. Most Delek Automotive employees have senior employee insurance policies that include provisions for compensation and Delek Automotive's obligation for severance pay, as part of the terms of employment. Delek Automotive pays all its employees a bonus every year. In addition, since Delek Motors is a member of the Vehicle Importers Association, which is affiliated to the Chamber of Commerce Association, its employees are covered by a general collective agreement for import, export, service and trade sector employees from February, 21, 1977 (as amended on June 11, 1980 and October 27, 1983). In addition, extension orders applied some of the provisions of the collective agreement to all employees in the import, export and wholesale trade sectors, and therefore, it appears that they apply to all Delek Automotive employees.

1 This is subject to the Bank being entitled to increase the interest rate by 2% in the event of a breach by the Borrowers and subject to the Borrowers being entitled to reduce the interest by 0.2% if they deliver to the Bank a letter of guarantee as stipulated in the Credit Agreement. Moreover and subject to the terms governing the Credit Agreement, the Borrowers will be liable for a one-off payment and commission.

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Officers and senior management employees at Delek Automotive are employed under agreed terms agreed, which include, inter alia, a monthly salary, entitlement to a company car, provisions for senior employees insurance and in-service training fund. For details of the agreement with Rami Naor, a relative of the Group’s controlling shareholder, which expired in the reporting year, as deputy chairman of the board of Delek Automotive, see details pursuant to Article 22 in Chapter D of the Periodic Report. C. Training and instruction Delek Automotive holds regular training sessions for its employees, according to its needs and the employee’s function. Delek Automotive also sends its professional employees to trade fairs, seminars and workshops on relevant topics. D. Employee compensation plans Delek Automotive compensates its employees according to function and rank. The compensation is not part of the employment agreements and varies from year to year. E. Allotment of securities to senior employees 1. On January 9, 2006, Delek Automotive allotted 9,000,000 ordinary Delek Automotive shares to the CEO of Delek Motors, Gil Agmon, in consideration for NIS 255 million. At the date of this report, Mr. Agmon holds 37.81% of the issued and paid-up share capital of Delek Automotive – 37.47% with full dilution. 2. On April 10, 2006, the board of directors of Delek Automotive approved a compensation plan for seven senior employees of Delek Motors, whereby 2,720,000 unlisted options were allocated, exercisable for 2,720,000 ordinary Delek Automotive shares, in accordance with section 102(b)(1) of the Income Tax Ordinance (New Version), 1961, in an income track through a trustee appointed by Delek Automotive and approved by the tax authorities, according to the options plan for employees approved on February 9, 2006 which was presented for approval to the Income Tax Commission pursuant to provisions of the ordinance. These options were allotted to employees on June 6, 2006. Following are details of the option plan for employees and officers of Delek Automotive.

Recognized expenses in Number of Value of the Delek Motors shares benefit of financial exercisable options granted statements for under the plan under the plan 2009 (NIS Summary of the terms of the plan (at full dilution) (NIS thousands) thousands) Grant of options to Delek Motors employees, exercisable in 4 equal 2,720,000 17,100 1,083 portions commencing April 10, 2008

1.14.11 Suppliers Vehicles and vehicle parts are supplied to Delek Automotive by Mazda and Ford from their various factories around the world and at the manufacturers' discretion. Mazda products generally come from Japan, while Ford products generally come from Europe. Delek Automotive is dependent on these suppliers. In 2010 approximately 74% of the import value of vehicles and 53% of the import value of parts were from Mazda, with the remainder from Ford (26% and 47% respectively). For a description of the agreements with Mazda and Ford, see sections 1.14.15A and 1.14.15B. Vehicles and vehicle parts are available within 90 days of the date of the order and in accordance with the work plan structured with each of the vehicle manufacturers. 1.14.12 Working capital A. Vehicle inventory policy Delek Automotive orders new vehicles from the car manufacturers about once a month, and the vehicles arrive in Israel two - three months later. Delek Automotive’s policy is to hold stock sufficient for an estimated four months. B. Vehicle parts inventory policy

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The Commodities and Services Control (Vehicle Import and Servicing) Order, 1978, obligates the supplier to supply transportation products for any vehicle model imported by the importer within seven days after receiving the order. However, the importer or its agent is protected if it proves that it complied with procedures for ordering the product from any possible source at the time, and that the delay was beyond its control, provided the product is supplied within 14 days. The vehicle parts inventory at Delek Automotive’s Logistics Center is based on the experience of Mazda, Ford and Delek Automotive regarding requirements for vehicle parts in the Israeli market. Vehicle parts are delivered about two - three months after being ordered. For immediate orders, when the part is not in stock, Delek Automotive orders the required parts from the central parts facilities of Mazda and Ford in Europe and ships them to Israel by air. Therefore, in order to maintain inventory at the levels required to provide its customers with appropriate service, Delek Automotive uses a computer system based on statistical models which takes relevant parameters into consideration. Delek Automotive maintains a five-month inventory of parts. The vehicle parts inventory totals 45,000 items, which are valued at NIS 70 million in the financial statements at December 31, 2010. C. Warranty policy In addition to the manufacturer's warranty attached to the agreements, the manufacturers provide additional warranties as detailed in the warranty manual in each new car. Mazda and Ford provide a three-year or 100,000 km warranty for all their models, whichever comes first. In the agreements with the manufacturers, Delek Automotive undertook to implement or ensure that the service centers implement the warranty services as described in the warranty manual. According to the manual, Delek Automotive grants this warranty for all the vehicles it sells. Delek Automotive is entitled to reimbursement from the manufacturers for expenses incurred by supplying warranty services under the franchise terms. Delek Automotive is under no independent obligation to provide a warranty for the vehicles, except for what is stated in the agreements with the manufacturers. The warranty is therefore a direct and exclusive warranty from the manufacturer who determines its terms for the customer, while Delek Automotive acts as the manufacturer’s agent in all matters pertaining to the provision of service to the customer in general and implementation of the vehicle warranty in particular. Therefore, and based on its experience, Delek Automotive does not foresee any expenses due to this warranty and therefore has not made any provisions for warranties on its books. The manufacturer agreements describe the terms for reimbursing Delek Automotive for warranty services, and inter alia that Delek Automotive is required to report within 90 days on every repair effected under the warranty, and to keep the parts for up to 30 days after payment. In addition, the manufacturers may request the return of the faulty parts that were replaced. In the reporting year, there were no material disputes with manufacturers in connection with these warranty services. For details of repairs carried out by the service centers under the warranty, see section1.14.5(D). Delek Automotive's trade license for transportation products specifies that the company is required to provide the buyer, at the time of the sale, with a warranty for the proper operation of the vehicle part as specified in the license for at least three months or 6,000 km, whichever is earlier. The warranty manuals provided with vehicles sold by Delek Automotive specify that Mazda and Ford provide a warranty for vehicle parts for six months or 10,000 km, whichever is earlier, from the date of its installation by a Delek Automotive service center. D. Credit policy In the reporting year supplier credit averaged 225 days (compared with 210 days in 2009). Given the fact that taxes on the import cycle are paid by Delek Automotive in cash, in the reporting year its effective credit period averaged 110 days (compared with 100 days in 2009). In the reporting year the credit granted by Delek Automotive to its customers averaged 92 days. The volume of credit to its customers averaged NIS 1,250 million in 2010 (compared with NIS 950 million in 2009), and credit from suppliers averaged NIS 1,130 million in 2010 (compared with NIS 740 million in 2009). The change stems primarily from the tax component included in customer balances but not in the balance of overseas suppliers. The table below shows data for the average volume of credit and credit days for customers and suppliers (calculated on an annual basis) in 2010 and 2009 (all volume data are in NIS million):

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2010 2009 Volume Days Volume Days Customers1 1,320 92 950 74 Suppliers2 1,130 225 740 210 Suppliers - effective3 1,130 110 740 100

1.14.13 Investments A. On July 1, 2004, DMR Properties (50%), Delek Israel (25%) and Delek Real Estate (25%) established a partnership called Delek – Nir Zvi ("the Nir Zvi Partnership"). The Nir Zvi Partnership was established for the purchase (undivided interest) of 50% of the leasing rights in a 5-dunam plot adjacent to the plot on which the Group’s new Logistics Center at Nir Zvi is built, to allow convenient access to the Logistics Center of Delek Automotive. The leasing rights were acquired under an agreement made on September 29, 2003 between the Nir Zvi Partnership (in establishment) and the Middle East Tube Company Ltd. (“Tubes”) (“the Purchase Agreement”). The Nir Zvi Partnership has leasing rights in the Land through 2045, with an option for a 49-year extension4. According to the outline plan, part of the Land is defined as a private open area. designated for expropriation for the widening of Road 44. To the best of Delek Automotive's knowledge, the Nir Zvi Partnership is initiating a change in the designation of the area for the establishment of a commercial center and gas station. The Nir Zvi Partnership is financed by a shareholder loan and by external sources such as banks. Under the agreement between the partners in the Nir Zvi Partnership, if by December 31, 2009, the permits referred to in the agreement for establishing a gas station and commercial areas on the Land are not obtained and/or there is no agreement for operating the gas station by the fuel company, Delek Real Estate and Delek Israel are entitled, during one year from that date, to leave the partnership and receive from DMR Properties all their investments plus linkage differentials and 6% annual interest. Consequently, after Delek Real Estate notified DMR Properties of its wish to leave the partnership and get back its investment as described above, in January 2010 DMR Properties bought back from Delek Real Estate its share in the partnership and paid it NIS 2,101,000 for leaving the partnership5. After transfer of Delek Real Estate’s rights in the partnership to DMR Properties, the latter will hold 75% of the rights in the partnership. The agreement between the partners in the Nir Zvi Partnership was approved at the general meeting of Delek Automotive on November 4, 2003. B. In April 2002, August 2003, and December 2005, Delek Automotive purchased shares in Mobileye N.V., constituting 3.3% with full dilution, for $7.2 million. The fair value at December 31, 2010 is approximately NIS 87 million, based on investments made in this company. Mobileye N.V. is developing an advanced sensor technology system for the automotive industry. C. In 2006 Delek Automotive acquired 2,200,000 Ford Motor Co. shares in consideration of US $15 million (NIS 70 million).The fair value of the shares at December 31, 2010 is approximately NIS 131 million, based on their stock exchange price. Ford Motor Co. is a public company whose shares are traded on the New York Stock Exchange and is the manufacturer of Ford vehicles. At the publication date of Delek Automotive’s Periodic Report (March 13, 2011), the value of the Ford shares held by Delek Automotive is approximately NIS 92 million. 1.14.14 Financing A. Below is the average interest rate on loans from bank and non-bank sources that were in effect in 2010 and are not intended for the exclusive use of Delek Automotive6:

Average interest rate

1 In 2009 (up to the report date) the credit terms for its institutional customers were changed as stated in section 1.14.4. 2 In 2009 Mazda increased the number of credit days from 120 to 240. 3 Delek Automotive pays import taxes in cash, and therefore the effective credit for suppliers is 100 days. 4 These rights have not yet been registered in the partnership’s name in the Land Registry Office. Upon completion of the handling of the plans for the joint venture which were submitted in the name of Tubes, it will be possible to deal with signature of the lease agreement with the Administration for the rights which were purchased. 5 The transfer of rights has not yet been registered in the records of the Register of Partnerships. 6 The average interest rate in the table is close to the effective interest rate.

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Short-term loans Long-term loans Banking sources NIS credit Prime – 0.7% CPI-linked + 5.2% Credit in yen/euro/sterling LIBOR + 1.2% - Credit in USD LIBOR + 1.2% LIBOR + 1.8% Non-banking sources Prime – 0.3% -

B. Credit limitations The limitations on the loans and credit facilities that Delek Motors receives from the banks are subject to the following financial covenants: 1. The adjusted equity1 at the end of each calendar year shall not be less than 20% of total assets for that year. 2. Delek Automotive undertook towards United Mizrahi Bank Ltd. that its share in its total bank credit would not exceed 20% and that the ratio of bank credit to its balance sheet would not exceed 55%. In addition, Delek Automotive undertook towards banks in Israel not to create liens on its property and assets in favor of any another person or entity and not to sell or transfer in any way (except by way of sales in the normal course of its business) its assets to a third party without the prior written consent of the banks. At December 31, 2010 and the publication date of this report, Delek Automotive was and is in compliance with these financial covenants. C. Between the balance sheet date and the reporting date there was no significant change in the volume of credit from banking corporations and no new loans were obtained. D. Delek Automotive credit facilities and terms At December 31, 2010 and at the date of the Periodic Report, Delek Automotive had unsigned credit facilities totaling NIS 1,450 million. At December 31, 2010 it had used NIS 587 million of this amount. At the date of publication of the report there had been no material change in the volume of credit used by the Company. These credit facilities were granted for one year. The standard forms for opening an account which were signed by Delek Automotive many years ago stipulate that the bank will have precedence in making any loan granted to Delek Automotive immediately repayable, inter alia, in the event that any document signed by Delek Automotive gives another entity the right to demand immediate repayment of its debts and liabilities vis-à-vis said entity. E. Variable interest credit Below are details of variable interest credit used by Delek Automotive at the balance sheet date:

Basic interest rate Interest range in before report Change mechanism 2009 publication date Bank of Israel interest + (0.7%-) – 1.6% 0.8% JPY LIBOR + 1.2% – 2% 1.2% EUR LIBOR + 2% – 1.2% 1.2% USD LIBOR + 1.2% – 2% 1.2%

F. Credit rating On February 17, 2004, Maalot Israel Securities Rating Company Ltd. (“Maalot”) announced that on February 11, 2004, its rating committee set a rating of AA for Delek Automotive liabilities, based, inter alia, on Delek Automotive's financial policy. On February 7, 2010 Maalot notified Delek Automotive that its rating was being downgraded from AA to A+ mainly as the result of insufficient underwritten credit facilities. Since the

1 The letters of undertaking signed by Delek Motors are from the period in which financial statements were prepared in adjusted amounts.

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company has no use for the rating and sees no need for it in the foreseeable future, it asked Maalot to stop monitoring it. 1.14.15 Taxation A. For details of the Ministry of Finance’s decision regarding the plan to increase the use value of company cars, see section 1.14.1(B)(3) above. B. For details of the green taxation reform, see section 1.14.2(B)(4). C. Vehicles sold by Delek Automotive in Israel are subject to VAT at the rate applicable on date of the sale (since January 1, 2010 it has been 16%). D. Vehicles imported from Japan are subject to 7% tax on the value of the vehicle. E. Delek Automotive pays the taxes listed in subsections A-E when the vehicles are released from customs. The sales prices of the vehicles take these taxes, inter alia, into account. F. For further details on taxation, see Note 42 to the Company’s financial statements. 1.14.16 Environmental risks and their management The provisions of law, regulations and various orders dealing with environmental protection (“Environmental Protection Laws”) are applicable to a non-material part of Delek Automotive’s operations. These issues relate to the garage and service operations provided by Delek Automotive and their consequences, including an internal gasoline station to fuel the new vehicles marketed by Delek Automotive; operation of a carwash station; removal of waste from the central service garage, including, inter alia, oils, filters and tires. Pursuant to the Tire Removal and Recycling Law, 2007, Delek Automotive is bound by an annual tire recycling quota and noncompliance is liable to result in the imposition of a fine. Delek Automotive takes care to comply with this quota every year. Delek Automotive believes that the cost of complying with environmental protection laws is not expected to have a material effect on its results. Delek Automotive believes that the potential implications of environmental quality laws for its business is forward-looking information as defined in Article 32A of the Securities Law, which is based on its familiarity with regulation in the sector and its past experience. Nevertheless these estimates might not be realized for many reasons, among them regulatory changes, changes in Delek Automotive’s installations, discovery of significant pollution on its premises, etc. 1.14.17 Restrictions and supervision of Delek Automotive operations Below are details of the legal restrictions and other legal arrangements relevant to a material part of Delek Automotive’s basic operations and which could affect them: A. Legislation in the vehicle import industry in Israel The Control of Commodities and Services (Vehicle Import and Servicing) Order, 1978, states, inter alia, that no importer or agent may sell a new imported vehicle without a license from the competent authority. Delek Automotive has licenses as defined in the above Order, for importing vehicles, valid through December 31, 2011. The licenses are granted for one year and are renewed every year. Delek Automotive also has special permits for importing original vehicle parts for Mazda and Ford vehicles. These permits are valid through June 9, 2011 and December 13, 2011, respectively. The order also sets conditions for the awarding of a vehicle import license which require the provision of maintenance services and define which of the importer’s service garages to operate, and also require the provision of a warranty for at least two years and the obligation to market and supply traffic products. For details of a Ministry of Transport procedure regulating the import of generic vehicle parts, see section 1.14.1(B)(6). B. Price control There are no price controls for vehicles, spare parts and garage services. C. Business licenses Delek Automotive’s operations require a business license under the Business Licensing Law, 1968. At the date of the report, Delek Automotive has licenses for all its operations. Trade in vehicles and vehicle parts requires a permit from the Ministry of Transport pursuant to the Commodities and Services Control (Manufacture of and Trade in Transportation Products)

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Order, 1983. Delek Automotive has a valid license from the Ministry of Transport for trading in transportation products, valid through December 31, 2011. D. Antitrust An order by virtue of section 50B of the Restrictive Trade Practices Law, 1988, which came into force on April 24, 2003, was designed to preserve freedom of competition in the vehicle sector. It prohibits, inter alia restrictions on service garages with regard to the purchase and use of traffic products. It entitles consumers to purchase warranties in addition to the statutory warranty or the one determined by the manufacturer (based on the longer of the two periods). It prohibits the setting of warranty conditions which are contingent on the purchase of other products and services. It forbids service garages from demanding various items of information. It bans service garages from imposing price restrictions and determines criteria for the granting of authorized garage status. It also forbids the granting of exclusivity to service garage operators. This order was valid for five years until April 24, 2008. In any event, Delek Automotive operates in accordance with this order. 1.14.18 Material agreements The material agreements to which Delek Automotive is a party are these: A. Mazda agreement Delek Automotive has imported and sold Mazda vehicles and vehicle parts since 1992. Under an agreement from April 1, 2005 between Mazda Motor Corporation ("the Manufacturer”), Delek Motors and the Itochu Corporation (“the Exporter”) (“the Mazda Agreement”), the Manufacturer is committed to supply Delek Motors with specific Mazda models as detailed in the appendix to the above agreement,1 for the purpose of marketing and sales in Israel. Replacement parts for these vehicles are also part of the Mazda Agreement (“Mazda Vehicles and Parts”). Below is a summary of the main terms of the Mazda Agreement: The supply of Mazda Vehicles and Parts to Delek Motors pursuant to the Mazda Agreement will not prevent Delek Motors from purchasing other vehicles and vehicle parts from other suppliers for sale in Israel, provided such sale does not have a significantly adverse effect on the sale of Mazda Vehicles and Parts. The Manufacturer has sole discretion to determine whether the sale has a significantly adverse effect on the sale of Mazda vehicles. Delek Motors is required to inform Mazda of its intent to sell other vehicles or vehicle parts at least 90 days in advance. In addition, the Manufacturer is not prevented from selling vehicles or parts manufactured by other manufacturers to any other party in Israel. Notwithstanding the aforesaid, the Manufacturer has the right to sell Mazda vehicles in Israel through other parties as well, as specified in the Mazda Agreement. These parties include government bodies, the diplomatic corps, international bodies such as the UN, Japanese companies that purchase more than ten vehicles per year, companies controlled by the Manufacturer, their employees and others. Delek Motors may not sell, directly or indirectly, vehicles and vehicle parts outside of Israel. The Mazda Agreement has been extended through March 31, 2011. Delek Automotive is currently working on an extension of the agreement. (On March 29, 2011 Delek announced that extension of the agreement is at the signature stage). Vehicles and parts are ordered through specific agreements between Delek Motors and the Exporter, and between the Exporter and the Manufacturer. These agreements come into effect when the Manufacturer receives the order. The Manufacturer will make every effort to fill these orders, but it is not obligated to do so. Delek Motors undertakes not to use vehicle parts for any purposes other than to equip and service vehicles in Israel. Delek Motors is required to purchase a minimum number of vehicles each year, as detailed in the agreement.2 In 2010, Delek Motors met the minimum purchase commitments stated in the agreement and Delek Automotive believes that Delek Motors will also meet these commitments in 2011. The Manufacturer and Exporter may change the aforesaid number of vehicles subject to the consent of all the parties to the Mazda Agreement,

1 The appendix to the agreement is not updated; rather, the quantities and models ordered are agreed upon from time to time between the Manufacturer and the Exporter. 2 In a letter dated February 18, 2009, the Manufacturer confirmed that failure to comply with the minimum specified in the agreement in the fiscal year beginning April 2009 and ending March 2010, would not constitute grounds for termination of the agreement between the parties.

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in order to meet demands in the changing Israeli market and/or according to changes in the Manufacturer's business plan. If Delek Motors fails to purchase the minimum quantity defined in the Mazda Agreement, the Manufacturer is entitled to terminate the agreement immediately by written notice to Delek Motors and the Exporter. The Mazda Agreement sets the legal and business conditions relating to the distribution of Mazda Vehicles and Parts, including the establishment of a marketing and distribution system, implementation of marketing and sales activities, establishment of a service center for vehicles and a customer service management system. It also requires the establishment of storage facilities suitable for vehicles, provision of customer warranties according to the Manufacturer’s warranty, submission of regular reports to the Manufacturer and Exporter, non- disclosure agreements, safekeeping of intellectual property, and an arbitration mechanism for resolving problems between the parties, all as set forth in the Mazda Agreement. Each party is entitled to terminate the agreement at any time by written notice to the other parties if one or the other is in breach of the agreement and does not remedy that breach within two months after notice was given. Each party to the agreement is entitled to terminate the agreement by written notice to the other parties in one of the following events as set forth in the agreement: foreclosure, bankruptcy, receivership, request for reorganization, insolvency, delay in payment, transfer of all or most of the business assets and liabilities of Delek Automotive, the freezing of Delek Automotive’s business, merger, and so forth. The Manufacturer is entitled to terminate the Mazda Agreement at any time by written notice to the Exporter and to Delek Motors, if the Manufacturer decides that it is unable to continue business with Delek Motors due to death, incompetence, disregard, or any change in Delek Motors' management or as a result of a change in the legal or organizational structure of Delek Motors or in the case of a material change in the composition of the company’s shareholders or investors1. In the event where, as a result of force majeure (as defined in the agreement), any party to the Mazda Agreement is prevented from fulfilling its obligations for more than six months, any party to the agreement shall then have the right to terminate the agreement immediately by written notice to the other parties to the agreement. Under the Mazda Agreement, the Exporter and Delek Motors may not transfer their obligations and rights, in whole or in part, to any third party without the prior written consent of the Manufacturer. B. Ford agreement Delek Motors (in this sub-section 1.14.18(B), the “Dealer”) has been importing and selling Ford vehicles and vehicle parts since 1999, under an agreement signed on June 1, 1999 between Ford Motor Company (“Ford”) and Delek Motors (“the Ford Agreement”). Following are the main provisions of the Ford Agreement: Ford appointed Delek Motors as a non-exclusive authorized dealer in Israel of vehicles and parts made by or for Ford and of other products as determined by Ford from time to time. Delek Motors agreed not to act directly or indirectly for any other business enterprise and shall act solely as a Ford dealer unless Ford agrees otherwise in writing. Delek Motors undertook not to act in any way in the sale of new vehicles or parts of Ford’s competitors without prior written consent from Ford. In the agreement, Ford agrees that Delek Automotive be a franchisee of Mazda products and defined rules for the integration of Mazda and Ford franchises in Israel. The Ford Agreement remains in effect from the date of its execution until it is terminated by one of the parties in accordance with its provisions. The Ford Agreement stipulates the business and legal conditions for distribution of Ford products by Delek Motors in Israel, including marketing and distribution operations, establishment of a service system that complies with Ford standards, employment and training of suitable human resources, provision of warranties for Ford products, maintenance and

1 The manufacturer has granted approval in advance to the transfer of control in Delek Automotive from Delek Investments and Properties to Mr Gil Agmon and recognized Mr Agmon as the largest shareholder in Delek Automotive and Delek Investments and Properties as the second largest shareholder in the company.

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repair services, the use of trade names and trademarks, and an arbitration mechanism for resolving disputes between the parties. section F of the Ford Agreement (“section F”) stipulates that Ford entered into the agreement on the basis of the representation and agreement that (1) only Gil Agmon (37.47%) and Delek Investments (32.13%)1 will be the principal owners of the Dealer, with holdings of 10% or more. It also stipulated that notwithstanding any statements to the contrary in the agreement, as long as no other person holds 10% or more of the shares of the Dealer, Gil Agmon is the largest shareholder and Delek Investments holds at least 10% of the shares in the Dealer, the Ford Agreement will remain valid and no prior consent will be required from Ford with regard to future changes in shareholdings in the Dealer; (2) only Gil Agmon will be fully authorized to engage in active management of the Dealer and he will devote his efforts to this purpose exclusively. The agreement also stipulates that the Dealer shall give Ford prior written notice of any proposed change in control (subject to that stated above) or in management authority, and immediate notice of the death or incapacity of any person as aforesaid. It also stipulated that any such change shall be valid only upon an amendment to the agreement to be signed in writing by Ford and the Dealer. In the event that its advance written approval (which it shall not unreasonably withhold) is not obtained Ford shall have the right to terminate the agreement as set forth hereunder. Delek Motors has the right to terminate the Ford Agreement at any time by giving Ford 30 days' written notice. Ford has the right to terminate the Ford Agreement without notice should any of the events listed in the agreement and which are under the control of Delek Motors, occur. These events include transfer by Delek Motors of the rights or obligations under the agreement; transfer of any material assets owned by Delek Motors that are required for running its business; any change without Ford’s prior written consent (which it shall not unreasonably withhold) in the direct or indirect control of the active management of Delek Motors, as set forth in section F; discovery that Delek Motors or any other person whose name appears in section F made false representations when entering into the agreement or that Delek Motors made false representations in respect of any of the details listed in section F of the agreement; insolvency of Delek Motors; failure of Delek Motors to function as normal or to keep its Ford business open during regular business hours as set forth in the agreement; a court conviction of Delek Motors or any of the entities listed in section F for violation of the law; or a disagreement between the parties which Ford believes could have an adverse effect on the business of Delek Motors, or the reputation or goodwill of Delek Motors or of Ford of other authorized agents of Ford, its associates or its products; or non-agreement between the above parties which Ford believes could have an adverse effect on the businesses of Delek Motors, its reputation or that of Ford or of its associates; a breach by Delek Motors of some of its undertakings under the agreement; late payment to Ford or a Ford company after prior notice was given and the breach was not corrected within 15 days; suspension or revocation of Delek Motor’s operating license for any reason whatsoever. In addition, Ford has the right to terminate the Ford Agreement by giving 60 days' notice if Delek Motors fails to fulfill its undertakings in accordance with the agreement and does not remedy the breach within the 60-day notice period. Ford and Delek Motors both have the right to terminate the Ford Agreement by giving 15 days' written notice in the event of the death, physical or mental disability of the owners of Delek Motors listed in section F, provided that Ford suspends this right for a period of three months to one year if their successor or legal representative asks Ford to do so and Ford is convinced, to its satisfaction, that he or she is able to comply with the terms of the Ford Agreement. Ford has the right to terminate the Ford Agreement at any time by giving at least 120 days' written notice. Ford has the right to terminate the Ford Agreement at any time by giving at least 30 days' notice if Ford offers a new agreement or an amended version of the agreement to its authorized dealers. If the event of a change in the control of Delek Motors or if most of the assets of Delek Motors are transferred to any other party, which requires Ford to negotiate a new distribution agreement with that party, Ford shall have the right of first refusal to purchase Delek Motors or the assets offered for sale on the same conditions as agreed by that party. Ford has the right

1 Until October 2010 the principal owners were Delek Automotive – direct holding of 100%, Yitzhak Sharon (Teshuva) – indirect holding of 72%. In a letter dated September 14, 2010 (the “Letter of Consent”) Ford stated that it recognizes as the owner of the Dealer prior to the transfer of control (Delek Automotive holds 100% of the Dealer and Delek Investments holds 54.9% of Delek Automotive) and that it gives its written consent to said change in control (Delek Automotive’s 100% holding of the Dealer and Gil Agmon’s 38% holding and Delek Investments’ 33% holding of Delek Automotive) where Gil Agmon is the largest shareholder.

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to assign its right of first refusal to any third party. The right of first refusal can be enforced vis- à-vis any transferee of Delek Motors. 1.14.19 Legal proceedings A. On September 4, 2007, Israel Police questioned Gil Agmon, CEO of Delek Automotive and Delek Motors, and Yoram Mizrachi, deputy CEO of Delek Motors, on suspicion, together with DMR Properties and one of its former officers, of bribing an engineer on the Lodim Local Planning and Construction Committee and making a false record in a corporation's documents, in connection with the construction of the Logistics Center at Nir Zvi. The CEO and deputy CEO were detained for two days and released on bail which expired at the end of the year. On December 12, 2010 the pair were notified by Israel Police that the Prosecutor’s Office of the Central District had decided to close the investigation file. To the best of Delek Automotive’s knowledge the Prosecutor’s Office of the Central District has not yet reached a decision in the matter of DMR Properties and its former officer after a hearing took place four months ago. B. On July 13, 2010 a motion was filed in the Tel Aviv District Court for certification of a class action against the subsidiaries Delek Motors and Delek Motors Parts (1987) Ltd. (the “Defendants”). The plaintiff argues that the Defendants dictate “standard hours” to their service centers for various services on cars at their service centers and require them to charge the customer for work according to the standard hours even though actual work hours amount to less than that. According to the claim, this type of agreement between the Defendants and the centers is a restrictive practice in contravention of the law, it undermines consumer rights and provides grounds to file a claim for damages against the Defendants. The plaintiff is asking to represent all the owners of vehicles imported by one or more of the Defendants who had their cars serviced at their service centers and who were charged for labor at the centers according to the standard time (a predefined repair time for each job). The amount of the plaintiff’s personal claim is NIS 1,161 and the amount of the class action is estimated at NIS 168 million. The Defendants submitted their responses to the motion for certification as a class action on November 14, 2010, stating that they do not dictate labor time to their service centers, and in any event this is not a restrictive practice. On February 21, 2011 a first pre-trial hearing was held in the case as a result of which and following an application from the plaintiff, the court ordered that the pleadings be sent to the Antitrust Commissioner and the Attorney General. The management of Delek Motors estimates, based on the opinion of its legal counsel1, that it is more than likely that the motion for certification as a class action will be dismissed, therefore a provision for this proceeding was not included in the financial statements. C. On May 4, 2008 several shareholders in the Yael Transport Cooperative for Discharged Blind Soldiers ("the Association") filed a derivative action on behalf of the Association against the majority shareholders in the Association and against other defendants, among them DMR Properties and Delek Real Estate. The action alleges, inter alia, that DMR Properties and Delek Real Estate entered into agreements with the defendants, the majority shareholders, in respect of the Association’s rights in the Lapid Compound in Jaffa ("the Lapid Compound"), when the Association was a protected tenant in the Compound, despite the fact that they knew that they had no authority to do so, and they knew that these agreements contradict the only valid agreement signed by the Association. In the period relevant to the case, DMR Properties and Delek Real Estate had ownership rights (which have since been sold) in part of the Lapid Compound through a partnership registered under the name “Delek Lapid”. In the above complaints the plaintiffs requested that the court declare and determine cancellation of the agreement signed between the parties involved, including with DMR Properties and Delek Real Estate, and return of the land in the Lapid Compound that allegedly used to belong to the Association. The statement of defense on behalf of DMR Properties and Delek Real Estate was filed on September 1, 2008 requesting, inter alia, that the court dismiss the claim for the main reason that the plaintiffs in fact have no cause of claim or privity in contract against DMR Properties and Delek Real Estate. The agreements that were signed were lawfully signed and in fact deal with a claim between the shareholders and rights holders in the Association – a claim in which Delek Real Estate and DMR Properties have no prima facie interest. After all the arguments in the above applications were made, the court decided to dismiss the claim and the file was closed.

1 An office in which the senior partner is a relative of the controlling shareholder of Delek Automotive.

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1.14.20 Objectives and business strategy The primary goal of Delek Automotive is to increase the scope of its operations and profits through continued improvement of service. In recent years Delek Automotive has taken a number of measures to achieve these objectives, among them concentrating its facilities in the Logistics Center in Nir Zvi and upgrading the authorized garages (see section 1.14.6D). Instead of these objectives, in the coming years Delek Automotive is expected to embark on new activities in customer service as well as in training and professional standards of its nationwide sales and service array. 1.14.21 An event or matter deviating from the Corporation’s businesses On March 11, 2011 an earthquake and tsunamie hit some of the cities and beach of Japan. To the best of Delek Automotive’s knowledge, based on the information currently in its possession, and in light of the fact that the Mazda factoires are in Hiroshima and areas far from the areas affected by the tragedy and have not been damaged, and also in light of the fact that Delek Automotive has stocks of vehicles in Israel and on their way to Israel which are adequate for a few months, Delek Automotive does not expect difficulties in the supply of Mazda vehicles. Delek Automotive believes that the effect of the earthquake and tsunami on its operations is forward-looking information as defined in the Securities law and it is based, inter alia, on Mazda’s estimates of its production capability and on Delek Automotive’s inventory management plans. This belief is not certain and might not be realized, inter alia, because of a deterioration in the situation at the nuclear facilities which are at the heart of the catastrophe, and a prolongation of the restricted production period in Japan, etc. 1.14.22 Expectation for developments in the coming year In 2011 Delek Automotive is expected to launch a new Ford Focus as well as a new Ford Explorer. 1.14.23 Risk factors A number of risk factors could threaten the operations of Delek Automotive: A. Dependence on manufacturers: Delek Automotive is completely dependent upon the manufacturers of the cars it imports. According to agreements with the manufacturers, Delek Automotive is required to comply with certain conditions. The Ford agreement is unlimited in time and can be terminated as described in section 1.14.15(B), while the Mazda agreement is valid for three years as noted in section !.14.15(A)A. In addition, the parties may terminate these agreements as provided therein. Non-renewal or termination of the agreements will have a material impact on the operations of Delek Automotive. In addition, Delek Automotive is dependent on the manufacturer’s models and pricing structure. If the manufacturer produces more expensive models, this could affect the financial results of Delek Automotive. Furthermore, given the global economic crisis which is affecting the car manufacturing industry, if one of the manufacturers whose vehicles are imported by Delek Automotive were to halt its operations either completely or for a lengthy period (including as a result of force majeure), this could have a material effect on the business of Delek Automotive. B. Changes in the exchange rates of importing countries: Most of Delek Automotive’s expenses are in foreign currencies – JPY, EUR and USD, and therefore it is exposed to fluctuations in the currency exchange rates. Revaluation of these currencies against the shekel could result in a decline in the profitability of Delek Automotive. C. Changes in foreign currency rates relevant to competitors: The exchange rate component in the price of Delek Automotive products is 85-90% of the selling price of those products. Therefore, if foreign currency exchange rates relevant to the competitors remain unchanged or depreciate while currencies relevant to Delek Automotive appreciate, the competitive ability of Delek Automotive will be impaired. D. Changes in bank interest rates in Israel and abroad: A large part of Delek Automotive’s bank credit is at variable interest, which is a function of bank interest in Israel and abroad. Therefore, Delek Automotive is exposed to changes in the bank interest in Israel and abroad. E. Customer credit: Delek Automotive’s sales to institutional customers are partially accomplished using credit, as is common in the automotive industry. The credit is not fully secured and is concentrated among a few customers with a large volume of sales. Therefore, failure by one such customer to repay the credit can specifically affect Delek Automotive’s cash flow and business results. At December 31, 2010, NIS 1,226 million of the total customer debt (amounting to NIS 1,340 million) is concentrated among eight customers of which two are controlled by the same entity, and NIS 904 million is concentrated among three customers two of which are controlled by

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the same entity. At December 31, 2010 approximately NIS 200 million of total customer debt is partly secured and NIS 1,140 million is not secured at all (see section 1.14.4(A). F. Reducing centralization in the vehicle market: As described in section 1.14.2(B), in recent years the Ministries of Finance and Transport have been taking steps to reduce centralization in the vehicle market in Israel and to remove market barriers by examining tax reforms, standardization and regulations for vehicle imports. Delek Automotive estimates that in the short term, these changes will not have a significant effect on the Group’s operations, since Parallel Imports are not economically viable except for luxury and niche cars. G. Competition in the sector of operations of Delek Automotive: As described in section 1.14.6, Delek Automotive faces competition in the segments of its operations. If new competitors selling vehicles in Delek Automotive’s market segments enter the market and/or new models are introduced into these segments and compete with the models sold by Delek Automotive, or if these models are sold at competitive prices, this competition could affect the results of Delek Automotive and its market share. In addition, there is intense competition in the vehicle parts market which could affect the results of Delek Automotive in this segment. Furthermore, in recent years, electric cars and hybrid vehicles combining an internal combustion engine with an electric motor have been introduced into the market and this leads to reduced gasoline consumption. Delek Automotive does not believe that these vehicles constitute significant competition for its vehicles in the family category. However, as explained in section 1.14.2(B) above, these vehicles are receiving encouragement and support from government authorities and this is likely to increase demand. Furthermore, automobile and other entities have recently been developing electric cars. Delek Automotive does not anticipate material expansion in this segment in the near future. H. Economic slowdown in the Israeli and/or global market:: Changes in the scope of economic activity in Israel resulting from political, security and macroeconomic factors could affect the volume of vehicle sales in Israel and have a negative impact on the business results of Delek Automotive. However, in recent years, despite the economic slowdown in the Israeli market, Delek Automotive has successfully established its position as the largest car agency in Israel. Since the last quarter of 2008 the economic slowdown in the Israeli economy caused by the global economic crisis has been of a severity not witnessed for decades. This slowdown, combined with forecasts of falling prices (see section 1.14.2(C)), resulted in a significant decrease in vehicle deliveries in the last quarter of 2008, a trend which continued in the first half of 2009 and was halted in the second half of the year. In 2010 the growth trend continued and there was a noticeable improvement in economic activity in the market. The slowdown could also raise customer credit risk levels and thus have an adverse effect on the profitability of Delek Automotive, caused both by a decline in sales and larger price reductions. I. Regulatory changes: Changes in regulatory arrangements that apply to the vehicle industry, such as changes in the government taxation policy, changes in policy for classifying vehicles as private or commercial for tax purposes, or changes in the policy for the use value of a leased vehicle for employee use, could lead to a change in the demand for various types of vehicles and affect the results of Delek Automotive’s operations. For details of these changes, see section 1.14.2(B). J. Changes in the management or control of Delek Motors: Under the Ford agreement, any change in the direct or indirect control or active management of Delek Motors as set forth in the Ford Agreement gives Ford the right to terminate the agreement, (see section 1.14.15(B)). Furthermore, Ford has the right to terminate the agreement, inter alia, if the court convicts Delek Motors, Delek Automotive, Yitzhak Sharon (Teshuva) or Gil Agmon of violation of the law or any other action unbecoming for reputable business executives. Furthermore, under the Mazda agreement, the Manufacturer is entitled to terminate the agreement at any time by written notice to the Exporter and to Delek Motors, if the Manufacturer decides that it is unable to continue business with Delek Motors because of death, incapacity, disregard or any change in Delek Motors management or as a result of a change in the legal or organizational structure of Delek Motors or in the case of a significant change in the composition of the company’s shareholders or investors.

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K. Legal proceedings As mentioned in section 1.14.19, a motion has been filed against the subsidiaries Delek Motors and Delek Motors Parts (1987) Ltd. for certification of an action as a class action. If this motion is accepted Delek Automotive will be exposed to its consequences. Since Delek Automotive believes that it is more than likely that the motion will be dismissed, it estimates that the action will have a minor effect on its business.

Below is a summary of risk factors by type (macro risks, industry-wide risks and risks specific to Delek Automotive), rated according to the estimates of Delek Automotive's management by the degree of impact on Delek Automotive's business: major, medium or minor impact.

Impact of risk factors on company operations Major effect Moderate effect Minor effect Macro risks • Changes in the • Economic slowdown • Changes in bank exchange rates of in the Israeli and/or interest rates in Israel the currencies of the global market and abroad importer countries Industry-wide risks • Changes in rates of • Customer credit • Reduction of market currencies used by • Competition in Delek centralization competing importers Automotive’s areas of • Regulatory changes operation Risks specific to • Dependence on • Changes in the Delek Automotive manufacturers management or control of Delek Automotive

The above analysis of the risk factors is based exclusively on estimates, and the actual effect might differ.

1.15 Additional operations

The Group also conducts various operations that are not included in the operations described above and the related revenues and expenses of which are not material relative to the Delek Group's operations. These operations are included in the Group's financial statements for the period ended December 31, 2010 under Others, and include the following: 1.15.1 Biochemicals The Group holds 63.92% of the shares in Gadot Biochemical Industries Ltd. ("Gadot"), a public company whose shares are traded on the Tel Aviv Stock Exchange1. Gadot is engaged in the manufacture, marketing and sale of crystalline fructose for the food industry, as well as of citric

1 On July 25, 2004, an agreement was signed between the Company and ORL, which as of the date of the report holds 23.07% of Gadot's issued and paid up share capital (the Company and ORL are to be referred to jointly in this footnote as the “Parties”) ("Voting Agreement") (as amended on May 16, 2005). The Voting Agreement stipulates that as part of the cooperation between the Parties as shareholders of Gadot, the Parties will do their utmost to solidify and agree upon positions ahead of time regarding any matter related to Gadot and brought for a vote to its general meeting, guided by the best interest of Gadot and subject to the provisions of any law upon which cannot be stipulated. Several issues were defined to require the unanimous agreement of the Parties. Should they not reach such agreement, they will vote at the general meeting such that they comply with the provisions of the Voting Agreement. It was agreed that as long as the Voting Agreement is in effect, neither of the Parties will enter into a voting agreement and/or hold custody of and/or coordinate permanently with a Gadot shareholder that is not a party to the Voting Agreement, unless agreed to by the other Party. Provisions were drafted regarding the appointment of directors (ORL is entitled to recommend the appointment of two directors and Delek Infrastructure is entitled to recommend the appointment of five directors. The Parties undertook to support the appointment of the directors recommended by the other Party. One director recommended by ORL will served on each committee of the Board of Directors). Additionally, the Agreement sets out provisions regarding the right of first refusal and tag along rights in cases of the transfer of shares to a third party and that in the event of the appointment of a liquidator/receiver/trustee for any of the Parties, the provisions of the Voting Agreement will apply to the Gadot shares transferred to his possession. It was further agreed that if the holdings of any of the Parties are lower than 15% of Gadot's share capital, the other Party will have the right to provide written notice of cancellation of the Voting Agreement, which will enter into effect 48 hours from the date of receipt of the notice.

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acid, salts and other products, primarily for the food, pharmaceutical and detergent industries, and since 2007, in the manufacture, marketing and sale of nutritional supplement ingredients. Gadot has three areas of operation: A. Fructose - The manufacture, marketing and sale of crystalline fructose and of tri-sodium citrate, which is a byproduct of the fructose production process. Most of Gadot's fructose sales are to Europe, for the food industry. Fructose (fruit sugar) is a monosaccharide (derived by separating sugar into its two components: fructose and glucose), and which undergoes various processes until it becomes crystalline fructose. The company produces crystalline fructose for the food and beverage industry as a premium sweetener – fructose has properties that make it preferable to sugar, such as a more concentrated sweetness, slower decomposition in the digestive system, high solubility and enhancement of fruit flavors. It is therefore used in the food industry, especially for sweets, jams, baked goods, ice creams and more. In addition, Gadot produces a citric acid known as tri-sodium citrate (TSC) from the glucose solution byproduct of the fructose manufacturing process, which is primarily used in the food and beverage, and detergent industries. B. Citric acid and salts produced in Israel - The production of citric acid and salts (citric acid salts and phosphoric acid salts). Citric acid is produced in the west by a small number of large manufacturers and in China by several large and a few smaller manufacturers, who together produce a quantity equivalent to that produced by the large manufacturers in the west. Gadot produces citric acid which is used in the food industry (primarily in soft drinks) and as a raw material in the detergent and pharmaceuticals industries and for other applications. Gadot's citric acid and citric acid salts, manufactured at the facility in Israel, are marketed by Gadot in the United States, Europe, Israel, Asia and South America. C. Citric acid manufactured in China - In March 2007, Gadot began constructing and operating a facility for the manufacture of citric acid in China through a Chinese subsidiary (99%). Through the date of the report, Gadot had invested USD 55 million in the cost of constructing said facility and the purchase of 48% of the holdings of the Chinese subsidiary that were held by a Chinese partner that was a shareholder in the subsidiary. In the first quarter of 2010, the test run of the facility was completed and as of the second quarter of 2010, the facility began commercial production. As of the date of the report, the production capacity of the facility is 48,000 tons of citric acid a year (the maximum production capacity planned is 60,000 tons a year). Gadot plans on selling the Chinese facility's output through exports from China to Gadot's customers multinational customers active in Europe, the US and other countries, primarily to the food and beverage industry, as well as to the detergent and pharmaceutical industries, under Gadot's quality standards and branding. As opposed to the fermentation technology of Gadot in Israel, which requires the use of process and clean raw material such as sugar or starch, the fermentation technology at the Chinese facility is based on "rawer" raw material that is less expensive, and that undergoes a biochemical fermentation and purification process until reaching the final citric acid product. D. Components of nutritional supplements - The manufacture, marketing and sale of nutritional supplements and the processing of ingredients for the dietary supplements market. Gadot commenced operation in this segment in June 2007, with the acquisition of 85% of the US company Pharmline Inc. (“Pharmline") in consideration of USD 11.3 million (total acquisition cost – USD 12.2 million). The dietary supplements market includes over-the-counter nutritional supplements sold in health food stores and pharmacies. Pharmline manufactures and processes ingredients used in the manufacture of dietary supplements, and most of its sales are in North America. The products and services it sells include minerals, vitamins, joint products, natural extract products, oils, nutritional supplements and processing services. Gadot's plant in Israel stands on land it owns in Haifa Bay, near the Kishon River. All of Gadot’s production facilities are at this location, including the fructose production facility and facilities for the production of citric acid, salts and other products as well as a facility for refining raw sugar, which was constructed in cooperation with Tate & Lyle. Construction was completed in 2008. The plant, which began operations in May 2009, and which as of the date of the report is operating at 50% of planned capacity, refines imported raw sugar which each of the parties in the venture will purchase for their needs, and serves as the main supply source for Gadot's entire sugar consumption. This significantly reduces the provision of white sugar from the European market, the availability of which to Israel is influenced by the changes in the sugar market. Pharmline's operations are conducted in Orange County, in New York, where its offices, laboratories, production area, pharmacy and storage and delivery areas are located. The citric acid production activity in China is

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performed at a facility located in an industrial park in the Yancheng District, in less developed northern area of the Jiangsu province, and was built on an area of 266,000 sq m, which Gadot has the right to lease. The plant in China has manufacturing facilities, control equipment and devices, IT systems, furniture and vehicles. As of December 31, 2010, Gadot employs 179 people at its facility in Israel, about 94 people work at Pharmline and a team of 228 are employed at the citric acid plant in China. In 2009 and 2010, Gadot's total revenues amounted to USD 139 million, respectively. In 2009 and 2010, Gadot's gross profit was USD 31 million and USD 17 million, respectively. Net profit (loss) was USD 6.6 million and USD (17) million, respectively. As of December 31, 2010, Gadot had a working capital deficit of USD 31 million, and it is looking into several options for raising capital and/or debt. Delek Capital and ORL (which holds 23.07% of Gadot shares) informed Gadot that should it lack financial resources to meet its obligations, they would take action to help the company provide financing resources of an amount not to exceed USD 20 million (relative to the ratio of their holdings). It should be noted that in March 2010, ORL notified Gadot that its undertakings to exercise rights as part of Gadot's rights issue in March 2010 is part of its undertaking to act to assist Gadot by providing sources of financing, as aforementioned. In March 2011, Gadot received a loan of USD 5 million from Delek Capital. The principal of the loan will bear annual interest of LIBOR + 3.5%. Provision of said loan by Delek Capital constitute payment on account of Delek Capital's share in the issue of rights Gadot is planning pursuant to its shelf prospectus. The loan (principal and interest) will be due for repayment on the earlier of the following dates: (1) At the end of a six-month period from the date the loan is extended; (2) Right after completion of the issue of rights by Gadot, if performed. 1.15.2 Desalination The Group's desalination operations in Israel and other countries are carried out through IDE Technologies Ltd. (“IDE"), a private company held by the Group (49.8%), Company CEO Asaf Bartfeld (0.2%) and Israel Chemicals Ltd. (“ICL") (50%). The Group and ICL entered into an agreement, that sets out their relationship as shareholders in IDE and includes provisions regarding the appointment of directors at IDE. Under the agreement, the parties will be able to appoint and fire directors based on their holdings of IDE, with the holding of 12.5% entitling them to one director. The agreement further stipulates that decisions on specific issues (such as a change in IDE's areas of activity, its merger or liquidation, appointment or laying off of a CEO and distribution of dividends) will require a special majority on the Board of Directors and at the IDE general meeting. Additionally, the agreement sets out provisions regarding case in which IDE will require additional funds to finance its activity, also including investments of the parties in IDE, if necessary, provisions regarding the resolution of disputes between the parties (the IDE Board of Directors will empower the Chairman of each of the parties, who will attempt to resolve the dispute. Should the parties fail to resolve the dispute, each party will be able to invoke the BMBY clause, and the provisions regarding the right to first refusal and tag-along right.1 In addition, IDE has a management agreement with Delek Infrastructure and ICL, pursuant to which management and consulting services are provided to IDE for the management fee. IDE is engaged in design, construction and sale of sea water desalination facilities, construction of turnkey desalination plants, operation of desalination facilities and development, construction and operation of sea water desalination facilities and projects using the BOT (Build, Operate, Transfer) and BOO (Build, Operate, Own) methods. Additionally, IDE has activities of much lover volume than its desalination activity in areas related to desalination, including design and supply of industrial evaporators, industrial cooling systems and snow and ice making machines. In addition to the foregoing, one of IDE's activities is the provision of services and sale of equipment and chemicals to various desalination facilities. General Desalination is the process of removing salts and minerals from brackish water and sea water, to produce high-quality water for industrial use and potable water. In desalination industrial and urban sewage can be used.

1 It should be noted that these provisions are also set out in the IDE Articles, and in any event, in the case of a discrepancy, the provisions of the shareholders agreement shall prevail.

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There are two main desalination methods: (1) Thermal desalination - conducted through an evaporation process, in which the water gradually evaporate through a passage between a number of cells, each time at a lower temperature and pressure. In each cell, a certain amount of water is evaporated, while the salts remain in the water that does not evaporate and are removed as brine or concentrate. The water vapor undergoes a condensation process, which in the end yields desalinated water; (2) Membrane desalination - is mainly performed through a process of reverse osmosis using membranes. In this process, the water is forced under high pressure through membranes that only allow the water to pass through them. The salts that are concentrated on the other side of the membrane are discharged as brine or concentrate. At this time, membrane desalination is the most common, being significantly less expensive due to lower energy consumption than thermal desalination. However, the water is not as pure, and the desalination is subject to prior treatment of the water prior to desalination. According to estimates, membrane desalination accounts for 80% of global desalination, while 20% is desalinated through the thermal process. The desalination activity is subject regulation that includes standards and procedures, most related to water health, safety of the operation and environmental protection. The laws and regulations different depending on the location of the activity and include the following: (1) Guidelines for the prevention of water pollution protection of the environment; (2) regulation of emissions to water and ground, including the discharge of brine; (3) production, import, sale, storage, transport and use of certain materials and products; (4) generation, storage and disposal of waste; (5) tort law, including with respect to property damage and bodily harm, and the health and safety of employees and third parties; (6) guidelines regarding the quality of desalinated water. Additionally, as the contractual engagement in a large portion of the projects is the result of having been awarded a government or other tender, the activity is subject to the rules of the relevant tender, including quotas and targets stipulated in it. Desalination in Israel and around the world The use of desalinated water is designed as an alternative to natural fresh water and, therefore, the extent of desalination activity around the globe depends, to a large extent, on supply and demand for drinking water. Among other things, these are influenced by factors such as the severity of the shortage of fresh water; population growth rate; increase in the standard of living and industrialization, regulation of industrial waste and disposal of waste water; natural phenomena that cause irregularities in the supply of water, costs of desalination, the economic conditions and ability to invest in desalination plants. According to Global Water Intelligence (GWI) data, the amount of desalinated water around the world grew from 23 million m3/d in 2005 to 45 million m3/d in 2010. GWI estimates that in 2015, the amount of desalinated water will rise to 75.9 m3/d, and the global market for desalination will reach USD 10 billion annually within the next five years. However, not all of the global desalination markets are accessible to IDE, as a significant portion are located in Arab countries in the Middle East (approximately 60% of the desalinated water in 2010). The desalination markets accessible to IDE will be referred to as the "accessible markets." Desalination began in Israel at the beginning of the 1960s, with the construction of the desalination facility in Eilat. Over the years, the field has developed significantly in terms of technology, and total activity has grown, with the major desalination facilities built to date in Israel being the ones in Ashkelon, Palmachim and Hadera. In accordance with the targets and quotas set by the government in its decisions, additional desalination plants are slated for construction in Israel. The two that are supposed to begin operations in the coming years are the desalination plant in Ashdod, scheduled to begin operation in 2013, with a capacity of 100 million m3 a day, and the Sorek desalination plant that will be the largest in Israel, providing 150 million m3 a year, as of 2013. Mekorot is in charge of construction of the plant in Ashdod, and IDE was awarded the tender for construction of the Sorek plant. According to data from the Israel Water Authority1, total desalination activity in Israel in 2005 and 2010 was 36 and 320 million m3 a year, respectively, and is expected to reach 505 million m3 and 750 million m3 in 2013 and 2020, respectively. IDE (through subsidiaries) currently operates desalination plants (in Ashkelon and Hadera), which constitute 75% of all desalinated water in Israel. Competitive standing IDE is a global pioneer and lead in desalination and has been in operation for 45 years. IDE has executed close to 400 projects in over 40 countries, including Israel, India, China, Australia, different countries in Europe, North America, Latin America and the Caribbean. In the field of

1 As stated on the website of the Israel Water Authority: www.water.gov.il/hebrew/Pages/home.aspx.

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thermal desalination, IDE is a leading company, with rich experience in the design and construction of over 320 desalination plants of this type. Based on analysis of GWI data, IDE believes that its share of the thermal desalination market in the accessible markets and worldwide is 70%. In the field of thermal desalination, the main markets today are China and India, due to the high level of pollution in the seawater and high availability of surplus heat from industrial sources. The membrane desalination field is characterized by long-term BOT projects, and IDE built and is currently operating two of the world's largest membrane desalination plants, in Ashkelon and Hadera. To the best of IDE's knowledge, its main competitors in the thermal desalination market are Laval, Alpha and Veolia. To the best of IDE's knowledge, its main competitors in the membrane desalination market are Veolia and Degremont. Human capital, fixed assets, marketing IDE's headquarters are located in Kadima, Israel, where IDE leases 3,500 m2 in office space. Additionally, IDE purchased 20,000 m2 in the Haifa Bay area, where it is building a logistics center thatn includes warehouses, open storage areas and areas for assembly and running for the facilities. Additionally, IDE has several small offices in California in the USA, Beijing in China and in other places as well. As of December 31, 2010, IDE employed a staff of 350 employees, a large portion of which have academic degrees as well as knowledge and experience in the water industry. Marketing of the services and products is done through the physical presence of IDE employees in main markets and through a global system of agents. As part of its marketing activity, IDE visits potential customers, consultants and contractors and prepares budgetary quotes and plans for the execution of projects by identifying customer needs and presenting efficient solutions that meet their needs. Technological developments and work methods IDE's main work methods in desalination projects are as follows: EPC (Engineering Procurement and Construction) projects: IDE specializes in the design and construction of desalination facilities. As part of this activity, in which the customers are generally industrial factories, IDE turns the plant over to the customer immediately after completion, and the customer then operates it. To date, IDE has designed, built and handed over 400 plants around the world, including the plant in Tianjin, China, with a capacity of 100,000 m3/d of desalinated water (planned to reach 200,000 m3/d), which was handed over in 2010; the Reliance plant in India, with capacity of 160,000 m3/d and the Las Palmas plant in the Canary Islands, with a capacity of 36,000 m3/d, which was delivered in 1999. BOT (Build, Operate, Transfer) projects: Under long-term agreements, IDE builds and operate the plants and sells the water produced. IDE currently operates and sells desalinated water from three plants it built in this manner - in Hadera, Ashkelon and Larnaca (Cyprus). The average EPC project lasts between one and three years, while a typical BOT project, which lasts between 10-25 years changes the manner of financing and imposes a large portion of the risk on the company performing the construction and operation. Most of IDE's revenues are attributable to construction - in other words, EPC projects and the construction phase of BOT projects, which constituted 82%, 86% and 58% of its total revenues in 2008, 2009 and 2010, respectively. The balance of its revenues is attributable to the sale of water and provision of operation and maintenance services IDE's main projects IDE typically executes several projects each year. In over 45 years of operation, it has designed and delivered about 400 plants of various size in different countries (including Israel, India, China, Australia, and countries in Europe and the Americas). At this time, of the aforementioned projects, IDE currently is the operator of four plants and has contracts for the construction of six projects, slated for completion in the coming three years Major BOT projects completed by IDE, in which IDE continues to provide operating and maintenance services: (1) Desalination plant in Larnaca, Cyprus - This plant was built by an IDE-led partnership (95%), which was awarded a tender by the Cyprus Water Authority. Construction of the project was completed in July 2001 at a cost of NIS 181 million. In 2008, an agreement was executed with the Cyprus Water Authority to expand the facility and therefore, its capacity is now 65,000 m3/d per day (approximately 21.5 million m3 annually). The agreement is for the partnership to operate the plant for 10 years, through July 2011.

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(2) The desalination plant in Ashkelon, Israel - VID Desalination Ltd. in which IDE holds 50% of the shares, and Veolia Water 50%. In November 2001, VID was awarded the tender issued by the State of Israel for construction of the plant through a BOT scheme, and the plant was completed in 2005, at a cost of NIS 1.1 billion. The concession period is for 25 years, and it is to be transferred to the State of Israel, without consideration, in June 2027. The plant is operated and maintained by ADOM (Ashkelon Desalination) Ltd., a company in which IDE holds 40.5%. It is one of the largest reverse osmosis desalination plants in the world, and its desalination capacity was recently increased to 118 million m3 annually. Revenues of IDE subsidiaries engaged in the operation of this plant, are from the sale of desalinated water and the provision of operation and maintenance services. IDE benefits from the distribution of dividends by VID and ADOM. (3) The desalination plant in Hadera, Israel - In September 2006 H2ID Ltd., a company 50% owned by IDE and 50% owned by Shikun & Binui Ltd., was awarded a tender issued by the State of Israel to design, finance, construct, operate and maintain a desalination plant in Hadera, with a total annual capacity (after expansion) of 127 million m3. It is currently the largest reverse osmosis desalination plant in the world. The concession term is 25 years (consisting of 2.5 years of construction and 22.5 years of operation and maintenance), at the end of which, the plant will be handed over to the State of Israel free of charge. The facility is operated and maintained by OMIS Water Limited, a company in which IDE holds 60%. The plant began operations in 2010. Revenues of IDE subsidiaries established for the project are from the sale of desalinated water, and provision of operation and maintenance services. IDE benefits from the distribution of dividends by H2ID and OMIS. Projects under constructions as of December 31, 2010:

Target date Location and date Brief description of the Estimated Rate of holding for of contract project capacity (m3/d) in the project completion Tianjin, China The original contract - Total 200,000 (8 100% 2012 June 2007 (initial construction of four thermal units of 25,000 The first four contract); May desalination plants. The each) units were 2010 (second second contract - completed in contract) construction of another four 2010 thermal units. India, May 2008 Delivery of two thermal 50,000 100% 2011 desalination plants Western Australia, Design and delivery of a 140,000 100% 2011 July 2008 reverse osmosis desalination plant Sorek, Israel; Construction and operation 500,000 IDE holds 51% 2013 September 2009 of a desalination plant by in SDL and the Sorek Desalination Ltd. rest is held by ("SDL") for 26 years under Hutchison Water a BOT agreement with the International State of Israel. Expected to Holdings Pte. be the largest plant in the world operating on membrane technology. Vasilikos, Cyprus; Provision of a reverse 60,000 100% 2011 October 2009 and osmosis desalination facility amended in to the Electricity Authority of February 2010 Cyprus. Construction began in 2010. Chennai, India; Construction and operation of 100,000 IDE holds 30% 2012 December 2009 a reverse osmosis of the project desalination plant for seven (Vatech Wabag years. Construction began in holds the 2010. remaining 70%)

In addition to the aforementioned projects, IDE regularly participates in tenders and enters into negotiations on future desalination projects. Activity related to desalination

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Given its understanding and expertise in issues related to water biology and chemistry, hydraulic systems, development of industrial compressors and more, IDE also offers solutions for regular treatment of industrial waste, cooling systems for mines, systems for storage of thermal energy and snowmaking machinery. Risk factors IDE's activity involves the following various risk factors: general market conditions; the total number and timing of desalination projects; competition; changes in technology; changes in the abilities required of the company as the result of the number of projects being performed; financing needs; dependence of the counterparties in the BOT transactions; quality, price and availability of materials or subcontractors for performance of the projects; legal proceedings and disputes; lack of protection for intellectual property; limited accessible markets; regulation in various countries; and changes in exchange rates. Financial information In 2009 and 2010, IDE's total revenues amounted to NIS 1,481,898 thousand and NIS 728,875 thousand, respectively, according to the following breakdown - revenues from construction contracts (EPC and the first stage of BOT) were NIS 1,269,558 thousand and NIS 419,959 thousand, respectively, and revenues from sales of water and operation and maintenance services were NIS 212,340 thousand and NIS 308,916 thousand, respectively. In 2009 and 2010, IDE's gross profit amounted to NIS 375,775 thousand and NIS 198,657 thousand, respectively. In 2009 and 2010, IDE's net profit amounted to NIS 279,147 thousand and NIS 120,576 thousand, respectively. The guarantees the Company gave IDE with respect to the financing agreements for IDE's various projects amounted to, as of December 31, 2010, NIS 72 million. For additional financial information about IDE operations, see Note 14C to the financial statements. 1.15.3 Power plants Delek Infrastructure Ltd., wholly owned by Delek Investments builds and operates power plants in Israel and abroad. As part of its activity, Delek Infrastructure, through subsidiaries, built and currently operates two power plants in Israel and Brazil, and is working to build four additional power plants in Israel, currently in the development and design phases and is in the process for receipt of the various statutory approvals, as outlined below. Active power plants A. Ashkelon power plant I.P.P. Delek Ashkelon (“Delek Ashkelon"), a company wholly owned by Delek Infrastructure (in concatenation) built a power plant on the premises of the desalination facility in Ashkelon, to generate 87 MW of electricity. Most of the power plant's capacity is provided to the desalination plant of VID in Ashkelon, and the rest is sold to private customers and/or Israel Electric Corporation. The period for supply of power to the desalination plant was set as 22.5 years. This period ends in June 2027. On February 28, 2008, the Public Services Authority – Electricity (“Electricity Authority" approved the issue of a temporary license for the generation and supply of electricity to the power plant, and on February 16, 2009, the Minister of National Infrastructures approved the issue of permanent licenses for the generation and supply of electricity by the plant. The plant began operations on January 10, 2008. On April 13, 2008, Delek Ashkelon entered into an agreement for the provision of up to 22.5 MW of electricity to Nilit Ltd. (“Nilit”). The agreement is for a period through December 31, 2011, with an option to extend for another six years. The provision of electricity to Nilit began in April 2008. Delek Ashkelon's total revenues in 2008, 2009 and 2010 were NIS 170 million, NIS 185 million and NIS 172 million, respectively. B. Power plant in in Goiânia, Brazil In addition to the foregoing, Delek Infrastructure entered as a shareholder (51%) in the Brazilian company,Enegen Participacoes S.A. ("Enegen"). Enegen holds 70% of the rights in a project for the construction of a 140 MW power plant, the cost of which amounted to USD 50 million in Goiânia, Brazil, ("Project”). Delek Infrastructure's share in the project is 35%. The construction of the power plant was completed in January 2009. The plant began operations in

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March 2009, under a 15-year agreement for the sale of the availability of the plant and sale of energy to the administration of the electricity system in its region of operation in Brazil. Power plants in the development and design phases and in proceedings for various statutory approvals. C. Power plant in Ramat Gabriel In January 2008, Delek Infrastructure established IPP Delek Ramat Gabriel Ltd. (“Delek Ramat Gabriel"), in which it owns 57% of the share capital and voting rights. The other shareholders are Sigma Epsilon Power Engineering "Gabriel Tavor" Ltd. (28%) and Adi Energy Ltd. (15%). On January 10, 2008, Delek Ramat Gabriel signed a Memorandum of Understanding with Nilit Ltd. ("Nilit"), a company that manufactures nylon yarns, regarding the construction of an independent power plant on Nilit's premises in the Ramat Gabriel industrial zone in Migdal Haemek. It is planned to be a cogeneration plant (production of electricity and steam), with a capacity of 55 MW. The plant will provide all of Nilit's electricity and steam requirements, and the surplus electricity will be sold to private consumers. As of the date of the report, the estimated cost of construction of the power plant is USD 90 million. On November 13, 2008, an agreement was signed between a Delek Ramat Gabriel and Nilit. The term of the agreement is 27 years, commencing when financing for construction of the plant is closed. Pursuant to the agreement, Delek Ramat Gabriel will supply electricity and steam to Nilit during the term of the agreement, with an estimated value of NIS 60 million. On March 30, 2009, Delek Ramat Gabriel received a conditional license for the production of electricity from the Electricity Authority. On October 19, 2010, a memorandum of understanding for the financing of the power plant was signed with Migdal Insurance Company Ltd. ("Migdal"), conditioned upon due diligence by Migdal. The power plant is expected to begin commercial operation in the fourth quarter of 2013. D. Power plant in Alon Tavor On October 28, 2008, Delek Infrastructure and its partners entered into an agreement to build a power plant at Nilit, through IPP Delek Alon Tavor Ltd. (“Delek Alon Tavor") in which Delek Infrastructures holds 57% of share capital and voting rights, signed a Memorandum of Understanding with Tnuva Central Cooperative for the Marketing of Agricultural Produce in Israel, Ltd. ("Tnuva”), concerning the construction of a cogeneration plant (for electricity and steam) operating on natural gas, on the grounds of the Tnuva factory in Alon Tavor, with a capacity of 55 MW. As of the date of the report, the estimated cost of construction of the power plant is USD 90 million. In July 2009, the agreement was signed with Tnuva for the planning, financing, licensing, construction, operation and maintenance of the power plant. The term of the agreement is 27 years, commencing on the date on which financing is closed for the construction of the power plant. During the term of the agreement, the land on which the power plant will be built will be leased through sublease to Delek Alon Tavor. The agreement is conditioned upon financial closing being completed by April 30, 2011, and the construction of the power plant by October 31, 2012, subject to the terms stipulated in the agreement regarding the deferral of the dates, as aforementioned, which are updated by the parties in detail. The plant is slated to provide electricity and steam to the Tnuva factory and will be entitled to provide surplus energy and steam to other factories in the Alon Tavor Industrial Zone. On October 19, 2010, a memorandum of understanding was signed with Migdal for the financing of the plant, conditioned upon due diligence by Migdal. On March 30, 2010, Delek Alon Tavor received a conditional license for the production of electricity from the Electricity Authority. The power plant is expected to begin commercial operation in the fourth quarter of 2013. E. Power plant at Sorek On September 29, 2009, IDE and Hutchison signed a memorandum of understanding with Delek Infrastructure, prior to the submission of the bid to construct a desalination plant at Sorek, pursuant to which Delek Infrastructure, through a project company it will establish when it builds the power plant, will supply all of the electricity required by the desalination plant. The provisions of the tender allow Delek Infrastructure to construct a power plant, on the area designated for the desalination plant, subject to receipt of the statutory approvals. Delek Infrastructure plans to exercise this right and to build a power plant that will serve the desalination plan as well as additional customer. As of the date of the report, the estimated cost of construction of the power plant is USD 160 million. Delek Infrastructure is in advanced negotiations with Sorek Desalination Ltd. (a joint company of IDE and Hutchison, hereinafter "SDL") to enter into a binding agreement. On December 30, 2010, Delek Infrastructure received a conditional license for the production of electricity for the power plant at Sorek from

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the Electricity Authority for up to 140 MW, and it is advancing the processes for the statutory approvals required in order to construct the power plant. F. Power plant in Kiryat Gat On January 6, 2010, Delek Infrastructure entered into an agreement with private developers, according to which it would be allocated holdings of no less than 84% (after allocation) in a company that is promoting the project for construction of a power plant run on natural gas, with an installed capacity of 240 MW, in the Kiryat Gat Industrial Zone and has an option to purchase the property on which the power plant is supposed to be built. The balance of the holdings (up to 16%) will remain with the developers. Additionally, the developers were granted an option to increase their holdings by an additional 10% from the project company (up to a total of 26%), subject to that stated in the agreement. On May 5, 2010, the transaction was completed after performance of the conditions precedent, such that Delek Infrastructure holds 84% of IPP Delek Eshkol Gat Ltd., the project company ("Delek Eshkol Gat"). The estimated cost of the project as of the date of the report is USD 280 million. It should be noted that the Kiryat Gat Industrial Zone has consumers, to whom Delek Eshkol Gat plans on directing part of its production capacity. Delek Eshkol Gat is in advanced negotiations with several potential customers. On August 16, 2010, Delek Eshkol Gat filed an application for a conditional license with the Electricity Authority for the conventional method, and the company is waiting to receive the conditional license. According to unofficial positions heard from insiders in the authorities responsible for the activity of the private electricity market, Delek Eshkol Gat learned that it may have difficulty obtaining the conditional license for conventional production, although Delek Eshkol Gat's position is that there is nothing preventing the company from engaging in private electricity production of any type whatsoever (see also comments below regarding the interministerial committee). Delek Eshkol Gat recently completed its environmental protection survey pursuant to the instructions of the district committee, and it is in very advanced statutory stages prior to submission of the plan for the approval of the district committee as part of the final process of rezoning the property. Activity in the power plant industry As of the date of the report, the Israel Electric Corporation generates, transmits and distributes virtually all of the electricity used in Israel. However the trend in the industry in recent years, which can also be seen in the declared objects of the State of Israel, is to increase electricity production capacity in the future through private producers. The development, design and construction processes of power plants are lengthy and take several years. Among other things, they require compliance with numerous regulatory requirements, financial abilities, professional know-how and experience. The process is characterized by a large extent of uncertainty, as it is in part under the control of third parties (particularly state agencies), which regulate issues such as deployment of gas infrastructures to the location of the plant, licensing proceedings and regulation, and the electricity sector regulations and rates. Even after completion of the design processes and receipt of the permits, which may be very lengthy, the activity is characterized by large investments during the construction and test run, while the revenues from the projects are only received after completion of construction, over a very long period. In light of the above, the company's plans regarding costs, time tables, etc., are based solely on estimates, which may not materialize. In 2010, at the request of the Knesset Finance Committee, the Minister of National Infrastructures convened an informal interministerial committee to make recommendations regarding the question of the continued operation of a gas provider in general (and in this regard the indirect holdings of the group in an Israel gas provider) in the IPP market in Israel. The imposition of restrictions on the activity of the group in the Israeli power plan industry is a risk factor with respect to the activity described in this section, and the company is working with the appropriate authorities to fully exercise its right by law to operate in the Israel electricity generation sector. 1.15.4 Noble As part of its financial investments, as of December 31, 2010, the company has an investment of NIS 1,472 million in Noble, constituting 2.7% of Noble shares. For additional information about the investment framework approved by the Board of Directors, the credit facility taken in this regard, the total investment and result of the investment, see Section 1.15.7 below. The following is a summary of information on Noble (the information below is based on Noble's reports in the US):

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Noble is an energy company registered for trade on the New York Stock Exchange (NYSE). which is engaged in the acquisition, exploration, development, production and marketing of crude oil, natural gas and natural gas liquids (NGL) around the world. These operations include performance of geophysical and geological estimates and drilling. Aside from rights in the developed and undeveloped fields of crude oil and natural gas, Noble owns facilities for the processing of natural gas, storage of natural gas and a system of pipelines for the processing and transport of crude oil, natural gas and NGL. Noble has activities both within and outside the US. In the US, most of its operations are in the Rocky Mountains, the mid-continent region and the waters of the Gulf of Mexico. Outside the US, Noble is primarily active off the coast of Israel, in the North Sea and in West Africa. Noble has operated in Israel since 1998 through its subsidiary, Noble Energy Mediterranean Ltd. Noble has rights to three main projects in Israel: The Yam Tethys project, which includes two natural gas reserves: The Mari gas reserve, discovered in February 2000 and the Noa gas reserve, discovered in June 1999; the Tamar project, which includes to natural gas reserves: The Tamar gas reserve, discovered in January 2009, and the Dalit gas reserve discovered in March 2009, and the Leviathan project, which includes the Leviathan gas reserve, which was discovered in December 2010. As of the date of the report, Noble holds 47%, 36% and 40% of the rights in the Yam Tethys project, Tamar project and Leviathan project, respectively. Some of the partners in said projects are Delek Drilling, Avner and Delek Investments, which are controlled by the company. In addition to the production operation performed as part of the Yam Tethys project, Tamar project and Leviathan project, Noble is engaged in oil and gas exploration pursuant to other licenses. As of the date of the report, in Israel Noble holds four holdings and 15 licenses, which it uses also as an operator. In 2010, operations in the US accounted for 57% of Nobles total revenues. As of December 31, 2010, 45% of Noble's proved reserves were in the US (55% of natural gas and 45% of crude oil and NGL). Accordingly, in 2010, operations outside the US accounted for 43% of Noble's total revenues, and as of December 31, 2010, 55% of Noble's proven reserves were outside the US (76% of natural gas and 24% of crude oil). In 2010, the commercial operation of natural gas in Israel accounted for 10% of total Noble revenues, and as of December 31, 2010, 28% of Noble's proven reserves were in Israel (all natural gas reserves). Noble's total assets as of December 31, 2008, 2009 and 2010 were USD 12,384 million, USD 11,807 million and USD 13,282 million, respectively. Noble's total liabilities as of December 31, 2008, 2009 and 2010 were USD 6,075 million, USD 5,650 million and USD 6,434 million, respectively. Noble's operating profit (loss) in 2008, 2009 and 2010 was USD 1,645 million, USD (58) million and USD 952 million, respectively. Noble's net profit (loss) in 2009, 2008 and 2010 was USD 1,345 million, USD (131) million and USD 725 million, respectively. Noble's financial statements are prepared according Generally Accepted Accounting Principles (GAAP), and the financial data is presented in US dollars. To view Noble's 2010 financial statements (10K), can be found at the following URL: www.sec.gov/Archives/edgar/data/72207/000114036111007888/form10k.htm . For additional information about Noble, and to view its reports to the US Securities and Exchange Commission, see Noble's website: http://www.nobleenergyinc.com. 1.15.5 Delek Real Estate As of now, the company holds 5% of the shares in Delek Real Estate. The Company's main interest in Delek Real Estate is attributable to loans and guarantees extended when Delek Real Estate was a subsidiary of the Company. For information regarding the loans and guarantees, see specifics under Regulation 22 in Chapter D of the Periodic Report. The following is a summary of the Company's and its subsidiaries' loans and guarantees to Delek Real Estate, which are valid as of the date of the report1 (let it be clarified that what is presented in the Securities section is the book value of the assets used as securities in Delek Real Estate's financial statements for the period ended December 31, 2010):

1 For information regarding loans and guarantees, prior to the Roadchef transaction, see Section 1.3 of the Company's immediate report dated January 5, 2011 (Ref. No. 2010-01-006393), the information in which is hereby presented by way of reference.

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Section detailed under Regulation 22 in Chapter D of the The Company The loan / guarantee Periodic Report Main terms Securities Delek Group Total debt of NIS 227 million 6C Total of NIS 150 million, bearing interest of prime - A second-ranking charge on the attributable to the acquisition of 0.25%. The interest is due for repayment in quarterly Carmel Coast project in the amount of Delek Real Estate's debts from a payments. A total of NIS 76 million with interest of 1% the bank debt acquired by the banking corporation by the over that of a valid loan and the same repayment Company. The book value of the Company during the transaction dates for the period and the repayment dates of the Carmel Coast project in Delek Real for the purchase of Roadchef debt as aforementioned, which the Company will Estate's books is NIS 285 million. As receive for financing the acquisition of the debt. of the date of the report, the first- Should the Company not receive said loan, the terms ranking charge on the Carmel Coast of the debt will be linked to the Israeli Consumer Price project guarantees Delek Real Index, along with annual interest of 1% above the Estate's debt of NIS 260 million to the average cost of securing financing (the interest rate banking institution. and associate costs) of bonds (Israeli CPI linked) with a weighted average realization price similar to the Company. As of now, the loan according to the second option (including an increment of 1%) will be linked to Israeli CPI and bear annual interest of 6.4%. The principal is to be repaid in one payment on January 30, 2018. Israel Phoenix The balance of loans from 2004 6E Interest - 10%, linked to Israeli CPI, to be paid 30% of Delek Real Estate Nechasim and 2008 is NIS 65 million, of quarterly. The principal is to be repaid on August 1, Menivim. which NIS 34 million are against 2011 and August 1, 2012. The book value of the shares in Delek profit-sharing policies. Real Estate's books - NIS 110 million. The full balance of shareholders' loans between Delek Real Estate and Delek Nechasim Menivim. 100% of the shares in Elad Israel Residences Ltd. The book value of the shares in Delek Real Estate's books - NIS 84 million. Delek Real Estate's rights in the lot in Kfar Silver. The book value of the lot in Kfar Silver in Delek Real Estate's books is not material. Delek Group Guarantees for the liabilities of 6D In respect of the guarantees, an annual commission of -- Delek Real Estate and its 1.5% is paid. subsidiaries to banks, totaling NIS 59 million.

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Section detailed under Regulation 22 in Chapter D of the The Company The loan / guarantee Periodic Report Main terms Securities Israel Phoenix Holding in Delek Real Estate 8 The interest is 5.65%. The repayment dates for the -- bonds: principal of the various series are through 2014. provident funds, pension funds and profit-sharing funds - NIS 3 million. Excellence Holding in Delek Real Estate 8 Interest 4.8%, dates for repayment of the principal -- bonds: through 2019. Trust funds and ETFs - NIS 19.1 million.

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For information regarding various engagements between Delek Real Estate and the Company and its subsidiaries, see Chapter D of the Periodic Report in the specification under Regulation 22. It should be noted, that in addition, in 2010 and 2011 (through the date of the report) the Company participated in the rights issue of Delek Real Estate and exercised all its rights as aforementioned (totaling NIS 6.6 million and NIS 3 million, respectively). Delek Real Estate's operation was negatively impacted by the global financial crisis and the global crisis in the real estate market. The risk factors to which Delek Real Estate is exposed include a decline in demand for income-generating property, decline in occupancy rates and rents, which may have a negative impact on Delek Real Estate, its equity, fair value of its assets and its ability to comply with financial covenants agreed upon with the various credit providers, failure of business plans to materials, which will hurt the ability of Delek Real Estate to repay its obligations (primarily repayment of the principal and interest to Delek Real Estate bond holders), cash flow issues, stricter terms for receipt of financing to repay Delek Real Estates obligations and difficulty in the performance and terms of capital and debt raising, among other things in respect of damage to Delek Real Estate's financial condition, the value of its shares or downgrading of its credit rating, and demand for immediate repayment of loans in cases where Delek Real Estate fails to comply with the covenants stipulated in the loan agreements, as set out below. These risk factors and others for Delek Real Estate, if they materialize, may make it difficult for it to repay its debts to the Company, lead to the exercise of the guarantees the Company and subsidiaries provided, and impact negatively on the Company's financial condition. As was specified in Section 6E in Chapter D of the Periodic Report, in July and October 2010, Delek Real Estate did not make payments in respect of loans from the Phoenix on time. The terms of said loans were changed by agreement in August and December. In December 2010, Delek Real Estate made payments to Phoenix on time. As of December 31, 2010, Delek Real Estate had a significant deficit in its consolidated working capital. From the perspective of the Company, Delek Real Estate's ability to meet its obligations is a risk factor, and it is dependent upon numerous factors, including the following (based on Delek Real Estate's reports): In terms of sources, Delek Real Estate's ability to obtain sources for repayment of its obligations is primarily based on assumptions regarding the sale of assets at their value in Delek Real Estate's books, receipt of dividends and repayment of loans from investees. Receipt of financial sources as the result of sale of assets is dependent on the relevant risk factors for Delek Real Estate not materializing. Among other things, the sale of assets may be difficult or not yield the cash flow projected in the following cases: Continued crisis in the real estate market; impairments in the value of Delek Real Estate's assets; harm to the quality of lessors of Delek Real Estate's assets and their financial strength; decline in demand for leased space or increase in the supply of space for lease, decline in rents, failure to receive the agreement of partners in holdings of the properties to sell them and not gaining the approval of the parties in negotiations. Receipt of dividends from investees is dependent on risk factors relevant to Delek Real Estate no materializing. Among other things, dividends and repayment of shareholder loans from investees may not be received in the following cases: Failure to receive the required approvals in the subsidiaries and failure to comply with the legal requirements for distribution of dividends in subsidiaries. Receipt or extension of loans and credit facilities from banks is dependent on the the risk factors relevant to Delek Real Estate not materializing. Additionally, even assuming that Delek Real Estate's plans for the coming two years, regarding the sale of property, materialize, it may still have a capital deficit and cash flow problems, and this when it has a limited portfolio of properties. In terms of use, Delek Real Estate's liabilities are based, among other things, on the assumption that it will not be forced to repay credit on call in the short term in a material amount. Delek Real Estate may be required to pay additional sums, in a material amount, if its relevant risk factors materialize. Among other things, Delek Real Estate may be required to pay additional amounts in the following cases: Failure to comply with financial covenants and/or downgrading that may lead Delek Real Estate's loans and/or bonds to be called in for immediate repayment; immediate repayment of Delek Real Estate's bonds, that could lead to other loans extended to it to be called in for immediate repayment, on-call credit called in for repayment as set out above; and the creation of additional obligations of Delek Real Estate. Company managed continuously examines Delek Real Estate's ability to repay the aforementioned debts, and this based on public information and discussions with Delek Real Estate management. Should the Company believe there has been an adverse change in Delek Real Estate's ability to repay, the Company will report on such as required.

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1.15.6 Barak Capital The company holds (though Delek Capital) 47.85% of the shares of Barak Capital Ltd. (“Barak Capital"), the controlling shareholder of which is Mr. Eyal Bakshi ("Bakshi") who holds 48% of the shares. Barak Capital is a private holding and investment company, engaged itself and through investees in a variety of fields in the capital market, including in trading financial derivatives, financial transactions, management of hedge funds, issue of certificates of deposit and index-linked certificates, underwriting and consulting on public issues. The agreement of February 2007 between the Company and Bakshi and Barak Capital's Articles of Association, among other things, set out the following issues: Barak Capital shareholders have the right to appoint directors, and the Company is entitled to two of five directors; the majority required to pass resolutions on the Board of Directors and at a general meeting such that the resolutions are passed by regular majority, with the exception of resolutions regarding the allocation of shares or negotiable securities, a material change to the Companies business, transfer, sale or liquidation of the majority of assets or any material change thereto, and liquidation, merger, split or reorganization the require a special majority; the mechanism for right of first refusal and tag along right; financing of Barak Capital activity; non-competition; conflicts of interest; confidentiality, and the like. Barak Capital has four areas of activity: A. Proprietary trading - Most of Barak Capital's revenues are from its proprietary trading activity. This activity is conducted by scores of traders in Israel and globally, who handle the group's proprietary trading accounts and trade in international markets, with each trader acting independently, under the supervision of and subject to the policies of Barak Capital. Trading activities include activity in shares, bonds, future contracts, commodities and currencies, arbitrage that includes base assets, based on day trading. The methods include performance of high volume transactions with low margins, use of long/short strategies and sophisticated and unique trading strategies, taking advantage of mispricing on the market. B. Exchange traded funds (ETFs) - Barak Capital was engaged in the area of ETFs through Index Teudot Sal Ltd. (“Index"), in which Barak Capital holds 45.1% of its share capital, fully diluted. On February 10, 2011, Barak Capital entered into an agreement, under which, subject to performance of the conditions precedent for completion of the transaction, it will sell all its shares in Index to Dash Apex Holdings Ltd. (“Dash Apex") for consideration of NIS 35 million. Pursuant to the agreement for the sale of the shares, it was determined that on the date of completion of the transaction, Index would repay in full the shareholders loans to Barak Capital, and the credit balances of Barak Capital to Index and Dash Apex will replace Barak Capital of the entire financing Barak Capital provided Index, and would purchase a capital note Barak Capital provided to Index. As of December 31 of 2008, 2009 and 2010, total ETF assets issued by Index amounted to NIS 1.6 billion, NIS 4.7 billion and NIS 6 billion, respectively. C. Underwriting and investment banking - This activity is performed by the subsidiary, Barak Capital Underwriting Ltd. (“Barak Underwriting"). Barak Underwriting operates in the following areas: A. Underwriting and distribution of public offerings; B. Raising capital for companies in private issues to institutional and private investors; C. Distribution and advisory services for corporations regarding mergers and acquisitions; D. Investment banking activity and advisory services to corporations regarding mergers and acquisitions. The Barak Capital team of agents and employees currently numbers 150. Barak Capital is presented in the Company's financial statements according to the equity method. Barak Capital’s activity involves various risks attributable to the complexity of its operations, large volume of trading and significant regulation in the financial sector. Among other things, Barak Capital's operations involve risks such as market risks (changes in different indices and markets, including in the inherent standard deviations in the markets that could unbalance the positions Barak Capital manages), lack of liquidity in the markets, changes in the interest rate that could impact on the value of the assets Barak Capital holds, and financial crises (global and local). 1.15.7 Investments in securities The Company and Delek Capital hold cash and short-term investments, including investment in available-for-sale financial assets, which on December 31, 2010 amounted to NIS 2,678 million. In light of the low yields on the debt market over the past year and the desire to diversify the Company's investment channel, in the first half of 2010 an Investment Committee of three Board

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members was established, headed by the Company's external director, Prof. Ben-Zion Zilberfarb. The Investment Committee defines the Company's investment policy and meets at least once every two months to monitor the implementation of this policy. Additionally, there is a team of management members that meets frequently (at least twice a week) to discuss the composition of the portfolio and, in accordance with the procedures and policies, decides on the purchase and sale of securities in the investment portfolio. According to the policy set by the Committee, the Company's investment in negotiable foreign securities centers on shares of companies with market value exceeding USD 20 billion, and a rating above BBB+. Furthermore, guidelines were determined for the total of the portfolio, diversity and level of negotiability and periodic fluctuation of the purchased shares. Below is the composition of the liquid balances of the Company and Delek Capital as of December 31, 2010 (in NIS millions):

Balance on December 31, 2010 Cash and deposits (1) 514 Portfolio of foreign securities (2) 281 Shares in Noble Energy Inc., net (3) 916 Shares traded on the TASE (4) 457 Corporate bonds (5) 214 Others - mainly government bonds 296 Total 2,678

The cash and deposits are primarily with banks in Israel. The cost of the initial investment amounted to USD 85 million. The value of the portfolio right before approval of the financial statements was USD 97 million (NIS 342 million). As of December 31, 2010, 60% of the investment was in companies engaged in the financial sector traded on stock exchanges in the US and in other sectors (pharmaceuticals industry consumers, technology and communications), no more than 10% of the value of the entire portfolio in any other sector. Investment in Noble shares

Balance on December 31, 2010 (USD million). Investment in Noble shares 1,472 Less specific loan (556) Total 916

In August 2009, the Company's Board of Directors resolved to approve a total investment framework of up to USD 218 million for the purchase of shares in the US company, Noble Energy Inc. ("Noble"), which is traded on the New York Stock Exchange (2% of Noble's share capital). In July 2010, the Company decided to increase the investment in Noble shares, in an amount that is not to exceed 1% of Noble's share capital). In August 2010, the Company's Board of Directors resolved to increase the investment in Noble to total holding of 4% of Noble's share capital. The investment in Noble shares in presented as a financial investment classified as an available-for-sale financial asset and measured according to fair value. In 2009 and 2010, the Group both bought and sold Noble shares. As a result of the sale of Noble shares, the Group earned total profit before tax of NIS 38 million and NIS 46 million, respectively. As of December 31, 2010, the investment in Noble amounted to NIS 1,472 million, constituting 2.7% of Noble's share capital. The profit inherent in this holding amounts to NIS 281 million. Subsequent to the balance sheet date, the Group sold Noble shares for consideration of NIS 718 million, for total profit (before tax effect) of NIS 177 million. The balance of the investment (which

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constitutes 1.5% of Noble share capital) and the positive capital fund as of the date of approval of the financial statements is NIS 890 million and NIS 239 million, respectively. In 2009, the Company entered into an agreement with a foreign bank, pursuant to which it provided the Company with a non-recourse credit facility of USD 120 million. As collateral for the credit, the Group pledged Noble shares in favor of the foreign bank. In November 2010, the aforementioned credit facility was increased and replaced with a new credit facility, according to which up to 5,244,000 Noble shares could be purchased, constituting 3% of its total share capital, for a total not to exceed USD 230 million, for repayment by November 2013. The Group undertook during the credit term to maintain a ratio of 55% between the value of the debt balance and the value of the collateral (in other words, the value of all the holdings in Noble shares). Should the ratio between the debt balance and the value of the collateral exceed 66% (subject to changes under certain circumstances), the Group will be required to take immediate action to comply with a ratio of 55% between the debt balance and value of security. Calculation of the debt balance and value of the collateral, and the ratio between the two, is done by the Group every day after closing of the trade of the shares. The Group will be entitled to withdraw dividends to be distributed in respect of the pledged shares, subject to compliance with the ration between the collateral and said debt. Additionally, the agreement includes provisions regarding forced immediate repayment events, including cases of extreme change in the volume of Noble trade or extreme declines in the prices of Nobel shares. The interest in respect of the credit used from the facility is annual interest of Libor + 1.57%, up for repayment on an annual basis. As of December 31, 2010 and on the date of publication of the report, a total of NIS 556 million and NIS 364 million of the credit facility was used, respectively. The value of Noble shares as of December 31, 2010 and right before publication of the report was NIS 1,458 million and NIS 896 million, respectively. The holdings in every public company traded on the stock exchange are lower than 5%. This is particularly true of negotiable bonds on the Tel Aviv Stock Exchange, most of which is rated A or higher. 1.15.8 Additional holdings and investments The Group has additional holdings and investments that are not part of the Group's areas of activity. These holdings include, among other things, the holdings in high-tech companies and financial investments.

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Part Four – Matters Pertaining to the Group as a Whole

1.16 Property, plant and equipment

The corporate headquarters are located in an office building on Giborey Israel Street in Netanya, covering a total area of 3,360 sq.m. plus parking space.1 The offices are leased to the Company and its subsidiaries and other companies owned by the controlling shareholder, whereby each company pays rent pro rata to the area it uses. The agreement is part of the normal course of business on market conditions and the rent is not material.

1.17 Human Capital

1.17.1 Organizational structure The Company is a holdings company which controls, directly and indirectly, numerous companies that conduct their operations independently. The Company's investments in recent years were made through its directly held subsidiaries, Delek Investments (100%) and Delek Petroleum (100%). The financing of the investments of the guarantees for the financing are often provided by the Company or by Delek Investments or Delek Petroleum, the headquarters companies (together - "the Headquarters Companies"). The procedure is that material transactions made by these subsidiaries are not only approved within the companies, but are also submitted for approval by the Company's board of directors. The description in the sections concerning the Company's entire operations refers to the Company and the headquarters companies as a single entity. On December 30, 2010 the Company's board of directors decided in principle to merge the Company with Delek Investments. Subsequent to the balance sheet date, March 1, 2011, the Company's board of directors decided that all the assets, rights, liabilities and debits of Delek Investigations (the target company) will be transferred to the Company and assimilated by it (the receiving company). Upon completion of the merger, Delek Investments will be eliminated without liquidation. The merger is expected to be completed according to the dates set in section 323 of the Companies Law, or upon compliance with contingent conditions and receipt of the required approvals. For further information pertaining to the merger between the Company and Delek Investments, see the immediate reports issued by the Company on March 1, 2011 and March 6, 2011 (Ref No. 2011-01-066840 and 2011-01- 070119, respectively), whereby the information appearing therein are presented here by way of reference. It is noted that in December 2010, Delek Investments held an additional headquarters company, Delek Capital, which held part of the financial operations (including Phoenix, Republic and Barak Capital). As at reporting date, Delek Capital is in the process of voluntary liquidation, which commenced in December 2010. For further information pertaining to the engagement with the Company's CEO, Mr. Asaf Bartfelt, who held 1% of the shares in Delek Capital, for regulating of the relationship subsequent to the dissolution, see details under Standard 21 in the periodic and immediate report standards in Part D of the report (Additional Information Pertaining to the Company) and the immediate report issued by the Company on January 6, 2011 (Ref. No. 2011-01-009015), the information contained there is noted here by way of reference. 1.17.2 Employee headcount The Company and its headquarters companies employ a staff of 27, of whom eight are officers and senior management, and the rest are head office and administration employees. These employees also serve as managers and employees of the headquarter companies. 1.17.3 Officers and senior management employees in the Group The officers and senior managers in the Group are employed under personal contracts which include various forms of pension coverage. Some of the officers and senior managers are entitled to acclimatization bonuses for average periods of up to 6 months. Some of the Group's company managers and directors (including the Company's CEO and Chairman, who serve as directors of Group Companies) have been granted, for their positions in such companies, shares and stock options, and usually constitute up to 3% of the issued and paid-up share capital of those companies. The terms for exercising the options include an extended period for ther exercise as well as additional terms. In certain cases, loans have been provided to officers in the Group (including the CEO and Chairman) for purchasing securities in the Group's companies. In addition,

1 Until June 20, 2010, Delek Real Estate, a wholly owned subsidiary, owned part of the building.

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the Group usually awards incentives (bonus) to managers in amounts which are based on the following parameters managerial rank, the Group's business results and the personal achievements of the manager in the Group. The officers are eligible for insurance, waiver and indemnification in respect of activities performed in their official capacity. Furthermore, most of the Group's officers and senior managers received phantom options in June 2009. For further information pertaining to the adoptions of the phantom option plan for employees and senior officers, under which , inter alia, phantom options were awarded to the Company's CEO and other officers, see Chapter D to the periodic report. Under the plan, the options will vest in three equal annual tranches, with the first tranche vesting in June 2010. The second and third tranches will vest in June 2011 and in June 2012, respectively. All the options will expire in June 2014, two years after the end of the vesting period. A total of 46,895 options were approved under the plan, of which 34,400 have been allotted as at reporting date. In September 2010, some of the employees exercised 2,833 options for a total amount of NIS 2 million. At December 31, 2011, the financial value of the remaining options amount to approximately NIS 14 million and the expenses that was recognized for this plan during the course of 2009 and 2010 amounted to NIS 5 million and NIS10 million, respectively. For further information pertaining to remuneration of senior officers in the Group (including the CEO and Chairman) pursuant to Regulation 21 in the Securities Regulations (Periodic and Immediate Reports), 1970, see Chapter D to the periodic report.

1.18 Financing

This section does not refer to the credit received by the subsidiaries operating in the segments of operation, unless explicitly stated otherwise. 1.18.1 Below is a breakdown of the average interest rate on loans from bank and non-bank sources effective during the reporting period and which are not designated for specific use:

Short-term loans Long-term loans Average Average Effective interest Effective interest Interest rate Interest rate rate rate Banking sources Unlinked NIS credit ------Linked NIS credit 5.15% 5.11% 5.5% 5.11% USD linked credit ------2.1% 2.2% Euro linked credit 3.4% 3.44% ------Non-banking Unlinked NIS credit ------8.1% 8.35% sources Linked NIS credit ------5.0% 5.06%

1.18.2 Credit received between the date of the financial statements and their publication The Company has reached an agreement with the bank with which it engaged shortly after the reporting date, to receive a line of credit as follows: A. A loan in the amount of NIS 150 million which will be repayable in full on January 31, 2018, at interest of prime minus 0.25%. B. A loan in the amount of NIS 80 million, which will be repayable in full (principal and interest) on January 30, 2018 at interest of 5.35%. C. A loan in the amount of NIS 100 million, which will be repayable at the end of five years at interest of 1.8% above the offered interest (approximately 5%). To secure the foregoing line of credit, the Company will assign, by way of a first lien in favor of the bank, all its rights in RoadChef, including its rights to shareholders loans as specified in section 1.10 above.

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1.18.3 Credit facilities Unless specifically stated otherwise, everywhere that credit facilities are noted in this report, it refers to the lines of credit for which commissions are paid and for the use of which is guaranteed, subject to compliance with their terms. Credit facilities prior to the date of publication of the financial statements, amounted to NIS 400 million. The credit facilities are not guaranteed and are subject to change and might change form time to time primarily as a result of single-borrower limits. 1.18.4 Variable interest credit Breakdown of variable interest credit received by the Company in 2010:

Interest rates prior to publication of the Variance mechanism Interest range in 2010 periodic report Bank of Israel Interest + 4.25% - 4.75% 4.25% USD LIBOR + 2.5% - 1.6% 1.92% Euro LIBOR + 3.78% - 2.4% ---

1.18.5 Credit rating Debentures Series F-S, V-W, DD are rated by Midroog with credit rating A1 Stable, of which Series DD was issued and Series N, R and S were expanded during 2010. On October 26, 2010, subsequent to the Company's announcement of the sale of 22% of Delek Automotive shares, Midroog announced that the Company's rating will continue to be examined in light of the mix of holdings and the extend to which in maintains an adequate financial profile for the rating level. Debenture series G, H-M and X-Y are rated by S&P Maalot. On May 26 2009 S&P Maalot announced that it was lowering the ratings of these series from AA to A,with a stable outlook. On January 6, 2011 S"&P Maalot updated the Company's rating outlook from stable to negative, and at the same time confirmed the rating of ilA. 1.18.6 Material agreements with banking corporations Agreement with a foreign bank for financing acquisition of Nobel shares. For details pertaining the this agreement, see section 1.15.7 (3) above. Agreement with a bank in Israel with respect to the purchase of Delek Real Estate's debt During the course of the Company's engagement in March 2009 with a banking corporation for the purpose of the distribution of Delek Real Estate shares (which was at that time a subsidiary of the Company) as dividend in kind ("the Agreement" and "The Bank", respectively), the Company gave the Bank its undertaking that, inter alia, whenever Delek Real Estate makes a repayment to the Company on account of the RoadChef loans, the Company will use the proceeds of any repayment to purchase from the Bank part of the rights to the debt which Delek Real Estate owes to the Bank, in the amount of said repayment, upt to the cumulative amount of NIS 150 million ("the Debt Purchase"). Subsequent to the foregoing debt purchase, amounts that will be paid by Delek Real Estate will be paid, pari passu, to the Bank and to the Company, pro rata to their share in the loan extended to Delek Real Estate, with the exception of additional amounts that were fixed in the agreement, for which the Bank will have priority, until the Bank's share in Delek Real Estate's debt is fully paid up. Furthermore, on the date of the agreement, the Bank immediately made a new loan available to the Company in the amount of NIS 150 million. This loan was repaid, however the Company is entitled to renew the loan on the date of the purchase of the debt as aforesaid. This loan, if the Company will renews it, will be at interest of prime minus 0.25%. To guarantee the Company's undertakings to the Bank, the Company assigned, by way of a senior lien in favor of the Bank, all its rights under the loan agreements of Delek Real Estate for RoadChef and under the existing lien in its favor for 24% of the shares in RoadChef. For further information pertaining to the agreements, see section 1.17.6 in the chapter on the description of the Company operations in the Company's period reports for 2009, which were published on March 26, 2010 (Ref. No. 2010-01-01) and the information contained therein is noted here by way of reference. In order to receive the Bank's consent to the lifting of the lien on 51% of the shares in RoadChef for the purchase transaction of RoadChef shares that was completed in January 2011, it was agreed that the Company would purchase, in addition to the debt in the amount of NIS 150 million as aforesaid, Delek

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Real Estate's debt to the Bank in the amount of NIS 64 million (together - "the Purchased Bank Debt"). For further information see sections 1.5, 2.2 and 2.3 of the Company's transaction report of January 5, 2011 (Reference No. 2011-01-006375), (indicated herein by way of reference). A. The terms of Delek Real Estate's debt to the Company following the purchase of the bank debt are as follows: 1. an amount of NIS 150 million at interest of prime minus 0.25%, which will be repaid in quarterly installments. 2. an amount of NIS 76 million at interest of 6.35% Both amounts of the purchased debt are repayable on January 30, 2018 and a second tier lien will be registered in favor of the Company on the Hof Hacarmel project to secure them. B. Delek Real Estate undertook that upon purchase of the Bank debt, it would sign documents regulating the endorsement of part of the Bank's rights in the lien on the Hof Hacarmel project in favor of the Company, so as to grant the Company limited rights in the amount of the Bank debt it purchased. In accordance with the foregoing and the aforesaid limits, Delek Real Estate will register a second tier lien in favor of the Company on the Hof Hacarmel project. Subsequent to the purchase of the debt from the Bank, the senior lien on the Hof Hacarmel project will guarantee Delek Real Estate's debt to the Bank in the amount of NIS 260 million. The value of the Hof Hacarmel project in Delek Real Estate's financial statements at December 31, 2010, amounted to NIS 285 million. C. Delek Real Estate gave an undertaking that the loans guaranteed by senior lien on the Hof Hacarmel project will not exceed NIS 320 million, and this all the while that the debt to the Company is unpaid1. 1.18.7 Financial covenants Wherever financial covenants are mentioned in this report and the actual ratios are close to them, there are quantitative references, other than the operating segment of Delek USA, for which there are qualitative references. The Company and Delek Investments undertook financial covenants in connection with long term bank loans, which at December 31, 2010 amounted to approximately NIS 230 million, as follows: A. The total cumulative amount of guarantees for securing the liabilities of the Company's subsidiaries shall not exceed NIS 1.5 billion (one and a half billion shekel) As at this date, the total amount of the guarantees for securing the liabilities of the Company's subsidiaries as aforesaid, amounts to NIS 735 million. B. The ratio of assets to liabilities as defined between the Company and the bank will not be less that 1.2. With respect to this ratio: 1. The value of the assets will include the share of the Company and of the headquarters companies (as defined in the agreement) in the equity of investees (public companies - at market value; private companies - as presented in the financial statements) plus loans granted to the investees and plus cash and/or unencumbered cash equivalents and other financial assets in the Company and the headquarter companies (as defined in the agreement). 2. The liabilities will include the balance of short-term and long-term credit from banks and from others with the addition of loans from shareholders and interested parties which were extended to the Company and the headquarters companies (as defined in the agreement) in accordance with the financial statements. C. The ratio between the dividends and management fees received from the Group's companies and total administrative and general expenses and financing expenses will at no time be less than 2.

1 Delek Real Estate gave the Bank guarantees for the repayment of the debt of Elad Israel Residence Ltd. "Elad Israel"), a wholly owned subsidiary of Delek Real Estate, amounting to NIS 100 million. Since, as a result of Elad Israel not meeting the repayment of its loans to the Bank, Delek Real Estate will be required to exercise this guarantee, the the Bank is liable to clam that the senior lien on the Hof Hacarmel project also guarantees this debt, and even if such a claim is made, since as at the reporting date, Elad Israel has no difficulty in serving the foregoing debt, it was agreed between the Company and Delek Real Estate, that it will not be included in the amount of NIS 320 million as stated in this section.

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D. Delek Group is required to obtain approval in advance for distributing a dividend to its shareholders at a rate that exceeds 60% of the net annual profits. E. In addition, under the foregoing agreement, the Company and Delek Investments are subject to the following causes for immediate repayment of the credit extended by the bank: 1. If there will be a change in the control of the Company and/or of Delek Investments 2. If there will be a change in the Company's control of Delek Investments/Delek Petroleum or in the Delek Investments' control of Delek Automotive. It is noted that shortly prior to the sale of Delek Automotive holdings in September 2010 and the transfer of control, the Company received the consent of the banks for the change in control. 3. If, during the period during which the bank extended credit for the buy back of the Company's debentures and/or or early payment is made to the Company's debenture holders in a total accumulat4ed amount exceeding NIS 300 million. It is clarified that refinancing will not be deemed as early repayment 4. As at the reporting and shortly prior to the date of publication of the report, these companies are in compliance with the foregoing financial criteria. 1.18.8 Credit limits The Group is subject to the Proper Banking Management Directives issued by the Supervisor of Banks in Israel, which include, inter alia, restrictions on the volume of loans which the Israeli banks may extend to a single borrower and to the six largest borrowers and largest borrower group in the bank (as these terms are defined in the aforementioned directives).

1.19 Taxation

For the a description of the tax laws applicable to the Company see Note 42 of the Group’s financial statements.

1.20 Company liens, loans and guarantees

1.20.1 Liens Below are particulars pertaining to the Group's liens at December 31, 2010, which are not attributed to any of the foregoing operating segments: 1.20.2 Liens on Company assets: As at December 31, 2010 there was a first fixed lien in favor of a bank for loans in the total amount of NIS 280 million (principal) which was extended in September 2008 to Delek Real Estate Ltd. This lien was canceled due to the transaction with Delek Real Estate as detailed in section 5 above. It is noted that, based on the stipulations in section 1.18.5 above, the Company intends assigning all its rights in RoadChef, by way of a lien, in favor of the bank, including its rights for shareholders loans. 1.20.3 Delek Investments liens: During the course of 2010, the Company acted to cancel all liens on its assets and assets of Delek Investments and only one lien remains on 159,000 shares of Delek Energy Systems which constitutes 3.17% of Delek Investments holdings in Delek Energy Systems as at December 31, 2010. Delek Investments holds approximately 78.92% of the share capital of Delek Energy Systems. A. For details of guarantees and liens of the Group's companies in the various operating segments, see the discussion in each segment of operation. B. Other that the foregoing particulars, all the Company's investments in its investees with traded shares are free of liens. 1.20.4 Loans and guarantees to investees A. Breakdown of material loans to the Company's subsidiaries and related companies, as at December 31, 2010 (in NIS millions):

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Loan amount as at Lender Borrower December 31, 2010 Delek Investments Delek Capital 69 Delek Investments Delek Energy 313 Delek Petroleum Delek Luxembourg 68 Holdings Delek Petroleum Delek USA 156 Delek Investments IPP 78 Delek Petroleum Delek Europe BV 425 Delek Group Delek Real Estate 384 Total 1,493

Breakdown of material guarantees provided for subsidiaries and related companies and third parties as at December 31, 2010 (in NIS millions):

Guarantee amount As at December 31, Guarantor Guaranteed 2010 Guarantee for liabilities of subsidiaries and related companies1 Delek Group Delek France BV 460 Delek Investments Delek Ashkelon 82 Delek Petroleum Delek France BV 303 Delek Petroleum Benelux debtors 113 Delek Group IDE 36 Delek Investments Yam Tethys Ltd. 6 Delek Investments Delek and Avner Yam 2 Tethys Ltd. Delek Investments IDE 36 Delek Energy VOGIL 26 Delek Drilling Yam Tethys Ltd. 22 Delek Investments Delek Capital 20 Interim total 1,106 Guarantees for the liabilities of third parties Delek Group Israel Electric Corp. 56 Interim total 56 Total 1,162 The above information does not include loans and guarantees of Delek Real Estate, which are specified in section 1.15.5 above.

1.21 Restrictions and Supervision of the Corporation’s Operations

With the exception of the restrictions and supervision applicable to the Company and its subsidiaries under the various operating segments, as a public holdings company the Company is subject to applicable restrictions under the Company's Law, 1000, Securities Law, 1968, their regulations, the Antitrust laws.. In addition, the Company is affected by the various directives concerning capital and debt raising on the financial market in Israel or for non-banking finance, the various provisions pertaining to the capital market and receipt of finance. For further information, see sections 1.26.5, 1.26.7, 1.26.8, 1.26.15, and 1.26.16 below.

1 Guarantees that the Company and the headquarters companies (Delek Investments and Delek Petroleum) provided for the operational subsidiaries.

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1.22 Material Agreements

For further information pertaining to material agreement in which the Company and its subsidiaries are engaged under the various operating segments, see sections 1.7.20, 1.8.20, 1.9.28, 1.10.18, 1.11, 1.12.18, 1.13.5 and 1.14.15 above. Other than the foregoing, other material agreements of the Company are with the key shareholders in several companies: IDE (see section 1.15.2 above), Barak Capital (see section 1.15.6 above), Delek Automotive (see section 1.14.1 above), Phoenix (see section 1.12.1 above) and Gadot (see section 1.15.1 above). Breakdown of the headquarters companies' material financing agreements are specified in sections 1.15.7 (3) and 1.18 above From time to time, the Company engages in material purchase agreements such as the agreement to acquire the fuel operations in France, the agreement to acquire RoadChef, etc. Other than the business terms, these agreements also include various provisions concerning presentations, indemnification, transfer of information and these may become material in the event that difficulties arise after closing of the transaction.

1.23 Legal proceedings and insurance

For a description of the material legal proceedings to which the Group's companies are party, see Note 32A to the financial statements. The various companies belonging to Delek Group carry a wide variety of insurances covering various events. By the nature of things, and in the Company's assessment, these insurances do not constitute protection against all the risks in the business operations of Delek Group, as specified, inter alia, in the chapter on risk factors in this report.

1.24 Business goals and strategy

The Company customarily reviews its strategic plans from time to time and revises its goals in accordance with developments in its segments of operation and business opportunities which present themselves. 1.24.1 General The Company's financial strategy is to increase its portfolio of assets in Israel and worldwide in its current areas of operation, i.e. energy and infrastructure, and the financial sector. The Company hopes to increase the value of its assets and to achieve maximum return for its shareholders. 1.24.2 Continuous growth, development and commercialization of the energy and infrastructure sector The Group is acting to develop the Tamar field in order to meet its gas sales goals during the course of 2013, and for this purpose will continue raising capital to finance these operations. In addition, the Company together with its partners in the discovery will negotiate with potential customers in order to sign long-term sales contracts that will improve its opportunities to raise the financing required to develop the reserve. The Group will continue the Leviathan drilling pursuant to the secondary objectives published and to will afterwards act to develop the field. Furthermore, planning of the logistics system is underway to enable export of natural gas via a pipeline or LNG facility. The Group will continue investing in seismic surveys and the development of the other licenses it holds in order to try and find new oil or gas discoveries. 1.24.3 Expansion of fuel and refining operations in Europe and the USA by selective acquisitions and creating an advantage in order to increase the markets in which it operates The Group assumes that opportunities exist for expanding the fuel and refining operations in Europe and in the USA by acquisitions at attractive value in the short and mid terms. In this regard, the Group believes that its existing operations, together with targeted acquisitions and integrating them, will provide it with a platform for becoming a significant player in the gas station and convenience store operations in Europe. In view of the foregoing, the Group intends continuing to examine the acquisition of assets in the retail, wholesale, refining and logistics markets in the relevant downstream energy markets in Europe and the USA.

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Furthermore, the Group intends continuing to manage its operations in Europe and in the USA according to operating models aiming at improving customer relations and increasing the retail operating margins. For this purpose, the Group intends closing weak performance sites, to introduce changes at sites operating under models such as CORO and RORO so that they will operate according to more profitable models such as COCO, to increase the number of convenience stores and to maximize their profitability by redesigning and rebranding, to introduce new brands and higher profit products. For further information pertaining to the goals and strategy in the fuel and refining operations in the USA and Europe see sections 1.7.22 and 1.9.30 above. 1.24.4 Financial Sector The Group operates in the financial sector in Israel, primarily through Phoenix, inter alia, in elementary insurance, health insurance, life insurance and long term savings sectors and through Excellence which operates mainly in customer investment management and self trading in securities. Overseas, the Group will continue developing the insurance business through Republic. 1.24.5 Active management and positioning of the Group's businesses for increasing cash flows from them and maximizing the business value The Group acts to actively manage its remaining businesses in order to maximize value and enable cash flows that will support, inter alia, the Company's dividend strategy and energy business growth. The Group provides its administrative capacities to the subsidiaries (by representation on the boards of directors of these companies) and often supports them in order to develop or exploit their potential value. The Group intends in the future to continue expanding by6 means of strategic acquisitions and disposing of operations at the right time. As a rule, the Group's expanded business portfolio, including businesses designated as yield generating by way of dividend or increased value, are meant to enable it business flexibility and the ability to support capital intensive oil and gas and infrastructure operations. For further information pertaining to goals and strategy of the automotive and insurance and financial operations, see section 1.14.17, 1.12.20 and 1.13.17 above. 1.24.6 Wise management of financial operations for ensuring flexibility and maximizing shareholder's return The Group's approach is to manage its businesses with the aim of ensuring financial flexibility for short and mid term financing needs and to maximize shareholders' return by distributing dividends. In view of its significant holdings in public subsidiaries, the Group tries to maintain financial flexibility by increasing or decreasing its holdings. The Group actively manages its holdings and increases its share, inter alia, based on its assessment of the value of the shares or reduces its share, inter alia, based on its financing needs. The Group's strategy is to maintain its financial strength and adequate solvency. Risk is reduced, inter alia, by a comprehensive business portfolio that balances between exposure and capital intensive businesses and cash yielding businesses. The Company's subsidiaries, some of which are public companies, are financially managed independently and the Company focuses on overseeing its businesses while examining its current and future financing needs. 1.24.7 Expanding and varying financing sources In view of its financing needs and existing liabilities, the Company tries to maintain its ability to raise capital on the capital market and constantly examines expanding and varying its sources of finance. 1.24.8 Contribution to the community in Israel Together with its efforts to achieve profits for its shareholders, the Company aims to contribute and assist the community in Israel where a major part of the Group's businesses are located. The Group acts through the Delek Foundation for Education, Culture and Science to administer all activities and contributions for the benefit of the society and the community by Delek Group and its subsidiaries under one roof. Each year the Group's companies donate to the Foundation the funds required by the Foundation for carrying out its community work. The Delek Foundation's main efforts focus on contributions to education, health and the food distribution societies.

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1.25 Financial information concerning geographic regions

Below is a breakdown of the geographic regions in which the Group operates and its principal operations in them: Israel - the Group operates in Israel in the automotive, fuel products, energy, insurance and finance, desalination, infrastructure and biochemical sectors. USA - the Group operates in the USA in fuel products, refining, energy, biochemical and insurance sectors. Western Europe - the Group operates in Western Europe in the fuel products, roadside service station and biochemical sectors. Other - the Group operates worldwide in the desalination and the biochemical sectors. For further information concerning the geographic regions see Note 44 to the financial statements

1.26 Discussion of Risk Factors

The Company is primarily a holdings company and therefore its principal risk factors stem from the specific risk factors of each of the Group's various operating segments. The risk factors of each operating segment is described separately under the description of each separate operating segment. Aside from the risks described for those segments, below are details of additional key Group-wide risks to which the Group is exposed in Israel and abroad. 1.26.1 Changes in foreign currency exchange rates: The Company and its investees have foreign- currency loans and therefore the Company is exposed to changes in the exchange rates of these currencies (mainly USD, Euro and GBP). The exchange rates may affect the business results of th Company and its investees since a significant part of their acquisitions and revenues are denominated in foreign currency. For example, a devaluation of the NIS against the USD, Euro or Yen will generate increased NIS costs for liabilities denominated in those currencies, and on the other hand, appreciation of the NIS against the USD, Euro or GBP will generate a decrease in revenues and as a result in profitability. Furthermore, the Company is exposed to exchange rate translation risks so long as the currencies in which its subsidiaries operate, and according to which their financial statements are drafted, are foreign currencies. The Company is specifically exposed to exchange rate changes of the USD, Euro and GBP, which impact the values in the Company's financial statements, also if there is no change in the original currency. Though the Group tries, from time to time, to neutralize such currency risks by using various financial instruments, it is uncertain that it will succeed, and it may even undertake under such transactions to make various payments for hedging. 1.26.2 Change in interest rate: The Group has shekel loans at variable interest rates and therefore it is exposed to changes in interest rates in Israeli banks. Some of the Group's companies have taken variable interest loans based on foreign interest rates and therefore they are exposed to changes in interest rates in those countries. In addition, changes in interest rates can impact the business results of the Company and the investees. Changes in interest rates in Israel and the USA can have an adverse effect on the yields of the marketable debenture portfolios of the insurance companies held by the Company, which provide collateral for insurance liabilities. 1.26.3 Economic slowdown and changes in the Group's markets: The Group has substantial operations in various countries around the globe. Changes i the markets in which it operates, particularly an economic slowdown in those markets (including in Israel, the Benelux countries, France, Britain and the US), could have an adverse effect on the operations of the Company and its investees, as well as on the value and liquidity of their assets, the demand for their products and their revenues. The global economic crisis that began in 2008 led to global recession and adversely affected economies worldwide, including in the Benelux countries, France, Britain and the US, where such recession is still evident today and which is liable to continue in the future. Though the Israeli economy is not at present in recession, it is impacted by global occurrences and could also enter a recession in the future. 1.26.4 Capital markets: Deterioration in the global capital markets, and particularly in the Tel Aviv stock exchange, could adversely effect the Group's operations. Changes in the prices of marketable securities held by the Group expose it to risks deriving, inter alia, from capital market volatility and will affect its ability to generate capital gains from the realization of its investments. Deterioration of the capital market in Israel and the continuing global crisis could have material impact on the

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operations of the Company and its overseas investees, also with regard to their capital and debt raising abilities. 1.26.5 Financing: The Group has substantial obligations and continuous need for refinancing its operations when such existing liabilities reach repayment date. Some of these liabilities include financial criteria and others are liable to limit the Group's operations (such as restrictions on distribution of dividends, issuing of shares, providing collateral, mergers and disposal of assets), and non-compliance with these criteria could lead to a demand for immediate repayment of the liabilities and exercise of collateral. The absence of the Group's ability to obtain financing in the future by receiving loans or debt and capital raising, under good terms, may prevent the expansion of its operations, harm its current operations and lead to non-payment of dividends and even non- compliance with obligations towards third parties, including debenture holders. The availability and terms of financing sources are dependent on various factors, including the operating status, financial position, capital market conditions and the ability and limitations of key financing bodies. In this regard it is noted that in July 2010, the recommendations of the Hodek Committee were adopted by the Commissioner of Capital Markets and they are applicable to the large institutional investors in Israel (insurance companies, pension funds and provident funds). The Commissioner's directives impose, with certain exceptions, conditions and restrictions on the investment in corporate debentures, such as receiving a greater amount of information from the issuers prior to deciding on the investment, and including financial criteria in the debenture terms and conditions. The manner in which these directives will be applied may vary from case to case. In recent years the Group raised a large part of its financing through issuing debentures in Israel, a major part of which were purchased by institutional investors which are affected by the adoption of the Hodek Committee recommendations. The adoption of the Hodek Committee recommendations and other restrictions that may be applied in the future, may limit the Company's ability to raise additional debt, under favorable terms, or restrict its operations. 1.26.6 Security and political situation: Deterioration in the security and political situation (domestic and international) in Israel could adversely affect the Group's operations. Since a major part of the Group's operations are in Israel, it is exposed to the implications of armed conflicts, terror acts and instability in Israel. Such conflicts or acts are liable to harm the Group's operations in several ways, including cause an Israeli economic slowdown which could adversely impact the scope of its operations and results; declines in the Israeli capital market which could adversely impact the Group's capital and debt raising ability, realization of its holdings and the value of its marketable holdings; harm the Group's employees in Israel and cause direct damage to the Group's installations, including its gas exploration, production and conveyance facilities (Yam Tethys, Tamar, Leviathan, Ashkelon) and its seawater desalination and electric power plants, which are situated relatively close to the Israeli border with the Gaza Strip and may serve as a specific target for their purposes; and a decline in the presence of foreign investors and international companies will to invest in and engage with Israeli companies. Furthermore, the Group's ability to operate in various countries around the globe, particularly in Middle East countries, which do not recognize Israel is already, by nature, restrictive. Calls and actions to boycott Israeli companies (in enemy countries as well as in friendly countries) may also adversely affect the Group's operations in Israel and abroad. Similar to the foregoing, the Group is exposed to armed conflict, hostile acts and political instability in all the countries in which it operates. 1.26.7 Changes in legislation and standards: Special laws apply to significant parts of the Group's operations. The Group's financial results could be affected by changes in legislation and standards in various areas, including antitrust laws, laws governing the obligation to issue tenders, laws regulating areas such as fuel, gas, telecommunications, supervision of insurance business, control on prices of products and services, excise rates, consumer protection, etc. Furthermore, changes in the policy of the authorities operating by virtue of these laws is liable to affect the Group. Similarly, some of the Group's companies operate abroad and they are liable to be affected by changes in legislation, excise, regulatory proceedings and policy in the countries in which they operate. In this matter attention is drawn to section 1.11.10 above, concerning the recommendations of the Sheshinski Committee which are liable to have material adverse affect on the Group's operations in the energy segment. A change in accounting regulations could affect the business results of the Group and its investees, and the ability of those investees to distribute dividends. 1.26.8 Supervision of banks: The Group and some of its investees are subject to the Proper Banking Practice directives issued by the Supervisor of Banks in Israel, which include, inter alia, restrictions on the volume of loans that Israeli banks may extend to a single borrower and to the six largest borrowers and largest borrower group in the bank (as these terms are defined in the

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aforementioned directives). In view of the foregoing restrictions, the scope of the loans granted to the Group and its controlling shareholder may, under certain circumstances, impact the Group's ability to borrow additional sums from Israeli banks, and on its ability to make investments which require bank credit, or investments in companies which have taken large volumes of credit from certain Israeli banks. 1.26.9 Licenses and concessions: Some of the companies held by the Company operate on the basis of approvals, permits, licenses or concessions granted to them in Israel and abroad, in accordance with the law, by various authorities, inter alia the Ministry of National Infrastructures, Ministry of Telecommunications and Ministry of Transport. Failure to comply with the terms of these approvals, permits, licenses or concessions could lead to the imposition of sanctions, fines and even cancellation of the relevant approvals by the competent authorities. Such cancellation is liable to cause substantial harm to investees whose operations depend on these approvals. Some of these licenses and concessions have time limits and are renewable from time to time, all in accordance with the conditions and provision of the law and there is no certainty that these licenses or concessions will be renewed in the future. Non-renewal of such a license or concession may adversely impact the profitability of the company holding such a license or concession and consequently also on the Company's profitability. 1.26.10 Environment: Some of the Company's investees, particularly in the fuel segment in Israel, the USA and Europe, and in the refining and biochemical segments, are exposed to various requirements laid down by the authorities in the matter of environmental protection in Israel and abroad. The other costs and resources necessary for complying with the environmental requirements are large. A change in legislation in this area or a change in the policy of the supervisory authorities may impact the profitability of these companies, and consequently also the Company's profitability and failure to comply with them may expose the Company to various sanctions, legal proceedings and loss of licenses. 1.26.11 Raw materials, equipment and infrastructure: Some of the Company's investees are exposed to changes in the prices of raw materials, such as the refining sector which is exposed to changes in fuel prices (which affect the refining margin) or biochemical operations which are exposed to changes in the global price of sugar. Changes in the prices of raw materials are liable to impact the profitability of investees and consequently also the Company's profitability. Moreover, the companies are dependent upon the proper conveyance and storage of the various raw materials (for example, proper operation of fuel pipelines and terminals) and access to various infrastructures. These may be affected as a result of various factors, such as labor strikes, security events, transport breakdowns, limited access to ports (particularly the two main ports in Israel) natural disasters, extreme climatic conditions, etc. 1.26.12 Development of the Group's gas operations: Over the past two years, the significance of the Group's gas operations have increased due to the Tamar and Leviathan discoveries. The increase and success of the Group's gas operations depend on a series of factors such as the successful development of the Tamar and Leviathan reserves, increased demand for gas in Israel, development of the infrastructures required for supplying gas, obtaining financing at favorable terms for developing the gas operations, continued good relationship between the Group and Nobel, agreements for selling gas under favorable terms and the ability to export gas. Failure of any of these factors to materialize could have material adverse impact on the Group's operations. Also see risk factors in the energy segment - section 1.11 above. 1.26.13 Legal proceedings: Lawsuits have been filed against some of the Company's investees, including class actions, in substantial amounts. If these companies are found liable in these legal proceedings or in any possible future legal action brought against the Company or its investees, this could adversely impact the Company's business results. 1.26.14 Salary and labor relations: Material changes in the minimum wage or other material changes in the labor laws are liable to affect the results of the Company's investees and consequently also the Group's business results. Furthermore, strikes and labor disputes in the investees are liable to adversely affect the business results of the Group. 1.26.15 Antitrust regulations: The Group is subject to antitrust restrictions that deal with, inter alia, restrictions on the scope of operations, prohibited practices and manner of pricing products and services. certain circumstances, the Group's companies are liable to be restricted in their operations because of the provisions of the Antitrust laws in various countries, in a way that may restrict the expansion of their operations or even require them to downsize and change their operations. Furthermore, in certain cases, the Group and its investees may be subject to approval of transactions by the Antitrust Commissioner in Israel, which is liable to restrict and even prevent

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such transactions being carried out, or to require acting in accordance with the terms and conditions contained in merger permits which are granted or may be granted by him. Failure to comply with antitrust laws or claims of failure to comply with these laws, could lead to civil and criminal sanctions and the imposition of various restrictions on the Group's operations. Antitrust laws are, from time to time, subject to changes and interpretation, including being made more stringent. Below are two concrete examples of possible deterioration in antitrust law, that could adversely affect the Group's operations: (1) a proposed bill amending the Antitrust Law (Amendment No. 11) dated November 2010 concerning the granting of tools to the Antitrust Commissioner for dealing with oligopoly, and separately concerning the existing arrangement in the Law regarding a monopoly; (2) as part of the annual report of the Bank of Israel dated April 2010 the system-wide risk arising from the existence of business groups in the Israeli economy was discussed (groups of companies that manage business operations in various markets and are under common control), and suggested that regulation be considered, including definition of rights and obligations of business groups, increasing the reporting requirements applicable to business groups, requiring financial institutions to include evaluation of the operations of business groups in the models they use for risk management, dividend taxes on transferring of capital within companies with pyramidal ownership structure, and separating the control of financial institutions from the control of non- financial corporations. Consequently, in October 2010, the Prime Minister decided to establish a committee to deal with increasing competitiveness in the economy, which will examine possible policy measures, including the issue of the control of non-financial companies over financial companies, the application of antitrust policy, and the issue of restricting the control of a public company by way of a pyramidal holdings structure. As one of Israel's largest holding companies, which operates in a variety of operating segments, measures that may be taken to limit the expansion of the Group's operations or obligating it to dispose of holdings, including holdings in the insurance and financial sectors in Israel, may adversely affect the Group's operations and results 1.26.16 Restrictions on realization of holdings: The Company and some of its investees are bound by legal and contractual restrictions which could inhibit the ability of the Company and its investees to realize these holdings. There are liens in favor of banks on a minor part of the shares of the public investees. 1.26.17 Reliance on the results of investees and their cash flows: As a holdings company, the results of the Company's operations are, inter alia, dependent on the results of its investees, which manage the majority of its operations and which hold the majority of its assets. A majority of the investees are public companies trading on the TASE (or the NYSE with regard to Delek USA) and operate independently, and their interests are not necessarily the same as the interests of the Company. The Company's sources of capital include profits distributed as dividends and repayments of loans by the investees. Changes in the profit distribution policy of the Company's investees, changes in profitability (including those brought about by changes in accounting principles) and in the cash flows of these companies, and restrictions on the distribution of profits are liable to affect the Company's cash flows and its business operations, and therefore it is not at all certain that they will be able to make such payments in time when it is in need of the cash flows. Furthermore, the Company's ability to raise foreign finance relies, inter alia, on the value of its holdings in the Group's companies. 1.26.18 Loans and guarantees to investees and related companies: As part of its operations, the Company extended to its investees (such as Delek Energy, Delek Europe and Delek Real Estate) loans in material amounts as well as guarantees and collateral for various purposes such as guaranteeing finance they received, projects they carried out, etc. A decline in the profitability and cash flow of these investees or liquidity difficulties is liable to have an adverse effect on their ability to comply with the terms of the loans, or alternatively, to bring about the exercise of the guarantees provided by the Company and thereby adversely affect its financial position. In the context, it is noted that the Company and its subsidiaries have extended loans and guarantees in material amounts to Delek Real Estate. Most of the shares of Delek Real Estate, which was a subsidiary of the Company, were distributed as dividend in kind in May 2009, so that it is no longer in the Company's control. The operations of Delek Real Estate were adversely affected by the global financial crisis and the global crisis in the real estate market, thus as at September 31, 2010, it had a substantial working capital deficit of NIS 4,434,000 and equity deficit of NIS 1,016,000. Delek Real Estate is exposed to various risk factors, including tightening of the terms and conditions for receiving finance to repay Delek Real Estate's liabilities, decline in the demand for investment properties, a decline in occupancy rates and rentals, equity, revaluation of the fair value of its assets and its ability to comply with financial covenants agreed on with the various credit providers. These Delek Real Estate risk factors and others, if they materialize, might make it difficult for Delek

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Real Estate to repay its obligations towards the Company, to exercise the collateral given to the Company and its subsidiary, and to adversely affect the Company's financial circumstances. As stipulated in section 1.15.5 above, after completing the RoadChef deal in January 2011, the scope of the Company's loans to Delek Real Estate amounts to NIS 226 millions, the scope of the collateral it provided for Real Estate's liabilities amounts to NIS 60 million, and the scope of loans of other companies within the Group to Delek Real Estate, most of which are secured, amounts to NIS 64 million. In view of the foregoing, the failure of Delek Real Estate to meet its liabilities towards the Company and its investees may adversely affect the Company's results. 1.26.19 Insurance: Notwithstanding the fact that various risks involved in their business operations are insured by the investees, they are unable to protect against the realization of all risks, including the risks specified above, and existing insurances are limited in aspects such as scope of insurance, insurance exceptions, timing of insurance payments, and the ability of the insurance companies to meet their liabilities. Accordingly, it is possible that there will be no insurance cover, full of partial, for the realization of various risks, including risks to the Group's employees and its plants. 1.26.20 Goodwill: The goodwill of the Group and part of its brands are attained over years and the Group's success is dependent to some extent on its goodwill. Negative publicity of the Group and its brands is liable to harm its goodwill and the willingness of customers, suppliers, investors and others to engage with it. The Group's goodwill is liable to be adversely affected, inter alia, by negative events connected with environmental and health issues, legal proceedings and claims pertaining to unethical and illegal conduct. 1.26.21 Expansion and integration of new business segments: In recent years, the Group made substantial acquisitions and will continue doing so in the coming years. Previous and future acquisitions and investments expose the Group to several risks, including unexpected risks such as obligations or restrictions that were unknown at the time of the acquisition (for example, concerning environmental and antitrust issues); difficulties in achieving sales and profits that retroactively justify the acquisition; acquiring and managing additional liabilities; difficulties in integrating human resources and in making business, operating, financial and technological changes in acquired operations; difficulties opposite shareholders or other business partners in acquired operations; loss of key employees, suppliers or customers following acquisition; insufficient indemnification from the sellers for future liabilities; undertakings dependent on future payments; and difficulty in managing extensive and varied operations. Realization of these risks and other are may adversely affect the Company's operations and its financial results. 1.26.22 Information systems: The Group relies on information systems for its various activities. Information system failures (including as a result of natural disasters, power cuts, hackers penetrating the information systems, etc) and inability to repair them quickly is liable to harm the Group's businesses. Such failures could, inter alia, cause loss of business information, loss of customers and suppliers, harm to goodwill and significant costs for restoring the information systems. 1.26.23 Failure to comply with the undertakings of the parties engaged with the Group: Failure to comply with undertakings of parties with which the Group is engaged or their failure to pay can expose the Group to losses. Material exposure as aforesaid exists, inter alia, with regard to the exposure of reinsurance companies, institutional investors in the automotive segment, and parties managing funds for the Group in the insurance and finance segments.

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Breakdown of the Company's assessment of the types of risk factors and the degree of their impact on the Company's foregoing risk factors:

Scope of impact Risk Factors Major Impact Moderate Impact Minor Impact Macro risks • Interest rate • Changes in foreign • Security and political fluctuations currency exchange rates situation • Capital market status • Economic recession • Changes in legislation and standards • Supervision of banks Industry-specific • Financing • Environment Risks • Raw materials, equipment and infrastructure Company-specific • Development of • Licenses and • Restrictions on realization risks the Group's gas concessions of holdings operations • Loans and guarantees • Salary and labor relations to investees and related • Antitrust regulations companies • Legal proceedings • Reliance on the results of • Goodwill investees and their cash • Insurance flows • Expansion and integration of new business segments • Information Systems • Failure to comply with the undertakings of the parties engaged with the Group

Also see reference to additional risk factors applicable to the Group's material investees set forth in sections 1.7 and 1.14 of the report.

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Board of Directors Report on the State of the Company’s Affairs WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Directors’ Report Delek Group Ltd.

March 31, 2010

Delek Group Ltd.

Directors' report on the state of the Company's affairs For the year ended December 31, 2010 The board of directors of the Delek Group Ltd. ("the Company”), hereby presents the Company's Directors’ Report for the year ended December 31, 2010.

A. The Board's explanations for the state of the Company's affairs

1. Description of the Company and its business environment

The Group is a holdings and management company which controls a large number of corporations (the Company and the companies it controls are hereinafter referred to as "the Group" or "Delek Group") with a range of investments in Israel and overseas in the fields of fuels and energy, finance and insurance, automobiles, infrastructure and desalination, and others. The Company’s financial data and its operating results are affected by the financial data and operating results of its investee companies, and by its sale or acquisition of holdings. The Company’s cash flow is affected, inter alia, by dividends and management fees received from its investees, by receipts originating from the realization of its holdings in them, by its ability to raise foreign financing which depends, among other things, on the value of its holdings, and by investments made by the Group and the dividends it distributes to its shareholders.

2. Principal Operations

• On September 15, 2010, the Company signed an agreement with a company controlled by Mr. Gil Agmon, who serves as CEO of Delek Automotive Systems Ltd. ("Delek Automotive") and holds shares therein. Under this agreement, the Company is to sell Mr. Gil Agmon 22% of its holdings in the share capital of Delek Automotive, in consideration for NIS 1 billion. On October 20, 2010, the transaction was completed. After the transaction's completion, Mr. Gil Agmon holds approximately 38% of Delek Automotive's share capital, and the Company holds approximately 33% of Delek Automotive's share capital. As of that date, the Company no longer has exclusive control over Delek Automotive, and so the Company stopped consolidating Delek Automotive in its financial statements as of December 31, 2010. It is noted, that under IAS 27 (Revised) - Consolidated and Separate Financial Statements, the Company must recognize its remaining investment in Delek Automotive as per its fair value at the time in which the Company lost its control, and as of that date the remaining investment in Delek Automotive is to be presented as per the equity method. The Company's profit from the sale of the shares as aforesaid and from the revaluation of its remaining share holdings to their fair value as aforesaid amounted to NIS 2 billion (before taxes), with a total of NIS 1.2 billion of the above amount being attributed to the revaluation of the remaining shares. This profit was recognized in the fourth quarter of 2010. • On October 1, 2010, Delek Europe BV (a company which is 80% owned by Delek Petroleum and 20% owned by Delek Israel) completed the acquisition of BP France SA's fuel marketing operations in France, including 410 gas stations, approximately 300 convenience stores and holdings in three terminals. The consideration for the acquisition amounted to EUR 209 million (after working capital adjustments). • On November 24, 2010, following negotiations between the Company and Delek Real Estate Ltd. (a company owned and controlled by the controlling shareholder in the Company) ("Delek Real Estate") the Company's audit committee and board of directors decided to approve the acquisition of Delek Belron International Ltd. (a wholly-owned subsidiary of Delek Real Estate) ("Delek Belron") holdings in Roadchef. It is noted that Delek Belron holds a 75% interest in Roadchef,

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while Delek Petroleum holds a 25% interest in Roadchef. The transaction was completed on January 18, 2011, after approval in a general meeting of each party's shareholders. Upon the transaction's completion, the Group (through Delek Petroleum) holds a 100% interest in Roadchef. The consideration for the transaction totaled GBP 86.25 million (NIS 497 million), which reflects a value of GBP 115 million for Roadchef. Payment of the consideration was offset against Delek Real Estate's debt to the Company, and paid in cash. For more information, see Note 14G1 of the financial statements. • In June 2010, Noble Energy Mediterranean Inc. ("Noble"), the project operator, notified the partners in the Tamar lease that it had received a report updating the natural gas reserves in the Tamar field from Netherland, Sewell and Associates, Inc. ("NSAI"), an engineering consultancy company engaging in assessment of oil field reserves. According to the aforesaid NSAI report, the natural gas reserves in the Tamar field which are to be classified as 2P (Proved + Probable Reserves) upon approval of the Tamar field development plan (which will also include reasonable forecasts for the sale of natural gas to be produced in the field) is estimated at 8.7 TCF (247 BCM), an increase of 13% from the previous estimate of 7.7 TCF (218 BCM). These gas reserves include 1P-category (Proved) gas reserves, to the amount of 6.5 TCF (184 BCM), an increase of 8% compared with the previous estimate of 6 TCF (170 BCM). In June 2010, Noble presented the Partnerships with preliminary findings from the data obtained from the 3D seismic survey carried out in the Amit, Rachel and parts of the Hannah, David and Eran licenses ("the Ratio Yam Licenses"), as well as in the Alon A and Alon B licenses. In the first stage, Noble focused on processing and interpretation of the seismic data covering the Leviathan prospect in sand layers corresponding to the reservoir sands identified in the Tamar drillings, located in the Rachel and Amit licenses in which Delek Drilling and Avner each hold a 22.67% interest. Based on this data, Noble estimated the gross unrisked mean gas resources of the prospect to be 16 TCF (453 BCM). This estimate does not include the geologic probability for finding hydrocarbons in the prospect. The probability of geologic success in the Leviathan prospect is 50%. On August 26, 2010, the partners in the Ratio Yam Licenses approved budgets and plans for initial exploration drilling in the Leviathan prospects, situated in the Rachel and Amit licenses. Drilling began in October 2010. On December 29, 2010, the partners announced a significant natural gas discovery in the drilling site. Information from the drill site confirms the operator's pre-drilling assessments as to the estimated gas resource range, whereby gross mean gas resources in the Leviathan field is 16 TCF (453 BCM). According to the operator's assessment, the Leviathan field spans a very large area of approximately 325 square kilometers, And so two or more test drills will need to be carried out in order to continue assessing the scope of the gas resources in the Leviathan field. • In March 2011, Delek US signed an agreement for acquiring 53.7% of Lion, whose operations mainly include the operation of a refinery with a capacity of 80,000 barrels a day. Prior to signing the agreement, Delek US held 34.6% of Lion's shares, and made an adjustment of USD 60 million in the value of these shares based on the new purchasing price. For more information, see Note 8A to the financial statements. • In 2010, the Company announced the distribution of a cumulative amount of NIS 860 million in dividends to its shareholders. Post-balance sheet, in March 2011, the Company announced the distribution of an additional dividend of NIS 200 million.

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3. Results of Operations

A) Contribution to net profit (attributable to owners of the parent) from principal operations (NIS millions):

2010 2009 10-12/10 10-12/09 Fuel operations in Europe 69 49 (13) 3 Fuel operations in Israel 48 82 (2) 12 Fuel operations in the US (59) 27 (26) (54) Impairment of the investment in Lion (154) - (154) - Oil and gas exploration and production operations(5) 64 23 (31) 3 Insurance and finance operations(6) 188 181 7 70 Automotive operations (2) 195 250 10 78

Capital gains and others(1), (3)(4) 1,350 252 1,626 312 Profit attributable to equity holders of the parent 1,701 864 1,417 424

(1) Included in this item are non-attributed financing expenses, tax expenses and results of other operations in respect of infrastructure and investments. Furthermore, in 2009 and in the fourth quarter of 2009, this item also includes NIS 16 million and NIS 12 million, respectively, in re-structuring expenses in Delek Benelux. (2) On October 20, 2010, the Company completed the transaction for selling 22% of its holdings in Delek Automotive's shares. Following this transaction, Gil Agmon holds approximately 38% of Delek Automotive's share capital, while Delek Investments holds approximately 33% of Delek Automotive's share capital. As of this date, Delek Investment no longer has exclusive control over Delek Automotive, and so Delek Investments no longer consolidates Delek Automotive in its financial statements as of December 31, 2010, presents its remaining investment as per the equity method. Data were presented in the income statement under the "Profit from discontinued operations, net" item, except for Q4/2010 data, which were presented under the "Group equity in the profits of investee companies, net" item. (3) On March 31, 2009, the Group announced the distribution of shares of Delek Real Estate as a dividend in kind to the shareholders of the Group. The distribution was made in May 2009. Commencing April 1, 2009, the Group includes its interest (5%) in the results of Delek Real Estate as per the equity method. Those results are included in the 'Capital gains and others' item. (4) Includes NIS 2 billion in profit (pre-tax) from the sale of Delek Automotive and from revaluation of the remaining share holdings, which were included in the final quarter of 2010. (5) In the reporting year - including a write-down of NIS 50 million for impairment of gas and oil assets in the US. (6) In the reporting year - including NIS 110 million in consolidated write-downs in The Phoenix and Republic.

B) Revenues from continuing operations The Group’s revenues in the reporting period amounted to NIS 45 billion compared with NIS 39 billion in the corresponding period of the previous year, an increase of NIS 16 billion. The increase in revenue is due mainly to revenue from the US refinery which was shut down for repairs during Q1 and part of Q2 2009 following the fire in late 2008. Furthermore, gas station revenues were up mainly due to increased fuel prices in 2010 as compared to 2009. See also Note 44 to the financial statements - Information Regarding Operating Segments.

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C) Operating profit

2010 2009 10-12/10 10-12/09 Fuel operations in Europe 190 97 45 11 Fuel operations in Israel 189 230 35 42 Fuel operations in the US 62 189 12 (64) Oil and gas exploration and production operations 268 265 (12) 66 Insurance and finance operations 647 448 107 11 Overseas insurance operations 65 77 (25) 41 Other segments including adjustments (196) (156) (23) 51 Operating profit 1,225 1,150 139 158

For analysis of operating profit for the various segments, see below. D) Finance expenses, net The Group's net finance expenses in 2010 amounted to NIS 1,384 million, as compared to net financing expenses of NIS 924 million in the corresponding period last year This increase was due mainly to a write-down of the Group's investment in Lion Oil to the amount of NIS 213 million, and the decrease during the year in the appreciation of marketable securities and profit from the sale of marketable securities of NIS 120 million. Furthermore, the average balance of the Group's financial liabilities amounted to NIS 21 billion, as compared to an average balance of NIS 20 billion in the corresponding period of the previous year, which effected an increase in financing expenses. E) The Group’s share in the profits of associate companies and partnerships, net

2010 2009 10-12/10 10-12/09 Delek Automotive 10 - 10 - Avner 80 57 4 4 IDE 61 140 10 5 Roadchef (44) (99) (32) (69) The Phoenix associates 48 48 27 28 Other 8 (55) (11) (9) 156 91 8 (41)

F) Profit from discontinued operations In light of the agreement for the sale of Delek Automotive to Mr. Gil Agmon, which was signed on September 15, 2010 as aforesaid, all of Delek Automotive's results were presented in the income statement under the 'Profit from discontinued operations' item, with comparison figures being re- classified (including the unsold interest of 33%). It is noted that starting from the fourth quarter of 2010, the Company's unsold equity (33%) in the results of Delek Automotive is included under the 'Group's equity in the profits of associates' item, as detailed in the above table.

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G) The table below shows principal data from the Company’s consolidated income statements (in NIS millions):

2010 2009 10-12/10 10-12/09

Revenues 44,567 38,703 12,887 10,345 Cost of revenues 37,980 32,814 11,109 8,985 Gross profit 6,587 5,889 1,778 1,360

Selling, marketing and gas station operating expenses 3,502 3,385 979 781 General and administrative expenses 1,724 1,623 482 426 Other revenue (expense), net (136 ) 269 (178) 5 Operating profit 1,225 1,150 139 158

Finance income 271 508 24 114 Finance expenses ()1,655 ) (1,432 (600) (277) Profit (loss) after financing (159) 226 (437) (5)

Gain from disposal of investments in investees and (4) 518 (4) 483 others, net Group share in earnings of partnerships and associates, 156 91 8 (41 ) net Profit (loss) before income tax (7 ) 835 (433) 437

Income tax 178 83 26 61 Profit (loss) from continuing operations (185 ) 752 (459) 376 Profit from discontinued operations 2,139 451 1,819 130 Net profit 1,954 1,203 1,360 506

Attributable to - Equity holders of the parent 1,701 864 1,399 424 Non-controlling interest 253 339 (39 ) 82 1,954 1,203 1,360 506

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H) Movement in comprehensive income (loss) (in NIS millions):

2010 2009 10-12/10 10-12/09 Net profit 1,954 1,203 1,360 506 Other comprehensive income (loss): Gain (loss) from available-for-sale financial assets, net 346 269 201 9 Gain (loss) from cash flow hedges, net (5 ) (115) 19 (15) Exchange differences on translation of foreign 19 (136) 42 operations (381) Group's share of other comprehensive income (loss) 12 (85) 22 of associates, net (85) Other comprehensive income (loss) from continuing (125) 185 (1) 58 operations

Other comprehensive income from discontinued 214 16 operations (29) (27) Total other comprehensive income (loss) (154 ) 399 (28) 74

Total comprehensive income (loss) 1,800 1,602 1,332 580

Attributable to: Equity holders of the parent 1,586 1,113 1,392 480 Non-controlling interests 214 489 (60 ) 100 1,800 1,602 1,332 580

I) Highlights from the Company's consolidated income statement (NIS millions):

1-3/10 4-6/10 7-9/10 10-12/10 2010

Revenues 11,365 10,423 12,186 12,887 44,567 Cost of revenues 9,669 8,540 10,594 11,109 37,980 Gross profit 1,696 1,883 1,592 1,778 6,587

Selling, marketing and gas station operating expenses 844 852 848 979 3,502 General and administrative expenses 402 405 449 482 1,724 Other revenue (expenses), net (13) 50 - (178) (136) Operating profit 437 676 295 139 1,225 Finance income 217 47 56 24 271 Finance expenses 273 (483) (405) (600) (1,655) Profit (loss) after financing 381 240 (54) (437) (159) Gain from disposal of investments in investees and - - - (4) (4) others, net Group share in the earnings of partnerships and 70 13 65 8 156 associates, net Profit (loss) before income tax 451 253 11 (433) (7) Income tax 107 103 11 26 178 Profit (loss) from continuing operations 344 150 - (459) (185) Profit from discontinued operations - - 100 1,819 2,139 Net profit 344 150 100 1,360 1,954 Attributable to: Equity holders of the parent 205 64 33 1,399 1,701 Non-controlling interests 139 86 67 (39) 253 344 150 100 1,360 1,954

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J) Movements in comprehensive income (loss) (NIS millions):

1-3/10 4-6/10 7-9/10 10-12/10 2010

Net profit 344 150 100 1,360 1,954 Other comprehensive income (loss): Gain (loss) from available-for-sale financial assets, net 53 (113 ) 204 202 346 Gain (loss) from cash flow hedges, net ()12 ) (-12 19)(5 Exchange differences on translation of foreign operations(133 ) 108()220 ) ()136 (381 Group share of other comprehensive income (loss) of associates, net (36)28 ) (7 ()86) (85 Other comprehensive income (loss) from continuing operations) (19)120) ()23 (1 (125)

Other comprehensive income from discontinued operations - - (2 ) ()27) (29 Total other comprehensive income (loss) (19)120 ) ()25 ()28 (154

Total comprehensive income 224 169 75 1,332 1,800

Attributable to: Equity holders of the parent 88 23 83 1,392 1,586 Non-controlling interests 136 146(8 ) (60) 214 224 169 75 1,332 1,800

4. Financial Position

The Group's total assets as of December 31, 2010 amounted to NIS 92 billion, compared with NIS 84 billion as of December 31, 2009. It is noted that in light of the completion of the sale of 22% of Delek Automotive's shares to Mr. Gil Agmon, on October 20, 2010 as aforesaid, the Company no longer consolidates Delek Automotive in its financial statements. Comparative income statement data includes Delek Automotive's balances as previously reported. Below is a description of the principal changes in assets and liabilities as of December 31, 2010 compared with December 31, 2009: Cash and cash equivalents and short-term investments The Group has cash and short-term investment balances of NIS 4.4 billion, consisting mainly of balances of NIS 1 billion in the Company, Delek Investments and Delek Petroleum, NIS 0.7 billion in Delek Europe, NIS 1.3 billion in The Phoenix, NIS 0.6 billion in Delek Energy and NIS 0.3 billion in Republic. Total current assets The Group's total current assets (excluding assets held for sale) as of December 31, 2010 amounted to NIS 33.3 billion, compared with NIS 33.9 billion as of December 31, 2009. Changes were mainly due to the fact that Delek Automotive's current assets, to the amount of NIS 2 billion, were not consolidated, and due to an increase in the ETF item to the amount of NIS 2 billion. As of December 31, 2010, the Company has a working capital deficit. The Board of Directors, after having reviewed data presented by the Company's management, believes that this working capital deficit does not indicate a liquidity problem. This conclusion is based, inter alia, on the Company's total cash and marketable securities, cash inflows expected from investees from continuing operations, and due to the possibility for disposing of assets if necessary.

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Total non-current assets The Group's total non-current assets as of December 31, 2010 amounted to NIS 58.5 billion, as compared to NIS 50.4 billion as of December 31, 2009, an increase of NIS 8 billion. This increase is primarily due to a NIS 5 billion increase in financial investments by insurance companies, from initial recognition of Delek Automotive as an associate company to the amount of NIS 1.3 billion, and a NIS 1 billion increase in the investment in Noble. Balance of short- and long-term financial liabilities Total financial liabilities (to banks, debenture holders and others) as of December 31, 2010 amounted to NIS 20.7 billion, compared with NIS 19.6 billion as of December 31, 2009. Contingent claims In their report, the Company’s auditors draw attention to lawsuits against investees. For details, see Note 30 to the financial statements. Additional information For additional information regarding repayments of principal and interest in respect of debts of the headquarter companies, see Appendix A to this Directors’ Report.

5. Sources of Finance and Liquidity

The net financial liability of the Company and the headquarters companies as of December 31, 2010: (headquarters companies: Delek Group, Delek Investments and Properties Ltd. Delek Petroleum, Delek Finance US Inc., Delek Infrastructures, Delek Europe Israel and Delek Hungary)

NIS millions Liabilities

Debentures (8,097) Loans from banks (269) Loans from consolidated companies (256) Other (122) Total liabilities (8,744)

Assets

Cash 499 Financial investments (**) 2,200 Loans to associates (***) 1,472 Dormant shares 339 Other 11 Total assets 4,521

Financial liability, net – headquarters companies (4,223)

(*) As of the statements for Q1 2010, the method of presenting the Roadchef investment was changed, and therefore this balance is not included under investments in financial liability, net. (**) Includes an investment in marketable securities in Israel and abroad. It is emphasized that the investments in Noble, Delek Real Estate, Menorah, and HOT are included in this item. (***) For information concerning the loans included in this item, see also Section 1.20 in Part A of the periodic report - Description of the Company's Business Debt raising During Q2 2010, the Company (separately) completed the raising of NIS 255 million in debentures and the expansion of existing series to the amount of NIS 800 million. In November 2010, the Company completed the raising of NIS 560 million in index-linked debentures. For a more detailed explanation of raising debt through debentures, see Notes 26F and 27 to the financial statements.

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Investment in Noble Post-income statement, in Q1/2011, the Company sold part of its holdings in Noble's shares in consideration for NIS 718 million. The Company's pre-tax profit from this sale amounted to NIS 177 million. The remainder of the investment (constituting 1.5% of Noble's share capital), and the positive capital reserve near the financial statements' approval date, amounts to NIS 890 million and NIS 236 million, respectively.

6. Analysis of Operations by Segment

A. Fuel operations in the US Delek US results as included in the Company’s consolidated financial statements:

2010 2009 10-12/10 10-12/09 Total Total Total Total NIS millions NIS millions NIS millions NIS millions Revenue 14,019 10,413 3,582 3,198 Results of operations (excluding depreciation 505 644 117 61 and general and administrative expenses) Depreciation expenses 228 204 59 59 General and administrative expenses 217 247 47 70 Operating profit (loss) 58 184 9 (72 ) Financing expenses, net 357 100 254 31 Net profit (loss) (290) 33 (245) (74)

Additional operational data:

2010 2009 10-12/10 10-12/09 Refining operations: Contribution to results of 214 411 63 32 operations (NIS millions) Operational days 365 228 92 92 Average barrels sold each day 53,360 51,823 54,405 49,276 Average barrel price in the 79.5 71.22 85.16 75.95 period (USD) Average refining margin (USD/barrel) 7.00 6.14 7.85 3.37 Direct production costs 5.21 7.28 5.51 5.73 (USD/barrel) Marketing operations Contribution to results of 95 97 24 28 operations (NIS millions) Average barrels sold each day 14,354 13,378 14,352 14,048

Gas station operations Contribution to results of 196 136 30 1 operations (NIS millions) Average no. of stations during 428 459 417 450 the period Station turnover (thousands of 423,509 434,159 103,184 108,699 gallons) Margin per gallon (USD) 0.161 0.136 0.131 0.129

Delek US operates a refinery with a maximum daily capacity of 60,000 barrels, a crude oil pipeline and a network of fuel marketing terminals in Texas, US, as well as gas stations and convenience stores in eight neighboring states in the Southeast United States. In addition, Delek US holds about 35% of

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Lion Oil, which operates an oil refinery with a capacity of 75,000 barrels per day, in El Dorado, Arkansas (for information on the signing of a transaction for acquiring an additional 53% of Lion's shares, see Note 13(2)a). The Company's direct and indirect holdings in Delek US at the balance sheet date total approximately 72.6%. Delek US is a listed company in the US. Analysis of the results of fuel operations in the US Revenues Revenues for 2010 totaled NIS 14,019 million, as compared to NIS 10,413 million in 2009. This increase is due mainly to growth in the sales turnover of the Tyler refiner, which was operational over a longer period in 2010 as compared to 2009 due to the results of the November 2008 fire which shut down refinery operations until May 2009. In addition, sales were up due to increased fuel prices, which affected all sales, both in the refining and marketing segment, and in the gas station segment. Operating profit (before depreciation and administrative expenses) Operating profit in 2010 totaled NIS 505 million, as compared to NIS 644 million in 2009. Operating profit for 2010 includes NIS 64 million in insurance income (received for the November 2008 fire, as aforesaid), as compared to NIS 419 million in insurance income received in 2009. After adjusting for insurance income, operating profit for 2010 amounted to NIS 441 million, as compared to NIS 225 million in 2009. Operating profit for 2010, and the improvement over 2009, were mainly influenced by improved refining margins in 2010, and a reduction in average production costs as detailed in the above table. It is further noted, that as of Q4/2010, there has been a significant improvement in refining margins in the Gulf Coast, compared to previous periods. In Q1/2011, the Gulf Coast 5-3-2 crack spread reached a multi-year high. General and administrative expenses General and administrative expenses for 2009 include a one-time write-down of goodwill, to the amount of USD 7 million (NIS 25 million), included in Q4 2009. Financing expenses, net Financing expenses, net include UDS 60 million (NIS 213 million) in non-recurring expenses for adjusting the value of the investment in Lion's shares due to. This is based on the agreement signed for acquiring an additional 53.7% of Lion's shares, as detailed in the notes to the financial statements. Additional information It is noted that there are a number of differences between the financial results of Delek US according to US GAAP as published, and their inclusion in the financial statements according to IFRS applied in Israel. The principal difference stems from a different accounting policy for inventory – in the US, the cost of inventory is according to LIFO, whereas IFRSs require the application of the average method. For more information about the operations of Delek US, see Note 14 to the financial statements, and Section 1.7 in Part A of the periodic report - Description of the Corporation's Business.

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B. Fuel Operations in Israel Below are data from the financial statements of Delek Israel:

2010 2009 10-12/10 10-12/09 NIS NIS NIS NIS

millions millions millions millions Revenues 5,136 4,290 1,324 1,211 Gross profit 775 736 188 174 Operating profit 188 229 31 41 EBITDA 290 306 52 60 Financing expenses, net 93 112 30 20 Delek Israel's share in results of (7) (8) (8) (14) associates Net profit (loss) 60 95 (15 ) 11 Attributable to: Equity holders of the parent 56 90 (16) 10 Non-controlling interests 4 5 1 1 60 95 (15) 11

As of the income statement date, the Group maintains a 77.2% interest in Delek Israel (Delek Israel is a public company whose statements are available to the public). Delek Israel's operations include marketing and distribution of fuel products, operation of gas stations and the Menta chain of convenience stores. It has three main segments of operation – fuelling and commerce complexes, which includes the Group's operations in public gas stations; direct marketing, which includes the Group's operations in the marketing and distribution of oil products to Delek Israel's customers outside the fuelling and commerce complexes; and fuel storage and issue. Revenue Sales net of government levies ("Net Sales") in 2010 amounted to NIS 5,136 million, compared with NIS 4,290 million in 2009, an increase of 19.7%. Net sales in Q4 2010 amounted to NIS 1,324 million, compared with NIS 1,211 million in the same quarter last year, an increase of 9.3%. The year-on-year increase is primarily attributed to the rise in average fuel prices in 2010 over 2009, and a real quantitative increase, mainly in the sales turnover in the fuelling and commerce areas, increased turnover in the Menta chain of convenience stores, and an increase due to the initial consolidation of the results of fuel marketing operations in the direct marketing segment. Gross profit Gross profit in 2010 amounted to NIS 775 million, compared with NIS 736 million in 2009, an increase of 5.3%. Gross profit for Q4 2010 amounted to NIS 188 million, as compared to NIS 174 million in the corresponding quarter of the previous year, an increase of 8%. In the reporting year, gross profit was up, inter alia, due to continued transition to Company-operated stations, quantitative growth in this segment, increased sales turnover in the convenience stores, sales growth in the direct marketing segment following acquisition of new fuel marketing operations in Q3 2010, and an increase in gross profit in the storage and distribution segment. On the other hand, annually, increased competition in the fuel market during the reporting period eroded gross profit margins, mainly on gas station fuel sales. The Company has also recorded a decrease in inventory profits as compared to last year (a year-on-year difference of NIS 10 million). Gross profit was up in Q4 2010 as compared to the same quarter last year, for the reasons detailed above. It is further noted that in Q4 2010, as compared to the corresponding quarter last year, margins in the gas station segment were up. The year-on-year increase in gross profit for the quarter was offset by NIS 7 million in non-recurring expenses due to recognition of extraordinary expenses for refurbishing a distribution facility held by a subsidiary, and due to updates to estimates regarding the Company's inventories.

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Sales, gas station operation and general and administrative expenses These expenses amounted to NIS 586 million in 2010, compared with NIS 510 million in 2009, an increase of 14.9%. During Q4 2010, these expenses amounted to NIS 157 million, compared with NIS 136 million in the same quarter last year, an increase of 15.4%. Most of the increase between reporting periods in 2010 and 2009 is due to an increase in gas station operating expenses as a result of the transition to Delek Israel's operation of these stations, increased advertising and marketing expenses, an increase in depreciation expenses, a marked increase in gas station rental fees, an increase in the operating expenses of Delek Israel's convenience store chain following the chain's expansion, and due to the initial consolidation of the acquisition of fuel marketing operations in the direct marketing segment. The aforesaid increase was offset by decreased salary expenses for employee options and an increase in other income recognized in profit from operations, which were recognized in the first half of the year. Operating profit - general Operating profit in 2010 amounted to NIS 188 million, compared with NIS 229 million in 2009, a decrease of 18%. Operating profit in Q4 2010 amounted to NIS 31 million, compared with operating losses of NIS 41 million in the same quarter last year, a decrease of 24.4%. Financing expenses, net Net financing expenses in 2010 amounted to NIS 93 million compared with NIS 112 million in 2009, a decrease of 17%. Net financing expenses for Q4 2010 amounted to NIS 30 million, compared with NIS 20 million in the same quarter last year, an increase of 50%. Net financing expenses include NIS 20 million in non-recurring profit from the sale of Delek Israel's holdings in Haifa Basic Oils. After adjustment for this non-recurring profit, financing expenses were up for the period, due to increased bank credit facilities compared to last year, and a year-on-year decrease in dividends from financial assets available for sale. Furthermore, a provision was recognized in the reporting year for loan impairments on long-term loans amounting to NIS 6 million. On the other hand, the Company recorded a decrease in expenses due to CPI differences, as a result of a more moderate increase in the CPI during the reporting year - 2.28% as compared to 3.82% last year. Additional information

On February 15, 2011, the Fuel Administration issued the fuel companies a report ("Goldberg Report") analyzing their retail margins. The fuel companies were requested to submit their written response to the Goldberg report by March 25, 2011. Furthermore, on March 16, 2011, the Fuel Administration sent the fuel companies an extensive demand for data for review, to be submitted no later than March 25, 2011. Subsequently, the fuel companies are expected to present their position to the Price Committee, comprised of a Ministry of Finance representative and a Ministry of National Infrastructures representative, after which the Price Committee will decide and update the method for calculating the retail margin. As part of these proceedings, on February 21, 2011, the Fuel Administration announced its intention to repeal the update to the retail margin scheduled for April 1, 2011. A change and update in the method of calculating the retail margin may have a material effect on Delek Israel's results, whose extent will depend on the nature of the adopted change. For more information about the operations of Delek Israel, see Note 14 to the financial statements and Section 1.8 in Part A of the periodic report - Description of the Corporation's Business.

C. Fuel operations in Europe Fuel operations in Europe are managed by the consolidated company Delek Europe BV ("Delek Europe"), a subsidiary incorporated in the Netherlands and indirectly held through Delek Petroleum (80%) and "Delek" The Israel Fuel Corporation Ltd. (20%). Operations include marketing and distribution of fuel and oil products, operation of gas stations, operation of a chain of convenience stores and bakeries, carwash facilities, and various holdings in terminals. On October 1, 2010, Delek Europe completed a transaction for the acquisition of BP's fuel operations in France. Upon the transaction's completion, Delek Europe operates in four countries in Western Europe. Operations in Belgium, the Netherlands and Luxembourg ("Benelux") are carried out through Delek Benelux BV ("Delek Benelux"), while operations in France are carried out through Delek France BV ("Delek France"). The two companies are wholly-owned subsidiaries of Delek Europe, incorporated in the Netherlands.

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As of the end of 2010, fuel operations in Europe are comprised of 1,250 gas stations (845 in Benelux, and 405 in France), 959 convenience stores (605 in Benelux and 354 in France), 419 carwash facilities (182 in Benelux, and 237 in France) and holdings in 5 terminals (2 in Benelux and 3 in France). In 2010, Delek Benelux continued development of a new concept for the operation of convenience stores under a private label brand it has established - GO The Fresh Way. Delek Benelux also continued expanding its motorway operations in Belgium, and as of the reporting date operates 7 restaurants and one motel. On October 1, 2010, Delek France commenced operations, as aforesaid. These financial statements include initial consolidation of Delek France's assets as of December 31, 2010, and Delek France's operations for the three-month period commencing on the acquisition date and through to December 31, 2010. For more information concerning the acquisition of operations in France by Delek Europe BV, see Note 14J to the financial statements. Condensed statement of financial position of Delek Europe as of December 31, 2010 and 2009 as included in the Group's statements (in NIS millions)

December 31, December 31, 2010 2009 Cash 680 440 Current assets (excluding cash) 1,530 1,061 Investment in investees and long term receivables 110 151 Property, plant and equipment, net 1,732 1,219 Other property, net 1,477 1,283 Short term loans and credit 247 242 Current liabilities (excluding short term loans and credit) 1,991 1,420 Long term loans from banks 1,701 1,523 Long term loans from shareholders 568 95 Other long term liabilities 422 242 Equity 600 632

Data from Delek Benelux's income statement as included in the Group's statements (in NIS millions):

**1-12/10 1-12/09 **10-12/10 10-12/09 NIS NIS NIS NIS

millions millions millions millions Revenues 13,130 10,681 4,413 2,885 Gross profit 1,384 1,256 472 310 Operating profit (loss) 183 90 35 2 Share in earnings of investee partnerships 9 13 3 7 EBITDA *** 367 311 99 64 Net profit 72 33 (14 ) (9) Average exchange rate for translation of financial 4.88 5.51 4.92 5.57 statements (EUR/NIS)

** 2010 data only includes Delek France's Q4/2010 results. *** Delek France's EBITDA for Q4/2010 amounted to NIS 43 million. Analysis of Delek Benelux’s results in the reporting periods Revenues Revenues in 2010 amounted to NIS 13,130 million, compared with NIS 10,681 million in 2009, an increase of 23%. Revenues for Q4 2010 amounted to NIS 4,413 million, compared with NIS 2,885 million in the same quarter last year, an increase of 53%. Consolidation of Delek France's results for Q4 2010 contributed NIS 1,072 million to revenues.

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The increase in revenues after adjustment for Delek France's contribution is due to rising fuel prices worldwide and continued growth in convenience store revenues. This increase was partially offset by a reduction in the average EUR-NIS exchange rate in the reporting period. Gross profit Gross profit in 2010 amounted to NIS 1,384 million, compared with NIS 1,256 million in 2009, an increase of 10%. Gross profit for Q4 2010 amounted to NIS 472 million, compared with NIS 310 million in the same quarter last year, an increase of 52%. Consolidation of Delek France's results for Q4 2010 contributed NIS 166 million to gross profit. The increase in gross profit after adjustment for Delek France's contribution is an increase in the average margin per sales unit, an increase in quantities sold, and continued growth in the convenience store segment. This increase was partially offset by a reduction in the average EUR-NIS exchange rate in the reporting period. Operating profit Operating profit in 2010 amounted to NIS 183 million, compared with NIS 90 million in 2009, an increase of 103%. Operating profit for Q4 2010 amounted to NIS 35 million, compared with NIS 2 million in the same quarter last year. Consolidation of Delek France's results for Q4 2010 contributed NIS 16 million to operating profits. The increase in operating profit after adjustment for Delek France's contribution is due to the increase in gross profit as aforesaid, which was partially offset by a sight increase in operating expenses due to growth in the number of stations operated by the Company. A decrease in the average EUR-NIS exchange rate during the reporting period also partially offset the increase in operating profit. EBITDA EBITDA (operating profit adjusted for impairment and non-recurring expenses) for 2010 amounted to NIS 367 million, compared with NIS 311 million in 2009, an increase of 18%. EBITDA for Q4 2010 amounted to NIS 99 million, compared with NIS 64 million in the same quarter last year, an increase of 55%. For more information about Delek Europe's operations, see Note 14 to the financial statements and Section 1.9 in Part A of the periodic report - Description of the Corporation's Business.

D. Oil and Gas Exploration and Gas Production Delek Energy Systems Ltd. ("Delek Energy" or "DES") is a public company in which the Company has a 79% holding as at the balance sheet date. Operations in Israel are carried out through Delek Drilling Limited Partnership (“Delek Drilling”) and Avner Oil Exploration Limited Partnership (“Avner”) (jointly, "the Partnerships”), which are partners in the Yam Tethys project (together with Delek Investments) in the Tamar, Dalit and Leviathan drillings and in other oil rights, mostly off the coast of Israel. Overseas operations are carried out by subsidiaries of Delek Energy, which concentrate mainly on the following operations: − Operations in the U.S. are carried out through Elk Resources ("Elk"). Elk is a private company, wholly-owned by Delek Energy, and registered in the U.S., which produces and sells oil and gas, develops existing oil and gas assets and engages in low-risk oil and gas exploration. For information regarding possible disposal of operations in the US, see Note 16 to the financial statements. − 29.3% of the capital of Matra Petroleum Plc ("Matra"), which owns the Sokolovskoe oil discovery in Russia.

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Below are the results of the oil and gas exploration and production operations as included in the Group's results.

2010 2009 10-12/10 10-12/09 NIS NIS NIS NIS

millions millions millions millions Revenues 556 450 137 125 Operating profit (loss) 173 187(20 ) 46 EBITDA 366 306 73 75 Financing expenses, net 147 159 38 34 Group's share in results of Avner and other investees 82 32 - 2 Net profit (loss) 62 23 (31) 2 Gas sales in BCM (*) 3.2 2.9 0.8 0.7

* The data relate to sales of gas by the entire Yam Tethys group, rounded to one tenth of one BCM. Analysis of the results of operations in the gas segment Revenues In the reporting period, the segment's revenues from the sale of gas and oil, net of royalties, was NIS 556 million, compared with NIS 450 million in the corresponding period of the previous year, an increase of 24%. In Q4 2010, revenues amounted to NIS 137 million, compared with NIS 125 million in the same quarter last year, an increase of 10%. The increase in revenues in the reporting period compared with the corresponding period of the previous year stems primarily from the sale of natural gas at such prices and terms as set forth under the memorandum of understanding signed with IEC and from sales to ICL. It is noted that IEC's average daily purchase of natural gas varies, inter alia, in accordance with seasonal changes in electricity consumption, IEC's maintenance works and the rate at which EMG can supply natural gas to IEC. Since July 1, 2009 additional quantities of gas are being sold to IEC in accordance with the memorandum of understanding signed with IEC for the supply of additional annual quantities of 1 BCM of gas for five years, for a total amount of 5 BCM. In the second quarter of 2010 IEC’s Tzafit power station was connected to the natural gas pipeline of Israel Natural Gas Pipelines. Financing expenses, net Net financing expenses in 2010 amounted to NIS 147 million, compared with NIS 159 million in the corresponding period of the previous year, a decrease of 8%. In Q4 2010, financing expenses amounted to NIS 38 million as compared to NIS 34 million in the same quarter last year, an increase of 11%. Financing expenses were mainly due to interest on bank loans and debentures for Delek Energy and its subsidiaries. Financing expenses increased mainly due to new debenture issues which did not affect all of 2009. This increase was offset by a decrease in expenses from the revaluation of hedging transactions on oil and gas prices to the amount of NIS 35 million, as compared to the corresponding period last year. Non-recurring expenses The results of operations in the gas segment were also affected by a one-time provision for impairment of assets in Delek Energy Systems US Inc. ("DES US") to the amount of NIS 57 million. It is noted that in Q1/2011, DES US is expected to post pre-tax profits of USD 25.7 million for its oil and gas assets disposed in February - March 2011. A further write-down has been recorded for impairment to the entire investment in the Zuk Tamrur project, to the amount of NIS 7.3 million, Following the Commissioner of Oil's decision as to the expiration of the license in the project. Share in the results of Avner and other associates In 2010, the energy segment included profits from holdings in Avner, an associate partnership, to the amount of NIS 80 million, compared with a profit of NIS 57 million in the corresponding period of the previous year. The increase in Avner's profits stems primarily from increased revenues in the Yam Tethys project, as aforesaid.

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Furthermore, in 2009, Delek Energy posted losses on its equity in the results of Matra's and VOGIL's operations, while in 2010 the effect of these companies' results on Delek Energy's results is immaterial. Additional information For more information on oil and gas exploration operations, see Note 16 to the financial statements and Section 1.11 in Part A of the periodic report - Description of the Corporation's Business.

E. Insurance and Finance Operations The Group holds approximately 55% of the shares of The Phoenix Holdings Ltd. and all the shares of Republic which is an elementary insurance company operating in the U.S. 1) The Phoenix Holdings Ltd. ("The Phoenix") Below are the principal data (in NIS millions) from The Phoenix's consolidated statements of income and comprehensive income:

1-12/10 1-12/09 Gross premiums earned 6,068 5,422 Premiums earned in retention 5,431 4,767 Commissions, marketing expenses and other acquisition costs 1,005 938 General and administrative expenses 904 807 Other expenses 340 366 Profit (loss) for the period 333 248 Profit (loss) for the period attributable to Company shareholders 309 227 Comprehensive income (loss) for the period 432 435

A significant part of the Group's asset portfolio is invested on the capital market. Therefore, capital market returns for the various investment channels, has a material effect on the yields achieved for the Group's customers and on the Group's profits, such that a material part of the results of the Group's operations is influenced by the capital market. Gains and losses on investments reflect capital market movements in Israel and abroad, and fluctuations in the CPI and in the NIS exchange rates against primary currencies, whose aggregate effect on the financial margin is the main cause for fluctuations in the reported results. In 2009, yields in the capital market were exceptionally high. However, in 2009, The Phoenix did not charge variable management fees due to investment losses accrued towards policyholders from 2008. In the reporting year, yields on the capital market were favorable, and the Group began partial collection of variable management fees in the fourth quarter. This is in contrast to other insurance companies who collected variable management fees throughout the whole year. Gross premiums earned from life insurance, health insurance and general insurance in the reporting year amounted to NIS 6.1 billion, as compared to NIS 5.4 billion last year. This increase in premiums stems from all operating segments, and particularly from the life insurance segment which saw an increase in new sales and one-time premiums along with a significant drop in the cancellation rate. The decrease in gains on investments in the reporting period as compared to 2009 is due to the exceptionally high yields seen on the capital market in 2009. Commissions, marketing expenses, and other acquisition costs grew by 7% year-on-year, while general and administrative expenses grew by 12% year-on-year, mainly due to an expansion in operations. General and administrative expenses for the period also include a NIS 23 million write-down for software whose future economic benefit has been determined to be insignificant.

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Below are the principal data (in NIS millions) from The Phoenix's consolidated financial statements:

2010 2009 10-12/10 10-12/09 NIS NIS NIS NIS millions millions millions millions Profit from life insurance and long term savings 64 146 (19) 31 segment Profit from general insurance segment 220 118 61 21 Profit from health insurance segment 104 163 34 46 Profit from financial services segment 112 13 31 8 Total profit from operating segments 500 440 107 106 Profit (loss) not attributed to reporting segments (31) (134) (1) (7) Equity in the net results of investee companies 23 41 14 29 Profit before income tax 492 347 120 128 Income tax 159 99 43 29 Profit for the period 333 248 77 99 Profit for the period attributed to the 309 227 70 91 Company's shareholders

Summary data for The Phoenix's operating segments Life insurance Gross premiums earned in life insurance grew significantly by 16% in 2010 compared to the same period last year. The increase in premiums earned in the reporting year was due mainly to new sales after offsetting for cancellations, with the Company recording a significant drop in cancellations in the reporting period. The increase in premiums earned was reflected in an increase in one-time premiums and more moderately in current premiums. Income from investments in life insurance in 2010 were lower than in 2009, due to the exceptionally high yields seen on the capital market in 2009. At the end of 2010, the Company began partial collection of variable management fees on profit- sharing policies marketed until 2004, which recorded a positive real yield on a cumulative basis. Variable management fees amounted to NIS 15 million, after no variable management fees had been charged in 2009 due to investment losses accrued towards policyholders from 2008. Had the Company charged variable management fees in 2010, then based on the Company's yields in 2010, profit from life insurance operations would have grown by NIS 191 million. The past two years have seen an ongoing decrease in life insurance policy redemptions. The redemption rate of insurance liabilities in the reporting period was 2.54%, down from 2.82% last year and 2.87% in 2008. This has led to a decrease in the write-down of deferred acquisition expenses in life insurance. Provident funds The Group manages provident funds and study funds, mainly through Excellence Provident and Pension, which manages remuneration and compensation funds, study funds, and central compensation funds, and through The Phoenix Pension and Provident Fund, which was established in 2003 and began operations in June 2004. As of December 31, 2010, assets managed by the provident funds managed by the Group amounted to NIS 19.7 billion, as compared to NIS 18.3 billion on December 31, 2009, an increase of 7.6%. This increase in assets under management was mainly influenced by gains in the capital markets during the reporting period. According to Ministry of Finance data, as of December 31, 2010, the aggregate value of assets under management in the provident fund market amounted to NIS 306 billion, as compared to NIS 280 billion as of December 31, 2009, an increase of 9%. The increase in the value of assets under management was influenced mainly by gains in the capital markets during the reporting period.

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In November 2010, the Ministry of Finance Capital Market, Insurance and Savings Division published its plan for increasing competition in the retirement savings market. The plan lists a series of regulatory actions scheduled for implementation in 2011. These actions are aimed at minimizing differences between the primary savings products, simplifying the choice between these products, and ensuring consultation transparency and objectivity for policyholders. The plan mainly includes: gradually updating maximum management fees by 2015; comparing the contents of products as regards insurance coverage by permitting provident fund management companies to market insurance coverage; setting a uniform limit on distribution fees and prescribing restrictions for commissions and benefits granted by institutional entities to insurance agents; prohibiting changes to management fees in the two years after the agreement period, and prescribing various disclosure requirements when such changes are made. In light of the aforesaid reform, the Group implemented a write-down in goodwill attributable to provident fund operations to the amount of NIS 50 million. General insurance Revenue from gross premiums earned in the reporting period amounted to NIS 1,950 million, compared with NIS 1,831 million in 2009. Profit from the general insurance segment in the reporting period amounted to NIS 220 million, compared with NIS 118 million in 2009. Comprehensive income from genera insurance operations in the reporting period amounted to NIS 264 million, compared with NIS 242 million in 2009. Profits were up mainly due to improved underwriting profitability, particularly in the property vehicle segment and other property segments. The rate of commissions and other acquisition costs in the reporting period was 21% of gross premiums earned, similar to the figure for 2009. The rate of general and administrative expenses from gross premiums earned was 5.5% in the reporting period, similar to the figure for last year. Health insurance Revenue from premiums was up 5% in the reporting year and 17.6% in 2009. The continued growth in gross premiums earned in 2010 and 2009 is due mainly to growth in premiums from individual insurance policies, due to an increase in new sales. Revenue growth was also due to inflation in 2010 and 2009, which influenced the growth in CPI-linked premiums. This growth trend is apparent in most of the Group's products for individuals. Profit was down in 2010 compared to 2009, mainly due to a decrease in investment income attributed to the segment, and an increase in insurance liabilities primarily in the nursing care products. Profits on investments have a material effect on the segment's profitability, which characteristically accrues significant reserves for long-term periods. Gains on investments are influenced by capital market fluctuations, as well as by changes in the interest rate and the CPI, which affect the yields on marketable financial asset portfolios held against insurance reserves and pending claims. Financial services Activity in this segment is carried out through Excellence, whose results were consolidated in the financial statements of The Phoenix commencing from January 1, 2009. Revenues in the financial services segment amounted to NIS 398 million, compared with NIS 311 million in 2009, an increase of NIS 87 million. This increase was due mainly to increased revenues from mutual fund management fees, an increase in ETF revenues, investment banking and underwriting. The increase in management fee revenues to the amount of NIS 63 million arises from including the results of Prisma's mutual fund acquisitions, which were initially consolidated from Q4 2009. In the reporting period, financial services posted a profit of NIS 109 million, compared with NIS 13 million in 2009. The increase in profit is due mainly to increased revenues from management fees collected on Prisma's mutual funds, which were initially consolidated starting Q4 2009, and due to an increase in the value of assets under management in the ETFs and a decrease in the write- down of intangible assets created through the acquisition of Excellence compared to the corresponding period of the previous year.

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According to Excellence's financial statements, total assets under management by Excellence as of December 31, 2010 amounted to NIS 44 billion, compared with NIS 37 billion as of December 31, 2009, an increase of 18.9%. In 2010, assets under management were up in most of the Excellence group's segments of operation. Assets under the Excellence group's management are influenced, inter alia, by market conditions and by exchange rates to which some of the series issued by the SPCs are linked. Additional information For more information on insurance operations in Israel, see Note 14 to the financial statements and Section 1.12 in Part A of the periodic report - Description of the Corporation's Business. 2) Republic Companies, Inc. Republic Companies, Inc. ("Republic") is a wholly-owned subsidiary with a 103-year legacy. Republic is one of the oldest companies in the US dealing in property and accident insurance. The company owns insurance companies and agencies involved mainly in property insurance and other general insurance, particularly in Texas, Louisiana, Oklahoma, Mississippi, Arkansas and New Mexico in the US. In addition, the company holds insurance licenses in 45 other states, an asset generating front insurance revenues for the company, and enabling future expansion into other states throughout the US. The Company's operating segments: The Company operates in 4 main segments: (a) Personal Lines - Household property and accident insurance marketed through the Company's network of approximately 850 active agents (personal insurance policies). (b) Commercial Lines - Insurance for the commercial sector marketed through the Company's agents. (c) Program Management - Insurance through M.G.A. - independent brokers and underwriters connected to the Company through unique, customized insurance programs marketed by brokers through their agents. (d) Insurance Services - Operations in insurance services, front policies made in collaboration with leading insurers in the US, seeking to leverage the availability of the Company's operating licenses throughout the US. Table 1: The results of Republic's operations as included in the results of the Group:

2010 2009 10-12/10 10-12/09 USD USD USD USD millions millions millions millions Revenues from premiums (gross) 808 911 182 214 Premiums earned (retention) 315 365 84 84 Investment and other revenues, net 45 53 12 10 Total revenues 360 418 96 94 Increase in insurance liabilities less reinsurers 194 268 52 53 Commissions and other purchasing expenses 93 103 21 23 General and administrative expenses 41 34 11 7 Finance expenses 6 6 1 1 Total expenses 333 411 86 83 Profit before income tax 27 7 10 11 Net profit 18 6 7 7

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Table 2: Total operations by segment

Increase/d % of all % of all ecrease in 2009 2009 2010 2010 premiums 2009 2010 premiums operations premiums operations 2010/2009 profit profit

USD USD USD USD Millions Millions Millions Millions Personal Lines 222 24.3% 214 26.5% (3.6%) (-12.7) 10.3 Commercial Lines 132 14.4% 129 15.9% (2.2%) 7.55 3 Program Management 268 29.6% 223 27.7% (16%) 6.57 3.64 Insurance Services(front) 290 31.7% 242 29.9% (16.5%) 5.23 1.8 Total 911 100% 808 100% (11.4%) 6.71 18.8

Analysis of the results of Republic's operations Revenues from premiums (gross) were down in 2010 as compared to 2009, mainly due to the continued slowdown in operations. However signs of growth were apparent towards the end of 2010. During the year, the Company's management made special application of more reserved underwriting policies, whose results are discernable in the Company's increased profit margins. Furthermore, and continuing this trend, towards the end of 2010, the Company began changing the structure of its revenues from operations (increased marketing of personal insurance policies) based on increasing agent activities in personal and commercial lines segments, in order to strengthen the Company's marketing base to agents operating through long-standing traditions, a fact which will generate value for the Company in the coming years. Analysis of the data in Table 2 indicates a change in personal lines operations marketed through agents. Republic's management hopes to develop this trend in the coming years. Towards the end of 2010, the Republic made several decisions to terminate the services provided by a leading underwriter in the Program Management segment (approximately 75% of all operations in this segment). This fact decreased segment operations in 2010. However, Republic's management laid the groundwork for making up for the loss of premiums following this decision, by signing contracts with a number of leading brokers in the field, who began working with the Company in 2011. Insurance fees earned (in retention) in 2010 amounted to USD 315 million, compared with USD 365 million in 2009. The decrease compared to the corresponding period last year is attributed to changes in net revenues from premiums due to quota share and will continue into 2011. These reinsurance arrangements were due to management's decision to implement more reserved reinsurance policies, while increasing readiness to cope with an extraordinary insurance event caused by severe weather. Republic's equity as included in the Group's financial statements as of December 31, 2010 is USD 309 million, and Republic's profit for the reporting period amounted to USD 18 million. It is further noted that, in the reporting period, the Group has included a write-down (not included in the above table) of USD 16 million (NIS 57 million) for goodwill attributed to insurance operations in the US Investments: Republic manages an investment portfolio valued at USD 600 million. Approximately 75% of the portfolio is based on corporate bonds or US state bonds, defined as municipal bonds (approximately 35% of all bonds included in the Company's portfolio). The remaining 25% of the investment portfolio is invested in cash or in shares of various companies traded in the US. The investment portfolio is managed by Republic's Investment Committee, in consultation with a leading US investment house. The structure of the portfolio is a direct result of the regulatory requirements in each of the states in which the Company operates, and is examined annually by the rating agencies as part of their annual examination of various parameters. In 2010, Republic was rated A-, equivalent to the rating for leading companies in the industry. Revenues from investments in 2010 totaled USD 32

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million, derived from interest payments, disposals, and dividends. This amount is lower than the investment revenues for 2009, which totaled USD 38.8 million. For more information on insurance operations overseas, see Note 14 to the financial statements, and Section 1.13 in Part A of the periodic report - Description of the Corporation's Business.

F. Automotive operations As aforesaid, Delek Automotive's results were not consolidated in the income statement, and were included under the 'Profit from discontinued operations' item. However, for the sake of convenience, below is an analysis of the results of the Group's automotive operations. Following are the results of operations of Delek Automotive Systems Ltd. (“Delek Automotive”):

2010 2009 10-12/10 10-12/09 NIS millions NIS millions NIS millions NIS millions Revenue 4,609 4,744 1,247 1,300 Gross profit 624 525 126 137 Sales, marketing and general and administrative 23 15 75 expenses 68 Operating profit 550 457 104 122 EBITDA 562 471 108 126 Financing income (expenses), net 19 107 51 47 Net profit 428 434 115 129

At the income statement date, the Group holds 32.8% of Delek Automotive (Delek Automotive is a public company which publishes its financial statements). For information concerning the completion of the sale of 22% of Delek Automotive's shares in Q4 2010, see Section 2 above. Analysis of the results of Delek Automotive's operations in the reporting periods: In the accounting year, Delek Automotive recorded fifteen consecutive years of leading the automotive market in Israel, and sold 42,711 vehicles during the year. 2010 was a record year in vehicle sales in Israel, with a total of 221,010 new vehicles sold, an increase of 25% from the previous year (according to Licensing Bureau data). Delek Automotive's net profit for Q4 2010 amounted to NIS 115 million, compared with NIS 129 million in the same quarter last year. The gross profit margin in 2010 increased to 13.5%, as compared with a margin of 11% in 2009. This increase is caused mainly by the vehices segment, and is attributable to a decrease in the cost of the vehicles sold. Sales turnover for the year amounted to NIS 4,610 million, compared with NIS 4,744 million last year. In the accounting year, 42,711 vehicles were sold, compared with 44,174 vehicles sold in 2009. Sales turnover in Q4 2010 amounted to NIS 1,247 million, compared with NIS 1,300 million in the same quarter last year.

Sales and marketing expenses amounted to NIS 45.2 million, as compared with NIS 40.5 million in the previous year. This increase stems primarily from increased advertising expenses in Q4 2010, in conjunction with the introduction of Mazda 2 sedan modes, the new Mazda 5, and Ford EDGE. General and administrative expenses amounted to NIS 29.7 million, compared with NIS 27.8 million in the previous year, an increase of NIS 1.9 million recorded in Q4 2010 mainly due to salary expenses. During the year, Delek Automotive recorded net financing income of NIS 19 million, which stemmed primarily from the appreciation of Delek Automotive's investment in Ford Motor Company shares of NIS 48 million (after offsetting NIS 6 million following revaluation of the USD exchange rate for an investment in MOBILEYE), as a result of interest charges on trade receivables amounting to NIS 25.6 million, and from recognition of the results and fair value of hedging transactions amounting to NIS 8.9 million. Financing expenses offset against income were mainly due to the revaluation of trade payables (mainly Japanese Yen) to the amount of NIS 60 million. Bank credit facilities for the year resulted in a net income of NIS 2 million from banks through exchange rate differences on foreign

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currency financing. In Q4 2010 Delek Automotive recorded financing income of NIS 51 million through appreciation of its investment in marketable securities to the amount of NIS 29 million, interest and net exchange differences from banks of NIS 8 million, for revaluation of trade payables - NIS 6.7 million, interest charges on trade receivables of NIS 5 million, and from recognition of results and fair value of hedging transactions amounting to NIS 2.5 million. For more information on automotive operations, see Note 14 to the financial statements and Section 1.14 in Part A of the periodic report - Description of the Corporation's Business.

G. Additional Operations 1) Infrastructures The Group operates in infrastructures through its wholly-owned subsidiary Delek Infrastructures Ltd., which holds 50% of IDE Technologies Ltd. (“IDE”) and coordinates the development and operation of power stations in Israel and Brazil through subsidiaries. The contribution of the infrastructures sector to the net profit of the Group in 2010 was NIS 65 million, mainly stemming from the profits of IDE and the power station in Ashkelon. In the past few months, the Knesset Economic Affairs Committee requested the relevant regulatory authorities to submit their professional positions regarding the implications of private electricity generation carried out by gas suppliers on the Israeli electricity market. If and to the extent that a legislative initiative be instituted to restrict private electricity generation by gas suppliers in Israel, such a development would negatively affect Delek Infrastructure. 2) Biochemicals Gadot, a manufacturer of food supplements and chemicals for the food, health supplements, detergents and toiletries industries, is a public company in which the Group holds 63.88% at the balance sheet date. Gadot manufactures crystalline fructose, citric acid, citric acid salts, phosphoric acid salts, and specialty citric-acid-based salts. Most of Gadot's sales are in European and North American markets, and among its customers are some of the world's leading multinational companies in the food and detergent industries. The contribution of the biochemicals segment to the Group's net profit in 2010 amounted to a loss of NIS 40 million, compared with a profit of NIS 17 million in the corresponding period of the previous year. As of December 31, 2010, Gadot has a working capital deficit of USD 30.4 million, due mainly to long- and short-term liabilities undertaken to finance long-term investments (inter alia, in connection with the construction of the facility in China), which are due for repayment in the coming year. At the end of 2010, Gadot recorded USD 7.5 million in operating losses, mainly due to an increase in raw material prices, a decrease in sales quantities and in the selling prices of some of its products, and due to delay in bringing the facility in China fully online. Gadot further recorded a net loss of USD 17 million, due mainly to the above factors, and due to financing costs being adversely affected in 2010 following the devaluation of the USD versus the NIS. In addition, in 2010 Gadot recorded negative cash flows from continuing operations amounting to USD 13.5 million. Gad0t is considering a number of options for raising debt and capital (including by rights issue), and as of the financial statements' approval date, negotiations are underway and understandings have been reached with banks and other parties, for deferring the repayment date of the loans and securing additional funding. In addition, Gadot's management believes that it can pledge assets for raising debt, or even dispose of such assets if necessary. It is further noted, that according to the Company's forecasts, starting 2012 the Gadot companies will once more yield positive cash flows from continuing operations. It is noted that the realization of Gadot's plans is not certain, as it is not under the Company's full control and depends, inter alia, on the willingness and ability of third parties to make investments and extend credit. However, Gadot's management estimates that Gadot will be able to meet its liabilities. In this respect, it is noted that Delek Investments and Properties Ltd. ("Delek Investments") and Oil Refineries Ltd. (which holds shares in Gadot ("ORL")), have informed Gadot that if it is short on funding required to meet its liabilities, they will assist Gadot in securing financing (including by way of rights issue), to an amount that will not exceed USD 20 million, pro rata to their interests in Gadot. ORL informed Gadot that a total of USD 2 million which it invested in a share issue carried out in April 2010 are to be offset against its aforesaid obligation. It is further noted, that during the reporting period, the Company managed to raise significant capital and debt resources (USD 42 million).

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Post-income statement, on March 7, 2011, Gadot signed an agreement with Delek Investments and Properties, its controlling shareholder, whereby Delek Investments provided Gadot a loan of USD 5 million. It is further noted that on March 6, 2011, Gadot's Board of Directors adopted a principle resolution to raise capital by way of a rights issue to Gadot's shareholders and the holders of Gadot's convertible securities, to the amount of up to USD 20 million. Delek Investment's loan of USD 5 million as aforesaid constitutes payment on account of Delek Investments' share in the aforesaid rights issue. It is noted, that Delek Investments has notified Gadot that in the event of a rights issue, the amount of the above loan will not substitute its obligation to support Gadot as aforesaid. For further details of other operations, see Note 14 to the financial statements.

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B. Market Risk Exposure and Management

1. A) Company operations focus mainly on holding and managing shares of its subsidiaries. The investments are long term and therefore these holdings are not hedged.

Risk management in the subsidiaries and associates is determined and carried out directly by these companies. Some of the companies are public companies and are listed on the stock exchange, and therefore proper disclosure of this subject is made in their financial statements. A) B)The market risk management officer for currency in the Company is Mr. Ido Adar, MBA. In recent years, Mr. Adar has served as Treasurer of the Company, prior to which he served as head of the Treasury and Insurance department at Delek Israel.

2. Description of market risks

A) As stated above, the Group is mainly a holdings and management company and its principal exposure results from the market risks of its subsidiaries and associates (“Investees”). The principal risks in these companies are these: - Changes in exchange rates The Group and the Investees have loans denominated in foreign currency, exposing the Group to changes in foreign currency exchange rates. Moreover, exchange rates can have an effect on the Company’s business results. - Changes in interest rates The Group and the Investees have shekel loans at variable interest rates and they are consequently exposed to changes in the interest rates applied by Israeli banks. Some of the Group companies have taken out loans abroad, on which variable interest rates are those applied by overseas banks, which expose them to interest rate changes in those countries. - Exposure to rises in the CPI A considerable number of the Group’s and Investees’ long-term loans are in CPI-linked shekels. The Group’s management believes that in many cases, the Group’s exposure to a rise in the Israeli CPI is a limited economic exposure, since it believes that the value of the Group’s property, plant and equipment rises over time at least at the same rate of rise as the CPI. It is noted that some of the Group companies hedge against a rise in the CPI above a certain annual level. - Economic slowdown and changes in the markets in which the Group operates The Group has substantial operations in various countries around the world. Changes in those markets, especially economic slowdowns (including in Israel) can have adverse effects on the operations of the Group and the Investees. - Capital market conditions B) Changes in prices of negotiable securities held by the Group expose it to risks stemming, inter alia, from volatility in the capital market. A slump in capital markets in Israel and worldwide could adversely effect the Group’s ability to find sources of financing where necessary, as well as its ability to generate capital gains from realization of its investments. Likewise, a slump in capital markets could impede the ability of the Group and the Investees to raise capital, and lead to a possible fall in the prices of the Investees’ securities after being issued on securities exchanges. C) The Group is exposed to changes in the prices of raw materials, other prices and other economic indices that can materially affect the Group’s assets and liabilities, including trade payables, trade receivables in Group companies, the value of their inventory and other assets and liabilities.

3. Market risk management policies

− Overseas Investees customarily finance their investments in each country in the investment currency of that country. The income of Investees from income-generating assets which are intended to finance

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principal and interest payments, are in the local currency, as are all of their other assets, and therefore, the Investees are not economically exposed to changes in foreign currency exchange rates. − In order to adjust for interest risks on loans taken by the Investees for the purchase of their assets, the companies have set a policy whereby most of the loans that they raise outside of Israel are chiefly long-term fixed-interest loans. − The Company and the Investees customarily use, from time to time, currency options and other derivatives. These transactions are made with large financial corporations in Israel and overseas, for hedging and other purposes.

4. Supervision and implementation of market risk management policies

− The Investees manage their market risks under the supervision of their boards of directors or through special board committees. The Group also receives assistance from external advisers with expertise in these markets. − The internal control mechanisms of the Group and the Investees also monitor market risk management issues. − The Group’s companies are required to provide full reports on the volume and type of their exposures, and the hedging methods that they employ or do not employ in connection with those exposures.

5. Sensitivity tests for changes in market factors

In accordance with the 2007 amendment to the provisions of the Second Addendum to the Securities Regulations (Periodic and Immediate Reports), 1970, the Group tested sensitivity to changes in risk factors that influence the fair value of “sensitive instruments”. Sensitivity to foreign currency risks was tested for positions exposed to changes in the exchange rate of various currencies against the functional currency of the Group companies. For example, for foreign currency positions in companies whose functional currency is the euro, the tests were for sensitive instruments that are exposed to other foreign currency exchange rates against the euro. Income statement items such as debentures and CPI-linked loans were not included in the table of sensitivity to changes in the CPI, since their fair value is exposed to unforeseen changes in inflation expectation, which is reflected in changes in the shekel-linked graph. 1) Sensitivity of financial instruments in the course of general business: Description of parameters, assumptions and models a) The fair value of marketable securities is their market value. b) The fair value of loans and debentures was calculated by discounting future cash flows using an interest rate reflecting the financing costs of the Group and its subsidiaries as of the reporting date. c) The fair value of options and changes in fair value in sensitivity testing were calculated according to the Black&Scholes model, using spot prices, standard deviations, and interest rates as specified in the tables below. d) The fair value of future contracts and changes in fair value in sensitivity testing were calculated by discounting each of the two "legs" of the transaction, while using spot prices and interest rates as specified in the tables below. e) Testing of sensitivity to changes in the interest rates on fixed-rate loans and debentures was carried out according to duration. f) Variable-rate loans and debentures were not included in the testing of sensitivity to interest rate changes, as the effects of interest rate changes to their fair value is negligible.

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g) Parameters:

Parameter Source/treatment NIS/Foreign currency exchange rate Representative rates Foreign/Foreign currency exchange rate Calculated from representative rates Interest rates According to the riskless interest rate curve Standard deviations Flat curve (ATM)

h) Daily changes of more than 10% in the relevant risks:

Risk Max. change Date Comments

Or two percentage points Interest rates 20% Assumption (200 base points), the higher of the two

Share prices 20% Assumption

Sugar prices 15% Assumption

Oil/fuel/gas prices 25% Assumption

Standard deviation of forex/commodities 50% Assumption

i) Derivative instruments in the Group's companies are used as hedges and are not recognized, unless stated otherwise. Summary table (NIS millions)

Profit/(loss) from changes Fair Profit/(loss) from changes Sensitive instrument (*) 10% 5% value -5% -10% (*) USD/NIS 93 47 702 (47) (93) EUR/NIS 0 0 2 (0) (0) Other currency/NIS 5 2 46 (2) (5) Foreign/Foreign currency (62) (31) 98 31 62 CPI 1 1 (1) (1) (1) Nominal NIS-based interest rate 207 66 33 (2,461) (33) (66) (207) Real NIS-based interest rate 128 160 80 (2,226) (80) (160) (152) USD interest rate (105) (21) (10) 1,230 11 21 111 EUR interest rate 75 10 5 (107) (5) (9) (67) Sugar prices 12 8 4 10 (4) (8) (12) Oil prices 206 82 41 930 (41) (82) (205) Gas prices (0) (0) (0) 1 0 0 0 Standard deviation of commodities 1 0 0 2 (0) (0) (1) Share prices 539 270 135 2,697 (135) (270) (539) (*) See Section (h) above.

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Sensitivity tests to changes in the CPI (NIS millions)

Profit/(loss) from Profit/(loss) from Sensitive instrument changes Fair value changes 0.2% 0.1% -0.1% -0.2% Futures contracts 1 1 (1) (1) (1)

Sensitivity tests to changes in foreign currency/NIS exchange rates (NIS millions) a. Sensitivity tests for changes in USD/NIS exchange rates

Profit/(loss) from Profit/(loss) from changes Fair changes Sensitive instrument value 10% 5% -5% -10% 3.904 3.726 3.549 3.372 3.194 Cash 25 13 253 (13) (25) Trade and other receivables 35 18 361 (18) (35) Marketable securities 185 92 1,846 (92) (185) Other assets 1 0 9 (0) (1) Deposits 9 5 92 (5) (9) Trade and other payables (37) (19) (458) 19 37 Credit from banks (126) (63) (1,087) 63 126 Debentures 2 1 (275) (1) (2) Investment in associate (3) (1) (28) 1 3 Other liabilities (0) (0) (3) 0 0 NIS/USD futures contracts 2 1 (8) (1) (2) Total 93 47 702 (47) (93)

b. Sensitivity tests for changes in EUR/NIS exchange rates

Profit/(loss) from Profit/(loss) from changes Fair changes Sensitive instrument value 10% 5% -5% -10% 5.2117 4.9748 4.7379 4.5010 4.2641 Trade and other accounts payable 0 0 2 (0) (0) Total 0 0 2 (0) (0)

c. Sensitivity tests for changes in other currencies/NIS exchange rates

Profit/(loss) from Profit/(loss) from Fair Sensitive instrument changes changes value 10% 5% -5% -10% Shares 5 2 46 (2) (5) Total 5 2 46 (2) (5)

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d. Sensitivity tests for changes in foreign/foreign currency exchange rates (NIS millions)

Profit/(loss) from Profit/(loss) from Fair Sensitive instrument changes changes value 10% 5% -5% -10% Cash (1) (1) 12 1 1 Trade and other receivables (8) (4) (47) 4 8 Credit from banks (11) (6) (112) 6 11 Trade and other payables (25) (12) 246 12 25 Local/foreign currency futures contracts (15) (8) (1) 8 15 Options (2) (1) 0 1 2 Total (62) (31) 98 31 62

Sensitivity tests for changes in interest rates (NIS millions) a. Sensitivity tests for changes in nominal NIS-based interest rate

Profit/(loss) from Fair Sensitive instrument Profit/(loss) from changes changes value (*) 10% 5% -5% -10% (*) Government bonds (8) (1) (1) 156 1 1 8 Corporate bonds (1) (0) (0) 12 0 0 1 Debentures 214 69 34 (2,714) (34) (69) (214) Trade and other receivables (6) (2) (1) 95 1 2 6 CPI futures contracts 6 1 0 (1) (0) (1) (6) NIS/USD futures contracts 2 0 0 (8) (0) (0) (2) Total 207 66 33 (2,461) (33) (66) (207) (*) See Section (h) above.

b. Sensitivity tests for changes in real NIS-based interest rates

Profit/(loss) from Fair Sensitive instruments Profit/(loss) from changes changes value (*) 10% 5% -5% -10% (*) Loans to customers (5) (2) (1) 79 1 2 5 Government bonds (11) (1) (0) 144 0 1 11 Corporate bonds (13) (2) (1) 151 1 2 13 Loans to associates (9) (2) (1) 259 1 2 9 Loans to executives (0) (0) (0) 8 0 0 0 Credit from banks 8 138 69 (364) (69) (138) (32) Straight debentures 165 29 14 (2,501) (14) (29) (165) CPI futures contracts (6) (0) (0) (1) 0 0 6 Total 128 160 80 (2,226) (80) (160) (152) (*) See Section (h) above.

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c. Sensitivity tests for changes in USD-based interest rates

Profit/(loss) from Fair Sensitive instrument Profit/(loss) from changes changes value (*) 10% 5% -5% -10% (*) Loans to customers (0) (0) (0) 7 0 0 0 Corporate bonds (1) (0) (0) 13 0 0 1 Debentures (98) (20) (10) 1,296 10 20 103 Mortgage-based debentures (10) (2) (1) 122 1 2 11 Debentures 4 1 0 (158) (0) (1) (4) Credit from banks 2 0 0 (34) (0) (0) (2) Foreign currency derivatives (2) (0) (0) (9) 0 0 2 Commodity derivatives 1 0 0 (7) (0) (0) (0) Total (105) (21) (10) 1,230 11 21 111 (*) See Section (h) above.

d. Sensitivity tests for changes in EUR-based interest rates

Sensitive instrument Profit/(loss) from changes Fair Profit/(loss) from changes (*) 10% 5% value -5% -10% (*) Foreign currency derivatives 0 0 0 (1) (0) (0) (0) Interest rate derivatives 74 10 5 (106) (5) (9) (67) Total 75 10 5 (107) (5) (9) (67) (*) See Section (h) above.

Sensitivity tests for changes in commodity prices a. Sensitivity tests for changes in the price of sugar

Profit/(loss) from Fair Sensitive instrument Profit/(loss) from changes changes value 15% 10% 5% -5% -10% -15% Futures contracts on sugar 12 8 4 10 (4) (8) (12) Total 12 8 4 10 (4) (8) (12)

b. Sensitivity tests for changes in the price of oil

Profit/(loss) from Fair Sensitive instrument Profit/(loss) from changes changes value 25% 10% 5% -5% -10% -25% Fuel inventory 232 93 46 930 (46) (93) (232) Futures contracts on fuel (25) (10) (5) (0) 5 10 25 Options on oil (1) (0) (0) 1 0 1 2 Total 206 82 41 930 (41) (82) (205)

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c. Sensitivity tests to changes in the price of gas

Profit/(loss) from Fair Sensitive instrument Profit/(loss) from changes changes value 20% 10% 5% -5% -10% -20% Options on gas (0) (0) (0) 1 0 0 0 Total (0) (0) (0) 1 0 0 0

Sensitivity tests for changes in the standard deviation for commodities (NIS millions)

Profit/(loss) from Fair Sensitive instrument Profit/(loss) from changes changes value 50% 10% 5% -5% -10% -50% Options on oil 1 0 0 1 (0) (0) (1) Options on gas 0 0 0 1 (0) (0) (0) Total 1 0 0 2 (0) (0) (1)

Sensitivity tests for changes in share prices (NIS millions)

Profit/(loss) from Fair Sensitive instrument Profit/(loss) from changes changes value 20% 10% 5% -5% -10% -20% Shares in Israel 98 49 25 491 (25) (49) (98) Shares overseas 441 221 110 2,206 (110) (221) (441) Total 539 270 135 2,697 (135) (270) (539)

Market risks in headquarters companies A) As noted in Chapter 5A above, the Company and its fully-owned headquarter companies hold cash and short-term investments (including investments in available for sale financial assets), which at December 31, 2010 amounted to NIS 2,699 million. In light of the low yields in the debt instruments markets recently, and due to the desire to diversify its investment portfolio, in Q2 2010 the Company began investing some of its cash and short-term investment balances in a foreign marketable securities portfolio. The following table details the composition as of December 31, 2010 (in NIS millions):

Balance at December 31, 2010 Cash and deposits 499 Foreign securities portfolio (see details below) 280 Noble Energy Inc. shares, net (1) 918 Marketable securities on the TASE 475 Corporate bonds (2) 212 Others (mainly government bonds) 315

Total 2,699

(1) After deduction of a loan amounting to NIS 555 million (see also immediate reports 2010-01-576300, 2010-01-549138, 2009-01-202077 dated August 4, 2010, July 8, 2010, and August 19, 2009). (2) Mainly marketable bonds on the TASE, mostly rated A and higher. (3) The investment in some of the shares is presented under the 'Other financial assets' item, and the investments are revaluated against a reserve for financial assets available for sale, net, whose balance as of December 31, 2010, reflects an underlying profit (pre-tax) of NIS 321 million.

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For additional details see Section 1.15 in Part A of the periodic report - Description of the Corporation's Business. The following tables detail the investment portfolio's sensitivity to changes in share prices:

Profit/(loss) from Fair Sensitive instrument (*) Profit/(loss) from changes changes value 20% 10% 5% -5% -10% -20% Investment in foreign securities portfolio 56 28 14 280 (14) (28) (56) Investment in Noble Energy Inc. shares 296 148 74 1,473 (74) (148) (296) Investment in shares on the TASE 94 47 24 475 (24) (47) (94) Total 446 223 112 2,228 (112) (223) (446)

(*) The majority of securities have been classified as available for sale and changes in their fair value are attributed directly to other comprehensive income. B) In the reporting period there has been a significant devaluation of the Euro versus the Shekel due to the recent economic instability in the Eurozone. The weakening Euro could affect the Company's investments in the equity of those companies using the Euro as their functional currency, as well as the liquidity of these companies, their financial position, etc. The following table details CPI data and exchange rates for the primary currencies used by the Group:

GBP EUR USD representativ representative representative e exchange December exchange rate exchange rate rate CPI As of NIS NIS NIS Points *)

Dec. 31, 2010 4.738 3.549 5.493 211.7 Dec. 31, 2009 5.442 3.775 6.111 206.2 Dec. 31, 2008 5.297 3.802 5.548 198.4 Dec. 31, 2007 5.659 3.846 7.711 191.1

Change for the year % % % %

Dec. 31, 2010 (12.9 ) (6.0) (10.1) 2.7 Dec. 31, 2009 2.7 (0.7 ) 10.1 3.9 Dec. 31, 2008 (6.4 ) (1.1) (28.0) 3.8

C) Linkage bases report as for 2010 and 2009 For information on linkage bases report, see Note 28 to the financial statements.

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C. Aspects of corporate governance

1. Community involvement and philanthropy by Group companies

The Company supports the community primarily through the Delek Science, Education and Culture Foundation Ltd. ("Delek Foundation”) which acts as the executive arm for the community activities of the companies in the Group. Delek Foundation’s policy is to award scholarships to students at academic institutions and at secondary education institutions, and to make donations in the fields of education, culture, medicine and help for the needy. The principal sources of Delek Foundation’s income are donations by companies in the Delek Group. In 2010 the Delek Foundation donated NIS 6.428 million. Of this amount NIS 3.715 million were donated in the form of scholarships to students at educational institutions throughout the country, and NIS 2.713 million were donated for various purposes, primarily in the fields of health, education, culture and help for the needy. In 2009, the Company’s Board of Directors has decided to set up, as part of the Delek Foundation, a dedicated fund of NIS 18 million to assist in the awarding of scholarships to soldiers in combat units. The scholarships are awarded to soldiers who are in Israel without their families, or who live in outlying areas or who are socio-economically underprivileged. Each scholarship is for NIS 10,000 (a year) over the entire study period (3-4 years). In 2010 scholarships were awarded to 330 newly-released soldiers, in a total amount of NIS 3.3 million. Each recipient of a scholarship is obligated to engage in some form of voluntary activity on behalf of the community.

2. Directors with accounting and financial expertise and independent directors

A) The Company's Board of Directors has determined that there shall be a minimum of two directors having accounting and financial expertise. The Company believes that since the holding company has a small board of directors (eight directors), and since these directors have extensive business experience (even those who do not meet the definition for “accounting and financial experts”), this minimum number enables the board of directors to fulfill the duties imposed upon it by law and the Company’s constituent documents in all matters pertaining to examination of the Company’s financial position and the drafting and approval of its financial statements. B) The following directors have accounting and financial expertise: Dr. Moshe Bareket, Mr. Yoseph Dauber (external director), Mr. Avi Harel, Prof. Ben-Zion Zilberfarb, and Mr. Moshe Amit. For information concerning their relevant experience and education, see Regulation 26 in Part D of the periodic report. C) Independent directors - In its articles, the Company has not adopted the "provision on the percentage of independent directors" as defined in Section 219(e) of the Companies Law.

3. Disclosure concerning the Company's internal auditor

A. Details of Internal Auditor 1) Name of auditor: Michael Grinberg 2) Date of commencement of office: 2002 3) Qualifications: The internal auditor meets the conditions set forth in Section 3(a) of the Internal Auditing Law. The internal auditor is qualified as follows: Certified Public Accountant, holds a BA in accounting and economics, a member of the Israel Institute of Internal Auditors, has considerable experience in the field of auditing (20 years in a variety of different internal auditing functions). 4) The internal auditor is in compliance with the provisions of Section 8 of the Internal Audit Law, 1992, and Section 146(b) of the Companies Law, 1999. 5) Employment: The internal auditor is an employee of a wholly-owned subsidiary of the Delek Group, Delek Investments and Assets Ltd., and is a full-time employee. The internal auditor

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is a member of management and is regularly invited to participate in meetings of the Company's management, but does not participate in decision making. 6) The internal auditor is not a stakeholder in the corporation nor is he a relative of a stakeholder in the corporation, nor is he the auditing accountant or a person acting on his behalf. 7) The internal auditor does not perform any other function in the corporation other than that of internal auditor. The internal auditor does not perform any function outside of the corporation which gives rise or which might give rise to a conflict of interests with his function as internal auditor. B. Method of Appointment The internal auditor's appointment was approved by the Audit Committee and the Board of Directors in 2002. The reasons for approving his appointment include his skills and considerable experience in internal auditing. Auditor's duties, powers and functions The internal auditor's powers and responsibilities in the Company are set forth in the Company's internal auditing procedure. Internal auditor's functions under the Company's internal auditing procedure The internal auditor operates according and subject to an internal auditing work plan, and examines propriety of the Company's actions as regards legality and proper business conduct. This includes: 1) Propriety of the Company's actions and those of its officers, including as regards the following: compliance with laws, regulations and all applicable legal requirements; proper business conduct; maintaining proper administration, efficiency, economy and integrity; examining whether actions were properly carried out by authorized persons; examining whether actions were carried out through business considerations and whether they assist the Company in attaining its set goals; making sure they coincide with Company policies and the resolutions of the Company's Board of Directors and management. 2) Implementation of resolutions adopted by the Board of Directors, Board committees, and management, and implementation of Company procedures. 3) Auditing of Company subsidiaries. 4) Control over internal auditing in the Company's subsidiaries, and verifying that such auditing is carried out professionally, if such auditing is not carried out by the internal auditor. 5) Suitability and effectiveness of internal control in the Company. 6) Implementation of risk management procedures in the Company, including control and monitoring of material risks and preparations for mitigating risks related to extraordinary events, and the effectiveness thereof, and implementation of methods for assessing the potential effects of such risks and the effectiveness of such methods; 7) Means for appraising the Company's assets. 8) Transactions requiring special approval or transactions with related parties or principal shareholders. 9) Rectifying flaws found in the audit reports prepared by the internal auditor or other auditors. Internal auditor's powers under the Company's internal auditing procedure The Board of Directors approves a document defining the internal auditor's rights, powers, and responsibilities. This document defines, inter alia, the functions, goals and responsibilities of the internal auditing department, prescribes the auditor's powers and defines his responsibility for verifying the existence of internal auditing processes in corporations controlled by the Company. The internal auditor's main powers are as follows: 1) Receiving all information, explanations, and documents required for carrying out his duties; 2) Receiving access to all regular or computerized database; 3) Permission to access all Company assets; 4) The internal auditor is invited to all management, Board and Board committee meetings.

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C. Auditor’s Superior The internal auditor reports directly to the chairman of the Delek Group, as determined by the Company’s Articles of Association. D. Work Plan 1) The work plan of the corporation’s internal audit is annual. 2) Considerations in determining the internal auditing work plan The guiding principle in formulating the annual internal auditing work plan is the underlying risk involved in the Company's processes and operations. In order to assess these risks, the auditor surveys the risks in order to determine the goals of the audit. As part of this survey, the auditor examines, together with the Company's senior management, the material risks and exposure involved in the Company's operations, and the existing controls aimed at managing these risks. The findings of this survey are used to determine the focus of the internal auditing work pan. The last review was carried out in October 2010 and serves as the basis for the work plan for the next few years. The main considerations used in determining the work plan are: coverage of most of the Company's operating segments according to exposure to material risks; the Company's size; its organizational structure; the nature and scope of its commercial operations. 3) Persons involved in determining the work plan The internal auditor, the CEO, the Board of Directors' Audit Committee. 4) Person receiving and approving the work plan The Board of Directors' Audit Committee. 5) Judgment in deviating from the work plan Management, the Audit Committee and the chairman of the Board of Directors can extend the scope of the plan, or order specific changes, upon a request or recommendation from the internal auditor or upon instructions from the committee. E. Audit of material investees All material investees employ internal auditors (as company employees or through outsourcing). Audit reports are discussed in the audit committees and/or by the board of directors of these corporations, which include Company directors. The internal auditor reviews auditing activities in all investees, so as to verify that proper auditing is carried out in all investees. As part of these activities, the auditor reviews audit reports issued in all the companies, or a summary of findings in these reports, annual and long-term auditing plans, auditing budgets and a general review of auditing activities, in each of the Group's material investees. F. Scope of employment The internal auditor of the Company is a full-time employee and serves as internal auditor of the Company and of some of the corporations that constitute material holdings of the Company, which are Delek Energy Systems, Delek Drilling, Avner Oil and Gas, and Delek Automotive Systems. In 2010, the annual number of hours of the internal auditor and other internal auditors employed on an outsourcing basis in the Company and in some of the Group's companies, in Israel and overseas, amounted to 42,300 work hours. This includes the operations in Israel of four investee corporations which are audited by internal auditors who do not report to the Company’s internal auditor, which account for 23,621 annual hours as set out below: The Phoenix 21,000 annual work hours Delek Israel 2,000 annual work hours Gadot Biochemicals 407 annual work hours IDE Technologies: 214 annual work hours

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In addition, the overseas operations of three investees are audited by internal auditors who do not report to the internal auditor, accounting for 16,243 annual hours, as set forth below: Delek USA 12,900 annual work hours Republic 1,650 annual work hours Delek Benelux 1,693 annual work hours G. The audit According to notification from the internal auditor, the audits are carried out in accordance with the internal auditing standards employed in Israel and around the world, and in accordance with internal audit professional guidelines, including the standards of the Institute of Internal Auditors in Israel and in the USA (CIA), and in accordance with the Internal Audit Law, 1992, and the Companies Law. H. Access to Information The internal auditor has full, unrestricted, constant and direct access to all of the Company’s information systems, including financial data.

I. Internal Audit Report The internal auditor’s report is submitted in writing. Audit reports were submitted and discussed by the Board of Directors of the Company on the following dates: Risk survey: submitted October 2010, and discussed November 2010 Summary report for 2010: Submitted February 2011 and discussed March 1, 2011. The report was submitted to the Chairman of the Board, to the CEO of the Company and to members of the Company’s audit committee. J. Board of Directors assessment of internal auditor’s work In the assessment of the Company’s Board of Directors and Audit Committee, the scope of internal auditing in 2010, the nature and continuity of the operations and work plan of the Company’s internal auditor are reasonable, and will serve to achieve the purposes of the corporation’s internal audit. K. Remuneration The internal auditor's employment terms are as follows: 1) Annual salary of NIS 760,000, and an annual bonus determined by the Company's CEO. In addition, the internal auditor has been granted phantom options. 2) In the opinion of the Board of Directors, the internal auditor’s remuneration does not affect or harm the exercise of his professional judgment.

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4. Auditors' fees

For the Year Ended December 31 2010 2009 Audit and tax Audit and tax services Other services services Other services Hours NIS ‘000 Hours NIS ‘000 Hours NIS ‘000 Hours NIS ‘000 The Company and wholly owned HQ companies Kost Forer Gabbay and Kasierer 7,992 2,078 2,800 1,274 8,788 2,113 99 75 Other consolidated companies Gadot Biochemical Industries Ltd. Kost Forer Gabbay and Kasierer 2,500 568 - - 2,035 525 - - Other auditors 2,602 997 132 117 1,570 686 265 147 Delek Automotive Systems Ltd. Kost Forer Gabbay and Kasierer - - - - 1,750 571 - - Delek The Israel Fuel Corporation Ltd. Kost Forer Gabbay and Kasierer 9,826 1,458 1,400 350 5,366 1,005 360 187 Ziv Haft 1,474 182 - - 3,947 678 192 73 The Phoenix Holdings Ltd. Mainly Kost Forer Gabbay and Kasierer and Pahen Kaneh and Co.(1) 34,594 5,685 2,744 885 35,190 5,934 5,535 2,166 Delek Energy Systems Ltd. Mainly Ziv Haft 6,008 1,337 735 232 6,074 1,325 617 211 For Yan Tethys Ziv Haft, Alfaya & Alfaya 619 161 - - 618 187 - - For Delek & Avner Yam Tethys Ltd. Ziv Haft & Kost Forer 57 38 - - 67 37 - - Delek US Ernst & Young USA 6,297 5,359 - - 7,768 7,067 - - Republic Group KPMG 5,700 2,426 100 68 5,500 2,680 - - Delek Europe Ernst & Young Netherland 5,079 2,990 16 20 4,032 2,622 - - Kost Forer Gabbay and Kasierer 275 70 - - 320 70 1,191 519

(1) Including data in respect of Excellence (paid to other auditors), which was consolidated for the first time in the reporting period (NIS 4,152,000 for 24,000 hours).

5. Disclosure on the financial statements approval process

The Company's Board of Directors is the corporate organ charged with overall supervision and approval of the financial statements. The Company's Board of Directors has appointed a committee for examining the financial statements. This committee is not the Audit Committee, and is separate from the Audit Committee, although the committees share the same members. A) The Committee and its members The Committee includes 3 members as follows: Mr. Yoseph Dauber, committee chairman (external director), Prof. Ben-Zion Ziberfarb (external director), and Mr. Avi Harel, all three of whom have accounting and financial expertise. All Committee members have submitted declarations detailing their skills, education and experience, and based on these signed declarations, the Company has determined that they are able to read and understand financial statements. For more information on the directors serving in the Committee, see Chapter D.

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B) Financial statements approval process 1. The Financial Statements Examination Committee formulated its recommendations to the Company's Board of Directors in its meetings of March 22, 2011, and March 27, 2011. 2. All Committee members participated in the above meetings. 3. In addition the Committee members, the March 22, 2011 and March 27, 2011 meetings were attended by the Chairman of the Board, Mr. Gabi Last; CFO of the Company, Mr. Barak Mashraki; the Company's comptrollers, Mr. Amit Kornhauser and Mrs. Tamar Rozenberg; the internal auditor, Michael Greenberg; the Company's legal counsel, Mrs. Liora Prat-Levin; external accountants; and other persons from the Company. 4. The Committee examined the assessments and estimates used the financial statements, in internal control of financial reporting, the scope and propriety of disclosure made in the financial statements, adopted accounting policies and accounting methods applied on material matters in the Corporation, valuations, including underlying assumptions and estimates, which serve as the basis for data in the financial statements. The Committee's discussions were based on materials brought before the Committee on these matters by the Company's management and questions and answers discussed during the meeting including the external auditor's remarks on these issues. 5. The Committee unanimously recommended that the Board of Directors approve the financial statements for 2010. The Committee's recommendations were submitted to the Company's Board of Directors in writing on March 27, 2011. 6. The Board of Directors discussed the Financial Statements Examination Committee's recommendations and the financial statements on March 29, 2011. 7. The Board of Directors believes the Financial Statements Examination Committee's recommendations to have been submitted a reasonable amount of time prior to the Board of Director's meeting. 8. The Company's Board of Directors has adopted the Financial Statements Examination Committee's recommendations and has resolved to approve the Company's financial statements for 2010.

6. Classification of negligible transactions

On August 6, 2008 an amendment to the Securities Regulations (Periodic and Immediate Reports), 1970 ("the Reporting Regulations") came into force. Under the amendment, some of the reporting duties applicable to public companies were expanded, where they concern transactions with controlling shareholders or with another person in which the controlling shareholder has an personal interest ("Controlling Shareholder Transactions"), even for transactions which are not extraordinary transactions, as that term is defined in the Companies Law, but excluding transactions for which the latest financial statements have determined them to be negligible, as provided in Section 64(3)(d)(1) of the Securities (Preparing annual financial statements) Regulations, 1993. On March 30, 2009, the Board of Directors of the Company resolved to adopt for the first time guidelines and principles for the classification of a transaction as a negligible transaction, both in connection with transactions with interested parties listed in the financial statements and in connection with Controlling Shareholder Transactions. These guidelines and principles were determined, inter alia, with attention to the character of the Company as one of he largest holdings companies in Israel with very extensive operations, to the volume of the Company's assets, to its variegated activities, to the character of the transactions it makes, and to the extent of their probable effect on the Company's operations and results. The Board of Directors of the Company determined that a transaction will be deemed a negligible transaction if all of the following conditions obtain: a) The amount of the transaction does not exceed 0.1% of the Company's equity after adjustment for non-controlling interest, according to the most recently published annual financial statements. b) It is not an extraordinary transaction (as defined in the Companies Law). c) The transaction is also negligible in nature.

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d) In long-term transactions (e.g. lease of a property for a number of years), the negligibility of the transaction will be tested on an annual basis (for example, does the annual lease exceed the amount noted above). e) In insurance transactions, the premium will be tested as the amount of the transaction, as opposed to the scope of the insurance coverage provided. f) Every transaction will be tested in its own right, but the negligibility of combined or contingent transactions will be tested in aggregate. g) In cases where a question arises as to the application of the above criteria, the Company will exercise judgment and will test the negligibility of the transaction based on the aim of the reporting regulations and guidelines above.

7. Compensation of stakeholders and senior employees

As required by the Regulations, in its meeting of March 29, 2011, the Company's Board of Directors examined the terms of employment and remuneration for those officers listed in Part D to the periodic report - as required by Regulation 21 ("Regulation 21"). For this examination, the Board received, ahead of time, relevant data concerning the employment terms of all the officers. The Board was also presented with comparative data prepared by Kesselman Finance (PwC Israel) regarding the officers receiving remuneration from the Company, and by Ernst&Young regarding the remuneration of holders of similar positions in companies with similar enterprise market values. The Company's board of directors examined the remuneration of each of the officers receiving remuneration from the Company, determined the information and criteria for examination, and based on these data - the connection between the amount of the remuneration and the actions and contributions to the Company made by each of the officers during the reporting period. The Board of Directors believes, that the remuneration of each of the officers receiving remuneration from the Company, detailed in Regulation 21 of Part D to the periodic report, reflects those officers' contribution to the Group, and is fair and reasonable as detailed below. The remuneration of the other officers listed under Regulation 21, serving as officers in public companies under the Company's control, is reviewed and approved by the independent organs of those pubic companies paying the remuneration, and is reviewed by the Company as detailed below. Mr. Gabriel Last Mr. Gabriel Last ("Mr. Last") has been serving as Chairman of the Company's Board of Directors since 2003. Mr. Last also serves as a director in various Group companies, including Delek Israel, Delek Energy, Delek Infrastructure, Delek US, Delek Europe, Delek Automotive, and others. For details concerning the terms of Mr. Last's employment, see Regulation 21 in the periodic report. As part of the examination of Mr. Lasts remuneration in 2010, the Board of Directors examined - the terms of his employment, the historic background for the remuneration, Mr. Last's functions and responsibilities, his contribution to the Company and its results in the reporting year, his status, experience, and relevant skills, and the terms given to holders of similar positions in companies with a similar enterprise market value. Based on the information and criteria below, prescribed by the Board of Directors, the Board of Directors determined as follows: As chairman of the Group, Mr. Last is responsible for the Board of Directors' activities and the Group's strategy. Mr. Last possesses extensive managerial knowhow and skill, and he has created an effective work environment together with the Group's executives, and through the operations of the Board and its committees. This is also true of the boards of the Company's subsidiaries in which Mr. Last serves as a director and acts to promote and develop the Company and its major investees. The terms of Mr. Last's employment were determined several years ago. These terms matched his position and status. The remuneration mechanism consists of a fixed, reasonable base salary and an annual bonus determined by the Company. Mr. Last was granted warrants for his services as an executive chairman on Delek Energy's board of directors until February 2010, and warrants for his services as a director in Delek US. However, except for these allotments he does not receive additional remuneration from those companies in which he serves as director. Based on all the aforesaid, considering the remuneration mechanisms for holders of similar positions, Mr. Last's contribution to the Company and to the Group's subsidiaries in the reporting year and the

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results of those companies' operations, the Board of Directors believes his remuneration to be fair and reasonable. Mr. Last's bonus for 2010 has yet to be discussed and approved.

Mr. Asaf Bartfeld Mr. Asaf Bartfeld ("Mr. Bartfeld" or "the CEO") has been serving as CEO of the Company since 2003. In addition, Mr. Bartfeld serves as a director in various Group companies, including Delek Energy, The Phoenix, Delek Israel, Delek Europe, Delek US, Republic, and others. For details concerning the terms of the CEO's employment, see Regulation 21 in the periodic report. As part of the examination of Mr. Bartfeld's remuneration in 2010, the Board of Directors examined the following: the terms of his employment, the historic background for the remuneration, Mr. Bartfeld's functions and responsibilities, his contribution to the Company and its results in the reporting year, his status, experience, and relevant skills, and the terms given to holders of similar positions in companies with a similar enterprise market value. Based on the information and criteria below, prescribed by the Board of Directors, the Board of Directors determined as follows: As CEO of the Group, Mr. Bartfeld is party to determining the Group's strategy and is charged with its implementation and with the daily management of the Company's operations. Mr. Bartfeld is involved in all aspects of the Company's operation and serves as a director in all material investees. Mr. Bartfeld has extensive professional and managerial experience and carries out his duties with remarkable success and devotion to promoting and developing the Group's business. Furthermore, Mr. Bartfeld's position entails great responsibility. Mr. Bartfeld has led the Group to profitability and has established the Group as a leading holdings company, while generating value for the Group's shareholders. Mr. Bartfeld's contribution to the Company in the reporting period was very significant, including in the following matters: the sale of holdings in Delek Automotive, acquisition of operations in France, acquisition of control in Roadchef, and recruitment of long-duration debt. It is noted, that Mr. Bartfeld does not receive additional remuneration for his services as a director in the Group's subsidiaries, except for options in Delek US. Based on all the aforesaid, considering the remuneration mechanisms for holders of similar positions, the Board of Directors' satisfaction with the CEO's performance, and considering the complicated nature of his position, his skills, experience, and responsibility, and bearing in mind the scope of the Group's operations, his contribution to the Company and its subsidiaries in 2010, the Group's results, and the various considerations detailed above, the Board of Directors believes his remuneration to be fair and reasonable. Mr. Bartfeld's bonus for 2010 has yet to be discussed and approved. It is noted that, in addition to their base salaries, Mr. Last's and Mr. Bartfeld's remuneration also includes loans for purchasing securities issued by the Group's companies (Mr. Last has repaid these loans in 2010), phantom options (in the case of Mr. Bartfeld), and an option for annual bonuses, as determined by the competent corporate organs. The latter is usually granted after examining the Company's results in the previous reporting year and the officer's contribution to these results. The Board of Directors believes the above remuneration structure to create a proper balance between fixed remuneration and performance-based remuneration - which is based both on the prices of the subsidiaries' securities over the years (which are the major factor in determining the Company's value), and based on an annual review by the competent corporate organs of the officer's achievements and contributions. The remuneration structure also properly balances monetary remuneration (which influences the Company's cash flows) and securities-based remuneration. Mr. Barak Mashraki Mr. Barak Mashraki ("Mr. Mashraki") has been serving as CFO of the Company since January 1, 2008. Mr. Mashraki also serves as a director in the Group's subsidiaries. For details concerning the terms of Mr. Mashraki's employment, see Regulation 21 in the periodic report. As part of the examination of Mr. Mashraki's remuneration in 2010, the Board of Directors examined the following: the terms of his employment, the historic background for the remuneration, Mr. Mashraki's functions and responsibilities, his contribution to the Company and its results in the reporting year, his status, experience, and relevant skills, and the terms given to holders of similar

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positions in companies operating in similar fields. Based on the information and criteria below, prescribed by the Board of Directors, the Board of Directors determined as follows: Mr. Mashraki is extremely well versed in the Company's affairs, and particularly as regards accounting / financial aspects of its operations. The Board of Directors discussed Mr. Mashraki's significant contribution to the Group's financial reporting activities, accounting and taxation issues, the Group's financing and recruiting of capital (including long-duration debt raised during the reporting period), his contribution to investor relations activities and the management of the Group's market risks. The terms of Mr. Mashraki's employment match his position and responsibilities. His remuneration consists of a fixed, reasonable base salary, an annual bonus determined by the Board of Directors, and a phantom bonus. The remuneration mechanism, and namely the phantom options, increases identification with the Company, its goals, and commercial success, connects the remunerated person directly with the Company's performance and results, its financial position, and requires consistent achievement, growth and streamlining. Based on all the aforesaid, considering the remuneration mechanisms for holders of similar positions, the Board of Directors' satisfaction with Mr. Mashraki's contribution to the Group in the reporting year, and the various considerations detailed above, the Board of Directors believes his remuneration to be fair and reasonable. Mr. Mashraki's bonus for 2010 has yet to be discussed and approved. Information concerning remuneration of officers in Delek Energy Systems Ltd., The Phoenix Holdings Ltd., and Delek US (jointly - "the Subsidiaries") - Mr. Yoram Turbowitz, Mr. Eyal Lapidot, Mr. Yitzhak Oz, and Mr. Uzi Yemin. The above officers receive remuneration as detailed in Regulation 21 from public companies controlled by the Company whose shares are traded on the TASE or NYSE. Their remuneration is reviewed and approved by the independent organs in these subsidiaries. The remuneration of each of the above officers was presented to the Board of Directors by the CEO of the Company, Mr. Asaf Bartfeld, who also serves as a director in the subsidiaries which reviewed and the relevant remuneration. This presentation was accompanied by documents submitted to the boards of the subsidiaries, detailing the information and criteria used by the board of directors of each of the subsidiaries to determine the reasonability of the remuneration for each of the officers in the subsidiaries in the reporting period. These documents further detailed that each of the above officers meets the requirements of his office, based on which the subsidiary's board of directors determined whether the terms and the remuneration are fair and reasonable. These documents also included a review of the remuneration given to holders of similar offices. This review was followed by a presentation of the report issued by the subsidiaries' boards of directors, and the details included in that report on each officer. After reviewing the processes implemented in each of the subsidiaries, the Company's Board of Directors believes that the procedures implemented by these subsidiaries for examining the reasonability and fairness of remuneration was adequate. Other Company directors (excluding the Chairman and external directors) The remuneration paid to the other directors is determined in accordance with the Companies Regulations (Rules regarding Remuneration and Expenses of External Directors), to the maximum amount prescribed in the remuneration regulations for annual remuneration and per-meeting remuneration. This does not include Mr. Moshe Amit, who receives the fixed amount and not the maximum amount and the remuneration is paid to the subsidiary Delek Israel, and Mr. Elad Sharon (Tshuva), the son of the controlling shareholder who serves as deputy executive chairman and is also entitled, in addition to the maximum remuneration, to reimbursement of 60% of his office rental and secretary expenses, car and telephone expenses, and to reimbursement for expenses incurred through work-related travel and accommodations abroad. The Board of Directors reviewed the remuneration paid to Mr. Elad Sharon (Tshuva), and determined it to be fair and reasonable. Considering the directors' involvement in the Company's operations and the responsibilities attached to their positions, and considering the fact that the remuneration in the regulations, as aforesaid, is as customary and is fair and reasonable.

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D. Disclosure relating to the Company's financial reporting

1. Critical accounting estimates

For information about main accounting estimates, see Note 2B to the financial statements.

2. Events after the income statement date

For details of material events after the income statement date, see Chapter A of this Directors' Report.

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E. Dedicated disclosure for debenture-holders

Following on Section F of the 2009 Annual Directors' Report, below are data regarding series of debentures issued in the reported period (NIS millions).

Balance of Interest Original par par value accrued in value Dec. 31, 2010 Carrying amount at the books Stock exchange (in NIS (in NIS Stated December 31, 2010 (in NIS value at Dec. 31, Series Issue date millions) millions) interest Linkage (in NIS millions) millions) Repayment dates 2010 Trustee BLL Trust Company 8 Rothschild Blvd. G 03/2005 200 26 3.95% CPI 31 - 2008 – 2011 Non-marketable Tel Aviv Tel.: 03-5170777 Idit Prizar BLL Trust Company 8 Rothschild Blvd. H 09/2005 150 51 4.05% CPI 58 1 2011 Non-marketable Tel Aviv Tel.: 03-5170777 Idit Prizar BLL Trust Company 8 Rothschild Blvd. J 12/2005 166 28 4.85% CPI 32 - 2012 Non-marketable Tel Aviv Tel.: 03-5170777 Idit Prizar BLL Trust Company 8 Rothschild Blvd. K 07/2006 468 357 5.40% CPI 401 4 2018 Non-marketable Tel Aviv Tel.: 03-5170777 Idit Prizar Reznick Trusts Ltd. 14 Yad Harutzim St. L 11/2006 1,100 596 5.35% CPI 674 7 2015 – 2017 Non-marketable Tel Aviv Tel: 03-6393311 Liat Bachar-Segal Hermetic Trust (9175) Until listing Ltd. 5.1%; 2013 – 2014, 113 Hayarkon St. M 03/2007 913 913 after listing CPI 1,046 12 2019 – 2021 1,082 Tel Aviv 4.6% Tel: 03-5274867 Dan Avnon Clal Finance Trusts 2007 Ltd. 07/2009 37 Brhin Road N +6/2010 419 419 8.5% - 419 7 2018 463 Tel Aviv Tel" 03-6274827 Yuval Likber 07/2009 Clal Finance Trusts O + 1,048 1,048 8.5% - 1,048 19 2015 – 2018 1,159 2007 Ltd. 11/2009 37 Brhin Road

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Balance of Interest Original par par value accrued in value Dec. 31, 2010 Carrying amount at the books Stock exchange (in NIS (in NIS Stated December 31, 2010 (in NIS value at Dec. 31, Series Issue date millions) millions) interest Linkage (in NIS millions) millions) Repayment dates 2010 Trustee Tel Aviv Tel" 03-6274827 Yuval Likber Strauss Lazar Trust Ltd. 17 Yitzchak SAdeh P 09/2009 260 260 5.5% - 260 5 2012 – 2015 267 Tel Aviv Tel: 03-7347777 Uri Lazar Strauss Lazar Trust Ltd. 17 Yitzchak SAdeh Q 09/2009 90 90 Variable - 90 - 2012 – 2015 94 Tel Aviv Tel: 03-7347777 Uri Lazar Clal Finance Trusts 2007 Ltd. 11/2009 37 Brhin Road R + 6/2010 800 800 6.1% CPI 821 8 2016 – 2022 909 Tel Aviv Tel: 03-6274827 Yuval Likber Gafni Trusts Ltd. Hataas 4, Ramat Gan S 11/2010 560 560 4.65% CPI 561 4 2019 - 2022 538 Tel: 03-6070370 Tzuri Galili Aora Fidelity Trust Ltd. 12 Begin Rd. V 06/2007 500 500 4.50% CPI 569 - 2012, 2019 - 2021 567 Ramat Gan Tel: 03-7510566 Iris Shalbin Strauss Lazar Trust Ltd. 10/2007 17 Yitzchak SAdeh W + 1,293 1,293 4.75% CPI 1,442 13 2011 – 2014 1,545 Tel Aviv 07/2009 Tel: 03-7347777 Uri Lazar Strauss Lazar Trust Ltd. AD 17 Yitzchak SAdeh (convert 4/2010 255 255 4.1% - 255 2 2012 267 Tel Aviv ible) Tel: 03-7347777 Uri Lazar

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Notes: 1. The Company meets all the terms of the debentures. Furthermore, the Company meets all the obligatory terms pursuant to the deed of trust. 2. Information regarding the debenture ratings:

Rating at Rating at Rating Current time of Rating Current time of Series company rating issue company rating issue F Midroog A1 - S&P Maalot A AA G Midroog A1 - S&P Maalot A AA H Midroog A1 - S&P Maalot A AA I Midroog A1 - S&P Maalot A AA J Midroog A1 - S&P Maalot A AA K Midroog A1 - S&P Maalot A AA L Midroog A1 - S&P Maalot A AA M Midroog A1 - S&P Maalot A AA N Midroog A1 A1 S&P Maalot - - O Midroog A1 A1 S&P Maalot - - P Midroog A1 A1 S&P Maalot - - Q Midroog A1 A1 S&P Maalot - - R Midroog A1 A1 S&P Maalot - - S Midroog A1 A1 S&P Maalot - - V Midroog A1 - S&P Maalot A AA W Midroog A1 - S&P Maalot A AA AD Midroog A1 A1 S&P Maalot - -

Details of the Corporation’s liability certificates: On April 13, 2010, Midroog announced a rating of A1 for Debentures (Series L) for raising up to NIS 450 million. On June 8, 2010, Midroog announced a rating of A1 for the expansion of existing series of debentures for raising up to NIS 800 million. On November 3, 2010, Midroog announced a rating of A1 for new debentures for raising up to NIS 600 million. Post-balance sheet, in January 2011, S&P Maalot confirmed an A rating for S&P Maalot-rated debentures and changed their rating outlook to negative. For information on the Company's current rating reports, see Appendix B to the Board of Directors' report.

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F. Additional information

1. Exercise of options

In February – March 2010, 33,416 options Series 5 were converted to 33,416 ordinary shares of the Company. The exercise price paid amounted to NIS 16.3 million.

2. Dividends

A) On December 28, 2009, the Board of Directors of the Company resolved to distribute a dividend of NIS 150 million. The dividend was distributed on January 18, 2010. B) On March 24, 2010, the Board of Directors of the Company resolved to distribute a dividend of NIS 100 million. The dividend was distributed on April 28, 2010. C) On May 31, 2010, the Board of Directors of the Company resolved to distribute a dividend of NIS 150 million. The dividend was distributed on June 30, 2010. D) On July 26, 2010, the Board of Directors of the Company resolved to distribute a dividend of NIS 120 million. The dividend was distributed on August 23, 2010. E) On September 21, 2010, the Board of Directors of the Company resolved to distribute a dividend of NIS 90 million. The dividend was distributed on October 19, 2010. F) On November 30, 2010, the Board of Directors of the Company resolved to distribute a dividend of NIS 500 million. The dividend was distributed on December 20, 2010. G) Post-income statement, in March 2011, the Company's Board of Directors resolved to distribute a dividend of NIS 200 million.

3. Company employees

The Board of Directors would like to thank the management of the Company, to the management of its investees and to all the employees for their dedicated work and their contribution to the advancement of the Company.

Sincerely

Gabriel Last Asi Bartfeld Chairman of the Board CEO

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Appendix A to the Directors’ Report

Breakdown of principal and interest payments on the debentures and bank loans of the HQ companies as of December 31, 2010 (in NIS millions): Delek Group – Headquarters

2016 2011 2012 2013 2014 2015 Total onwards Principal 450 848 628 628 749 4,406 7,709 Debentures Interest 431 411 371 342 314 855 2,724 Total 881 1,259 999 970 1,063 5,261 10,433

Delek Investments and Properties

2016 2011 2012 2013 2014 2015 Total onwards Principal 4 3 3 1 - 45 56 Bank loans Interest 3 3 3 2 2 2 15 Total 7 6 6 3 2 47 71

Delek Finance US

2016 2011 2012 2013 2014 2015 Total onwards Principal 106 106 - - - - 212 Bank loans Interest 6 3 - - - - 9 Total 112 109 - - - - 221

Delek Petroleum

2016 2011 2012 2013 2014 2015 Total onwards Principal 119 - 119 88 57 29 412 Debentures (1) Interest 22 17 15 7 3 1 65 Total 141 17 134 95 60 30 477

(1) The debentures do not include debentures raised in the past and given as a loan (BTB) to Delek Israel.

B-46 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Directors’ Report Delek Group Ltd.

Appendix B to the Board of Directors' Report The following is a current rating report issued by Standard & Poor's Maalot Ltd. and Midroog Ltd., for the Company's debentures.

B-47 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 12 Abba Hillel Silver St. Ramat-Gan 52506 Israel +972 3 7539700 Tel +972 3 7539710 Fax

January 6, 2011 Delek Group

Delek Petroleum

Affirmation of 'ilA' Rating; Rating Outlook Revised to Negative

Lead Credit Analyst: Itzik Maissi [email protected]

Assistant Credit Analyst: Yuval Torbati [email protected]

Summary

y The Group's leveraging continues to be higher than expected for the present rating. However, the Group has increased its financial flexibility at the holding company level by releasing the majority of encumbrances on its assets.

y Continued development of Tamar is expected to significantly increase the Group's investments in the next two years, along with an increase in debt without any corresponding generation of cash flows.

y We are revising the rating update from stable to negative, and affirm the 'ilA' rating for the Delek Group Ltd. conglomerate, which engages mainly in energy and infrastructure operations, and its wholly-owned subsidiary Delek Petroleum Ltd.

y The negative rating outlook reflects our concerns for a continued increase in the Company's leveraging and an erosion of its financial ratios to a point where they will no longer match the current rating.

The Rating Process

On January 6, 2011, Standard & Poor's Maalot affirmed its 'ilA' rating for the Delek Group Ltd. conglomerate, which engages mainly in energy and infrastructure operations, and its wholly-owned subsidiary Delek Petroleum Ltd. At the same time, Standard & Poor's Maalot has revised its rating outlook from stable to negative.

Main Considerations for the Rating

Revision of the rating outlook reflects the Group's increased leveraging, exceeding the level of leveraging associated with its current rating, following weak results in the Group's refining operations in the US and in its fuel marketing operations in Israel, which was partially offset by stability in the Group's fuel marketing operations in Europe and in its energy operations. Continued recovery has been recorded in insurance operations, but their contribution to the Group's cash flows remains low, although the Group has started receiving dividends from insurance operations in the US, and we believe that the Group's insurance companies may also distribute dividends in the coming year.

1 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 12 Abba Hillel Silver St. Ramat-Gan 52506 Israel +972 3 7539700 Tel +972 3 7539710 Fax

Development of Tamar is expected to increase the Group's risk level in the short- to medium-term. Development entails various risks associated with enterprise start-up, securing funding, locating customers and long-term contracts, and uncertainties concerning the application of changes in the taxation of gas discoveries in Israel, and the implications of such changes in the rate of development and the cash flows that will be available to the Group in the coming years. Furthermore, we believe that development of the reservoir while relying on a high debt component will increase the Group's leveraging and weaken its financial ratios. These risks are partially offset by our assessment for low price and quantities risks due to the unique nature of the local energy market and long-term contracts with customers, and the project's operation by an experienced operator - Noble Energy Inc. (BBB/Stable).

Development of Leviathan entails a high level of uncertainty due to the need to construct and finance an export infrastructure and the need to locate customers. We do not expect the reservoir to be developed in the medium term, and so the effect of this discovery on the Group's rating is small.

Despite the Group's control over its investee companies, dividend inflows are low compared to the debt servicing needs at the holding company eve, and the partial disposal of Delek Automotive will further decrease the Group's dividend incomes. We believe that in the coming years, the coverage ratio for dividends received to headquarters and financing expenses will be lower than x1.0. Furthermore, the Company's generous dividend distribution policy may continue exerting pressure on cash balances at the holding company level and lead to a continued increase in leveraging to support dividend distributions. In order to maintain its present rating, we expect the Company to decrease its leveraging, inter alia, by adopting more conservative policies for rewarding its shareholders.

The Company's rating is based on the competitive position of the Group's fuel marketing operations in Europe and Israel, its holdings in insurance operations characterized by low risk levels, commercial and geographic diversification and sound financial flexibility through holdings in tradable companies with reasonable leveraging levels. On the other hand, Delek's capital structure is characterized by high levels of leveraging, a result of the rapid growth of its operations in recent years, which was largely financed through debt, along with a generous dividend distribution policy. The Group has a high level of exposure to the energy segment, which is characterized by relatively high risks, and it implements an aggressive dividend distribution policy given its available current resources.

The adjusted FFO to debt ratio for the 12 months ended June 2010 was 11%, similar to the ratio for 2009, and is weak for the current rating. We believe that continued development of the gas reservoirs and the partial disposal of Delek Automotive (no longer consolidated) may continue exerting pressure on the Group's financial ratios. However, the Group's LTV ratio was 41% as of September 2010, similar to the ratio for 2009, and matches our expectations for an LTV ratio of no more than 50%.

We compare Delek Petroleum's rating with that of the Delek Group due to our assessment as to the extremely strong connection between these two companies. This connection is reflected in the full ownership, corporate identity (use of the "Delek" name, managerial identity and equivalence in the eyes of investors), holdings of the fuel marketing operations which are the Delek Group's core operations, and our understanding that the Company's management considers Delek Petroleum's debt as its own.

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Liquidity

We believe Delek's liquidity to be adequate and supported by high cash balances following disposal of part of its holdings in Delek Automotive, and recent bond raisings. We believe that total cash as of December 2010 amounted to approximately NIS 1 billion (not including the Company's financial assets portfolio which we estimate at NIS 1.5 billion). We believe the Company's available cash, plus dividends and loan repayments expected from subsidiaries, will suffice to pay the Company's expected expenses and maturities for the next 24 months without need for issuing capital or recycling debt.

In 2010, the Company released the vast majority of encumbrances on its assets. As a result, the Company is operating without financial covenants except for the debt outstanding against part of its financial investment portfolio (which is without right of recourse). Therefore, Delek has a high level of financial flexibility due to the lack of encumbrances as aforesaid, and due to its ability to dispose of significant parts of its holdings in the subsidiaries without foregoing control. These disposals constitute another potential source of cash for the Company. However, it is noted that the Company's classification as part of a group of joint borrowers together with other companies controlled by Mr. Itzhak Tshuva may adversely affect its access to banks in Israel.

Liquidity at the consolidated group level is also 'adequate', and is supported mainly by high cash balances. We believe that the Group's available cash, the rate of cash generation in the next two years, various disposals and approved bank credit, are expected to finance a large portion of maturities expected in the next two years, while the balance is expected to be recycled. The Group's companies are subject to a number of financial covenants, with which they comply with sufficient margin. It is noted, that a drop in the rate at which the subsidiaries generate cash may damage the parent's liquidity.

Rating Outlook

The negative rating outlook reflects our concerns for continued deterioration in the Company's financial ratios in light of the disposal of Delek Automotive and continued investment in energy operations. We believe energy operations to require considerable capital expenses, which are not expected to contribute to the Company's cash flows in the first few years. These investments are expected to lead to an increase in the Company's debt and leveraging, and thus weaken its financial profile. We may downgrade the rating by one notch should the adjusted FFO to debt ratio continue to be lower than 12% or the LTV ratio rise above 50%. We can revise the outlook to "Stable" if the Group succeeds in reducing its debt and returning to an FFO to debt ratio of at least 12%.

Rating Methodology

Given Delek's holding structure and its conduct, we classify it as a conglomerate operating mainly in the energy and infrastructure segments. Therefore, we mainly examine Delek's risk profile by analyzing and assessing the Company's consolidated financial enterprise risk. Examination of the Company's financial risks is based on an analysis of its adjusted consolidated financial statements (without consolidating insurance operations, full consolidation of Avner - LLP and various adjustments for leases and retirement liabilities towards employees). However, we also analyze the holding company's enterprise and financial risks using the "portfolio" method, which relies on the value of holdings versus total financial debt at the holding company level. Debt coverage ratios at the holding company level are important when analyzing the Company's ability to service its debts at the holding company level, as this debt is deferred, both legally and structurally to debt raised by the operating companies. We also apply a dual method as part of Delek's holdings are public, tradable companies, and Delek has the financial flexibility to sell part of its holdings (and retain control), or to sell its entire stake.

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Related Study

For information concerning our methods for rating holding companies, see the following article:

Criteria | Corporates | Rating Methodology for European Investment Holding and Operating Holding Companies, May 28, 2004

The above methodology-related article is available on http://www.standardandpoors.com

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Ratings List

Present Rating Previous Rating Delek Group ilA/Negative ilA/Stable Debentures (Series F) ilA ilA Debentures (Series G) ilA ilA Debentures (Series H) ilA ilA Debentures (Series I) ilA ilA Debentures (Series J) ilA ilA Debentures (Series K) ilA ilA Debentures (Series L) ilA ilA Debentures (Series M) ilA ilA Debentures (Series V) ilA ilA Debentures (Series W) ilA ilA

Delek Petroleum Ltd. ilA/Negative ilA/Stable Debentures (Series A) ilA ilA Debentures (Series D) ilA ilA Debentures (Series E) ilA ilA Debentures (Series G) ilA ilA Debentures (Series H) ilA ilA

Standard & Poor's Maalot ("S&P Maalot") ratings are based on information received from the company and from other sources which S&P Maalot believes to be reliable. S&P Maalot does not audit the information it receives and does not verify its accuracy or completeness.

It is hereby clarified that S&P Maalot's rating does not reflect risks related to and/or arising from violations, through act or omission, of any obligation included in the debenture documents and/or incorrectness or inaccuracies of any representations made in the documents related to the issue of the debentures related to this rating, S&P Maalot's report or the facts underlying the opinions submitted to S&P Maalot as a condition for receiving the rating, fraudulent or deceitful acts or omissions, or any other unlawful action.

Ratings are subject to revision due to changes in the information received, or due to other reasons. Ratings shall not be considered as expressing an opinion concerning the price of securities in the primary or secondary market. Ratings shall not be considered as expressing an opinion recommending the buying, selling, or holding of any securities.

© S&P Maalot. All rights reserved. It is forbidden to copy, distribute or make any commercial use of this summary without S&P Maalot's permission, except providing a copy of the entire report while indicating its source to potential investors in the debentures related to this rating report for the purpose of making a decision to buy such debentures.

WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8

Midroog

Delek Group Ltd.

November 2010 Rating Report

By: Liat Kadish, CPA, Senior Analyst [email protected] Contact persons: Sigal Issachar, Head of Financing Companies Division [email protected] Avital Bar-Dayan, Senior VP [email protected]. il WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8

Delek Group Ltd.

Rating of Series A1 Rating Outlook: Stable

Midroog has awarded a rating of A1 with stable outlook for debentures amounting to up to NIS 600 million par value issued by Delek Group Ltd. under a new series of debentures, linked to the CPI and which are repayable in 2019-2022 (life expectancy of 8.5 years). The immediate raising may be less than NIS 600 million par value. The proceeds of the debentures are to be used for full repayment of current maturities of financial liabilities from the second quarter of 2011 through to the end of 2011. Until repayment of these liabilities, the proceeds of the raising will be deposited into a designated bank account/deposit. This report refers to the structure of the issue based on information given to Midroog by November 3, 2010. If any changes will be applicable to the structure of the issue, Midroog will have the right to reassess and to change its rating. Only once Midroog has received a copy of all the final documents pertaining to the debentures, will the rating awarded by Midroog be deemed valid, and Midroog will publish the final rating and produce the rating report.

Summary of the Primary Considerations for Rating The primary strengths used for determining the rating are: relatively wide-spread sectoral distribution with dominant foothold in the energy and infrastructure sectors in Israel; relatively wide geographical deployment, with recent expansion of international operations with the acquisition of BP fuel operations in France; effective control of most investees; high financial flexibility based on high marketable investments and unencumbered assets. The financial flexibility improved during the course of 2010 with the progress of the move to replace bank loans with debentures, while releasing a substantial scope of encumbered assets; high liquid balances which appropriately cover the debt (principal and interest) service needs of the previous year; consistent dividend distribution policy according to which the Company distributes approximately 50% of its current profits every year. Primary risk factors that affected the rating: high exposure of the oil and gas exploration and production sector which is typically high risk and which we estimate constitutes approximately 45% of the value of the holdings (including Nobel shares). The increased uncertainty concerning the regulation of the royalties and/or tax rates on gas discoveries adds another industry risk tier which was not taken into account in full for the current rating due to the high level of uncertainty; the tiered holdings structure and inter-organizational loan policy harm business and financial transparency in the Group. In this regard, we assume that the RoadChef transaction that the Company is examining, as it recently reported and subject to the consideration that will be fixed, indicates the Company's intentions to indirectly support its related company, Delek Real Estate, which has a weak financial profile, a move that has a negative bearing on the rating considerations. At the same time, we assume that the transaction, if it will materialize, may improve the chances that sources amounting to NIS 350 million which was extended in the past to Delek Real Estate as a loan, which repayment date is December 2010, will yield returns by WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 converting them into RoadChef holdings. If this transaction materializes, we will continue examining its impact on the Company's liability rating. A weak operating coverage ratio 1 resulting from the absence of holdings that contribute substantial ongoing dividends to the Company compared with its current funding needs (principal and interest). Until recently, Delek Automotive was the main ongoing source of income of the Company. The decrease in the Delek Automotive holdings (from 55% to 33%) under the transaction that was recently closed is liable to weaken the operating coverage ratio of the Company (we estimate from ratio of 1.0 to ratio of 0.8), due to the dominance of the dividends received from Delek Automotive in recent years and was the last stable source of dividends. Nonetheless, the Company has substantial liquid balances: Prior to the sale of Delek Automotive shares, which were sold for NIS 1.0 billion gross, the Company holds a liquid portfolio that we estimate at NIS 1.3 billion. This amount does not include the holding in Noble (2.7% of Noble's equity) which is equivalent to NIS 1.3 billion (per its marketing value at the date of this report). Based on the expected weakening of the operating cover ratio and due to the fact that we do not expect a real improvement in the operating cover ratio in 2011, we expect that the Company will continue to maintain its relatively high liquidity which will not fall from 10% of its adjusted gross financial debt2 (the liquid balances required as aforesaid does not include the holding in Noble, which was taken into account with investments). In the long term, Midroog expects a real improvement in the operating cover based on the holdings maturing. In this regard, on the positive side, we note the improvement in the business results of Phoenix Holdings. recently a stable source of dividends. Nonetheless, the Company has substantial liquid balances: Prior to the sale of Delek Automotive shares, which were sold for NIS 1.0 billion gross, the Company holds a liquid portfolio that we estimate at NIS 1.3 billion. This amount does not include the holding in Noble (2.7% of Noble's equity) which is equivalent to NIS 1.3 billion (per its marketing value at the date of this report). Based on the expected weakening of the operating cover ratio and due to the fact that we do not expect a real improvement in the operating cover ratio in 2011, we expect that the Company will continue to maintain its relatively high liquidity which will not fall from 10% of its adjusted gross financial debt3 (the liquid balances required as aforesaid does not include the holding in Noble, which was taken into account with investments). In the long term, Midroog expects a real improvement in the operating cover based on the holdings maturing. In this regard, on the positive side, we note the improvement in the business results of Phoenix Holdings. The gross adjusted financial debt at the date of this report is estimated to be NIS 8.0 billion debentures and bank loans, NIS 0.3 billion loans from Delek Israel, NIS 0.6 million loan against Noble shares and financial collateral for investees that are not headquarter companies in an

1 The operating coverage ratio assesses the extent of the Company's ability to cover the costs of its ongoing financing and administrative expenses from its permanent sources of income, including ongoing dividends from investees, income revenue on loans extended to the investees and other current income. The ratio is measured with emphasis on permanent income and expenses, which are not non-recurring or extraordinary. 2 The adjusted financial debt is the Company's solo financial debt with the addition of the financial debt of its wholly owned subsidiaries ("Headquarter Companies") and the addition of the collateral given by the Company and headquarter companies to secure the financial liabilities of investees that are not headquarter companies. 3 The adjusted financial debt is the Company's solo financial debt with the addition of the financial debt of its wholly owned subsidiaries ("Headquarter Companies") and the addition of the collateral given by the Company and headquarter companies to secure the financial liabilities of investees that are not headquarter companies. WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 additional amount of NIS 0.6 billion. We estimate the ratio between the net adjusted financial debt and the adjusted value of holdings to be approximately 50%.4 We will continue examining the Company's rating in view of its holdings mix and the maintenance of appropriate financial profile for the rating level, including sufficient liquid balances as noted above and net financial debt ratio to adjusted value of holdings that will not deviate from 50%-55%.

Rating Outlook: Factors that may affect the outlook:

• Substantial maturing of holdings that are growing or improving, to yield material financial flows. Factors that may harm rating:

• Failure to maintain substantial liquid balances in relation to the debt service needs and a minimum of 10% of the gross adjusted financial debt.

• Increase in the net financial debt ratio to the adjusted value of the holdings portfolio beyond the 50%-55% range.

• Aggressive distribution of dividends that will harm the robustness of the Company or its investees.

About the Company Delek Group is a holdings company which controls companies in a variety of operating segments in Israel and abroad. The Company operates through two wholly owned subsidiaries: Delek Petroleum Ltd. ("Delek Petroleum") and Delek Investments and Properties Ltd. ("Delek Investments") - both private holdings (the first is also a reporting company as defined in the Securities law) which coordinate the operational holdings. Delek Petroleum coordinates the fuels segment in Israel and abroad (including Delek Israel - 77.4%, Delek USA - 72.6% and Delek Benelux - 80%). Delek Investments coordinates the remaining holdings, including Delek Energy (79.0%), Delek Automotive (32.8%), and Phoenix Insurance Holdings (53.7%) which holds Phoenix Insurance Company (100%) and Excellence Investment House (73%). Delek Energy operates in te oil and gas exploration and drilling through its holdings in the Delek Drilling (62%) and Avner Oil Exploration (46.4%) partnerships. The Company also has direct holdings in Delek Drilling (7.5%) and Avner (13.6%). The primary operations of Delek Drilling and Avner are their joint business holdings in Yam Tethys (25.5% and 23%, respectively), which since 2004 is involved in supplying gas from the Mari gas discovery and their participation in the Tamar and Dalit drilling projects (15.625%, each) which ended in 2009 with a significant gas discovery. Delek Energy has exploration and drilling rights in other places worldwide. Delek Investments, through Delek Capital (94%), also holds the full share capital of Republic Companies Group Inc. ("Republic"), an insurance company operating mainly in property insurance in several USA states. Delek Investments holds 49.8% of the share capital of IDE

4 The ratio between the financial debt minus liquid balances and the value of holdings at market value (for marketable holdings) or their book value / equity (for private holdings). On the conservative side, Midroog's calculation of the ratio is not based on the most recent market prices, but assumed adjustments, concerning certain holdings for which the average market price for the year or over recent years, were taken into account. WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Technologies Ltd. ("IDE"), which operates in the establishment and operating of seawater desalination plants in Israel and worldwide and 100% of the share capital of IPP Ashkelon, which operates a private power station producing 80 MW of electricity. Until the first quarter of 2009, the Company also held 79.92% of the share capital of Delek Real Estate Ltd.

Breakdown of the Company's Unpaid Debentures rated by Midroog:

Par Value Principal Debenture Original Set annual Security No. Balance in Linkage Repayment Series date of issue interest NIS million Years 1 Non-negotiable Dec 2004 30 5.25% CPI 2006-2010 G Non-negotiable Mar 2005 26 3.95% CPI 2008-2011 H Non-negotiable Sept 2005 51 4.05% CPI 2011 I Non-negotiable Dec 2005 17 4.60% CPI 2010 J Non-negotiable Dec 2005 28 4.85% CPI 2012 K Non-negotiable July 2006 357 5.40% CPI 2018 l Non-negotiable Nov 2006 596 5.35% CPI 2015-2017 2013-2014, M 1105543 Mar 2007 913 4.60% CPI 2019-2021 N 1115062 July 2009 419 8.5% - 2018 O 1115070 July 2009 1,048 8.5% - 2015-2017 P 1115385 Sept 2009 260 5.5% - 2012-2015 Q 1115401 Sept 2009 90 variable - 2012-2015 R 1115823 Nov 2009 800 6.1% CPI 2016-2022 2019-2021,201 V 1106046 June 2007 500 4.50% CPI 2 W 1107465 Oct 2007 1,293 4.75% CPI 2011-2014 DD 1118884 Apr 2010 255 4.10% - 2012

WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8

Rating History

Credit Rating Scale

Investment Aaa Obligations rated Aaa are those which, according to Midroog's judgment, are of Grade the highest quality and involve minimal credit risk Aa Obligations rated Aa are those which, according to Midroog’s judgment, are of high quality, and involve very low credit risk A Obligations rated A are considered by Midroog in the upper-end of the middle rating, and involve low credit risk Baa Obligations rated Baa are those which, according to Midroog's judgment, involve moderate credit risk. They are considered middle-level rated liabilities and as those that could have speculative characteristics Speculative Ba Obligations rated Ba include which according to Midroog's judgment have investment speculative elements and involve significant credit risk B Obligations rated B are those which, Midroog's judgment, are speculative and involve a high degree of credit risk Caa Obligations rated Caa are those which, according to Midroog's judgment, have weak standing and involve very high credit risk Ca Obligations rated Ca are very speculative investments and could be in a situation of insolvency or close to insolvency, with some prospect that principal and interest will be repaid. C Obligations rated C have the lowest rating and are generally in a situation of insolvency with remote prospects of repayment of principal and interest

Midroog uses the variables 1, 2 and 3 in each of the rating categories, from Aa to Caa. The variable “1” means that the bond is at the upper end of the rating category to which it has been assigned, cited in letters. The variable “2” means that it is in the middle of the rating category; whereas the variable “3” means that the bond is at the lower end of its rating category, as cited in letters.

WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8

Report No: CHD011110600M Midroog Ltd., Milennium Tower, 17 Haarbaa Street, Tel Aviv, 64739. Tel: 03-8644700, Fax: 03-6855002, www.midroog.co.il © all rights reserved by Midroog Ltd. ("Midroog") 2010 This document, including this paragraph, is the exclusive property of Midroog and is protected by copyrights and intellectual property laws. This document may not be copied, photocopied, changed, distributed, duplicated or represented for any commercial purpose whatsoever without the written consent of Midroog. All the information presented in this document and on which Midroog has based it was given to it by sources it deems reliable and accurate. Midroog does not independently examine the reliability, completeness, suitability , accuracy or authenticity of the information ("the Information") provided to it and it relies on the information received for the purpose of determining a rating for the rated company. The rating may change as a result of changes in the information received nad/or as a result of receipt of new information and/or for any other reason. Updates and/or changes in the ratings appear in Midroog's website at: www.midroog.co.il. Midgroog's ratings are not subjective opinions and are not recommendations for the acquisition or prevention of the acquisition of debentures or other rated papers. The ratings made by Midroog should not be viewed as any confirmation of information or opinion nor as an attempt to self-assess the financial condition of any company or to testify thereto, and they should not be considered an expression of an opinion regarding the feasibility of the price or proceeds of debentures or other rated papers. Midroog's ratings refer directly only to the credit risks and not to any other risk, such as the risk that the market value of the rated debt may decline due to changes in the interest rate or due to other factors that impact the capital market. Any rating or other opinion issued by Midroog should be considered as a single component in any investment decision that is made by users of the information included in this document or by anyone on their behalf, and accordingly, anyone using the information included in this document should learn and assess the feasibility of their investment with respect to every issuer, guarantor, debenture or other rated paper that they intend to hold, acquire or sell. Midroog's ratings are not adjusted for the needs of a specific investor and the investor should obtain professional advice concerning investments, legal or any other professional matter. Midroog hereby declares that the issuers of debentures or other rated papers or for which the rating was prepared, undertook to pay Midroog, prior to preparing the rating, for evaluation and rating services provided by Midroog Midroog is a subsidiary of Moody's whose holding in Midroog is 51%. Nonetheless, Midroog's evaluation is independent and completely separate from Moody's and is not subject to approval by Moody's. While Midroog's methodologies are based on those of Moody's, Midroog has its own policies and procedures and an independent rating committee. For further information pertaining to Midroog's rating procedures or about its rating committee, see the relevant pages on Midroog's website. WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Chapter C

Financial Statements for December 31, 2010 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8

Delek Group Ltd.

Consolidated Financial Statements for the Year Ended December 31, 2010

Contents

Page

Auditors’ Report 2

Auditors’ report about the audit of internal control over financial reporting 3

Consolidated Balance Sheets 4-5

Consolidated Statements of Income 6

Consolidated Statements of Comprehensive Income 7

Consolidated Statements of Changes in Equity 8-10

Consolidated Statements of Cash Flows 11-16

Notes to the Consolidated Financial Statements 17-203

Appendix to the Financial Statements – Principal Partnerships and Investees 204-206

------

WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8

Auditor’s Report

The Shareholders of Delek Group Ltd.

We have audited the accompanying consolidated balance sheets of Delek Group Ltd. ("the Company") as of December 31, 2010 and 2009 and the related consolidated statements of income, comprehensive income, changes in equity and the cash flows for each of the years then ended. These financial statements are the responsibility of the Company’s management and board of directors. Our responsibility is to express an opinion on these financial statements based on our audits.

We did not audit the financial statements of certain subsidiaries, whose assets constitute approximately 33% and 34% of total consolidated assets as of December 31, 2010 and December 31, 2009, respectively, and whose revenues constitute approximately 7.72%, 8.91% and 6.43% of total consolidated revenues for the years ended December 31, 2010, 2009 and 2008, respectively. Furthermore, we did not audit the financial statements of certain investments in companies which are accounted for using the equity method, the investment in which amounted to NIS 1,594 million and NIS 1,401 million as of December 31, 2010 and 2009, respectively, and the Company’s share of their earnings amounted to NIS 230 million, NIS 238 million and NIS 135 million for the years ended December 31, 2010, 2009 and 2008, respectively. The financial statements of those companies were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for those companies, is based solely on the reports of the other auditors.

We conducted our audit in accordance with generally accepted auditing standards in Israel, including those prescribed by the Auditors Regulations (Manner of Auditor's Performance), 1973. Such standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the board of directors and management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and on the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 2010 and 2009 and the results of their operations, changes in equity and cash flows for each of the years then ended, in conformity with International Financial Reporting Standards (IFRS) and with the provisions of the Israeli Securities Regulations (Annual Financial Statements), 2010, insofar as the provisions of these standards apply to insurance subsidiaries.

Without qualifying our opinion, we draw attention to Note 32(A) to the consolidated financial statements with respect to lawsuits filed against certain investees.

We have also audited, in conformity with Audit Standard 104 of the Institute of Certified Public Accountants in Israel, "Audit of Internal Control Over Financial Reporting”, internal controls over the Company's financial reporting as of December 31, 2010, and our report dated March 31, 2011 includes an unqualified opinion of the effective fulfillment of these components. Our opinion does not include an assessment of the effectiveness of internal controls over financial reporting for an insurance subsidiary and a company consolidated for the first time.

Tel Aviv Kost Forer Gabbay & Kasierer March 31, 2011 Certified Public Accountants

C-2 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8

Auditor’s report to the shareholders of Delek Group Ltd. regarding the Audit of Internal Controls Over Financial Reporting in accordance with section 9B(c) of the Securities Regulations (Periodic and Immediate Reports), 1970

We have audited the internal controls over the financial reporting of Delek Group Ltd. and its subsidiaries (together: “the Company”) as of December 31, 2010. The controls were determined as explained in the following paragraph. The Company’s board of directors and management are responsible for maintaining effective internal control over financial reporting and for their assessment of the effectiveness of these internal controls over the financial reporting, attached to the periodic report as of this date. Our responsibility is to express an opinion on the Company’s internal controls over financial reporting based on our audit. We did not audit the effectiveness of the internal controls over the financial reporting of consolidated subsidiaries whose consolidated assets and revenues constitute 26% and 2.48%, respectively, of the amounts in the consolidated financial statements as at December 31, 2010 and the year then ended. The effectiveness of the internal controls over the financial reporting of those companies were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to the effectiveness of the internal controls over the financial reporting of those companies, is based on the reports of the other auditors.

The internal controls over financial reporting which we audited were determined in accordance with Audit Standard 104 of the Institute of Certified Public Accountants in Israel, Audit of Internal Controls Over Financial Reporting (“Audit Standard 104”). These components are: (1) entity-level controls, including controls over the preparation and closure of financial reporting and information technology general controls (ITGC); (2) inventory process; (3) revenues process (“audited controls”). These controls do not include the controls referring to insurance susidiaries and a company consolidated for the first time.

We conducted our audit in accordance with Audit Standard 104, which requires us to plan and perform the audit to identify the audited control components and to obtain reasonable assurance about whether these control components were effective in all material respects. Our audit included obtaining an understanding of the internal control over financial reporting, identifying the audited controls, assessing the risk for material weaknesses in the audited controls, and testing and evaluating of the effectiveness of the planning and implementation of these controls based on the assessed risk. Our audit, regarding these controls, included performing other procedures, as we considered necessary under the circumstances. Our audit referred only to the audited controls, as opposed to internal control over all significant processes related to financial reporting, therefore our opinion refers to the audited controls only. Additionally, our audit did not refer to reciprocal effects between audited controls and those that are unaudited, therefore our opinion does not take into account such possible effects. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinion in respect of the aforesaid.

Due to its inherent limitations, internal control over financial reporting in general, and internal control components in particular, may not prevent or disclose misstatement. Moreover, drawing forward-looking conclusions based on any present assessment of effectiveness involves risks that the controls may become inadequate due to changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

According to the provisions of Institutions Circular 2010-9-6 “Management’s Responsibility for Internal Control over Financial Reporting”, the first year that insurance companies are required to include an auditor’s opinion is the reporting period ended December 31, 2011. Accordingly, our opinion does not include an assessment of the effectiveness of internal controls over financial reporting for The Phoenix Insurance Ltd. (“The Phoenix”), which was consolidated in the Company’s consolidated financial statements as of December 31, 2010 and whose net assets less liabilities amounted to NIS 1,848,758,000 as of December 31, 2010 and whose profit from this company amounted to NIS 258,615,000, for the period beginning on January 1, 2010 and ended December 31, 2010.

Additionally, as described in the Directors’ Report and Company management regarding the assessment of the effectiveness of the internal control on the financial reporting (“the assessment of effectiveness report”), the assessment of effectiveness report does not include an assessment of the effectiveness of internal controls in respect of Delek France BV and its subsidiaries (“Delek France”), which was acquired in the reporting period and was consolidated in the Company’s consolidated financial statements as of December 31, 2010, and whose net assets less liabilities amounted to NIS 313 million as of December 31, 2010, and whose profit from this company amounted to NIS 2 million for the period beginning on October 1, 2010 (the date control was achieved in the acquired company) and ended on December 31, 2010. Accordingly, the audit of the internal control over the financial reporting of the Company does not include our opinion of the internal controls of Delek France.

C-3 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8

In our opinion, based on our audit and on the reports of the other auditors, the Company has implemented effectively, in all material aspects, the audited controls as of December 31, 2010. Our opinion does not include an assessment of the effectiveness of internal controls over financial reporting of The Phoenix Insurance and Delek France, as explained above.

We have also audited, in accordance with generally accepted auditing standards in Israel, the Company’s consolidated financial statements as of December 31, 2010 and 2009 and for each of the three years in the period ended December 31, 2010 and our report, dated March 29, 2011, includes an unqualified opinion of these financial statements, based on our audit and the reports of the other auditors, with reference to the contents of Note 32A to the consolidated financial statements regarding claims filed against investees.

Tel Aviv Kost Forer Gabbay & Kasierer March 31, 2011 Certified Public Accountants

C-3 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Consolidated Balance Sheets

December 31 2010 2009 Note NIS millions Current assets

Cash and cash equivalents 3 3,443 3,997 Performance-based cash and cash equivalents in insurance companies 4 607 1,103 Short-term investments of the finance sector (mainly exchange-traded funds and deposits) 5 18,246 16,156 Short-term investments in insurance companies 11 1,660 1,917 Other short-term investments 6 1,008 842 Trade receivables 7 3,036 3,660 Insurance premium receivable 8 932 994 Other receivables 9 888 892 Current tax assets 81 284 Reinsurance assets 28 1,814 2,022 Inventories 10 1,2731,683 Deferred acquisition costs in insurance companies 18 393 364

33,381 33,914 Assets held for sale 59 29 **)

33,440 33,943 Non-current assets

Financial investments of insurance companies 11 33,568 28,317 Long-term loans, deposits and receivables 12 589 982 *) Investments in other financial assets 13 2,527 1,418 Investments in associates and partnerships 14 3,7922,383 **) Investment property 15 479 451 Investments in oil and gas exploration and production 16 1,523 1,331 Reinsurance assets 29 1,773 1,571 Property, plant and equipment, net 17 7,474 7,196 *) Deferred acquisition costs in insurance companies 18 721 680 Structured bonds 19 775 873 Goodwill 20 3,203 3,242 Other intangible assets, net 20 1,760 1,750 Deferred taxes 42(F) 272 219

58,456 50,413

91,896 84,356 *) Retrospective reconciliation - see Note 2

**) Reclassified, see Note 14(G)(2)

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

C-4 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Consolidated Balance Sheets

December 31 2010 2009 Note NIS millions Current liabilities

Interest bearing loans and borrowings 21 4,058 3,741 Trade payables 22 2,343 2,879 Other payables 23 3,827 3,594 Exchange-traded funds and deposit 24 17,927 15,639 Current tax liabilities 50 86 Dividend payable - 183 Liabilities for Insurance contracts 30 5,478 5,430

33,683 31,552 Liabilities associated with assets classified as held for sale 25 -

33,708 31,552 Non-current liabilities

Loans from banks and others 25 4,349 5,161 Debentures convertible into Company shares 26 247 - Other debentures 27 12,117 10,702 Structured bonds 19 755 933 Options, warrants and the convertible component of debentures - 9 Financial derivatives 108 114 Liabilities for employee benefits, net 29 209 208 Liabilities for Insurance contracts 30 33,375 29,352 Provisions and other liabilities 31 908 867 Deferred taxes 42(F) 1,243 870

53,311 48,216

Equity attributable to equity holders of the parent 34

Share capital 13 13 Share premium 1,622 1,590 Options, warrants and proceeds for conversion option 32 25 Retained earnings 1,610 869 Exchange differences on translation of foreign operations (539) (166) Capital reserve from transactions with holders of non-controlling rights (126) - Other capital reserves 164 (94) Treasury shares (124) (129)

2,652 2,108

Non-controlling interests 2,225 2,480

Total equity 4,877 4,588

91,896 84,356

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

March 31, 2011 Date of approval of the financial Gabriel Last Asi Bartfeld Barak Mashraki statements Chairman of the CEO CFO Board

C-5 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Consolidated Statements of Income

Year ended December 31 2010 2009 *) 2008 *) NIS millions Note (except per share data)

Revenues 44(B) 44,567 38,703 41,470 Cost of revenues 36 37,980 32,814 36,819

Gross profit 6,587 5,889 4,651

Selling, marketing and gas station operating expenses 37 3,502 3,385 3,117 General and administrative expenses 38 1,772 1,623 1,361 Other revenue (expenses), net 39 (88) 269 (100)

Operating profit 1,225 1,150 73

Finance income 40 271 508 330 Finance expenses 40 1,655 1,432 1,630

(159) 226 (1,227) Gain (loss) from disposal of investments in investees, net 14 (4) 518 28 Group share in earnings (losses) of partnerships and associates, net 156 91 (12)

Profit (loss) before income tax (7) 835 (1,211) Income tax expenses (tax benefit) 42(G) 178 83 (246)

Profit (loss) from continuing operations (185) 752 (965) Profit (loss) from discontinued operations, net 14G(1), 14M 2,139 451 (1,348)

Net profit (loss) 1,954 1,203 (2,313)

Attributable to: Equity holders of the parent 1,701 864 (1,809) Non-controlling interests 253 339 (504)

1,954 1,203 (2,313) Net earnings (loss) per share attributable to Company shareholders (NIS) 43

Basic net earnings (loss)

Earnings (loss) from continuing operations (26.05 ) 55.18 (83.90) Earnings (loss) from discontinued operations 176.75 21.72 (72.09)

150.70 76.9 (155.99)

Diluted net earnings (loss)

Earnings (loss) from continuing operations (26.05 ) 54.52 (88.02) Earnings (loss) from discontinued operations 176.71 20.44 (75.47 )

150.66 74.96 (163.49)

*) Reclassified, see Note 14G(1) and 14M

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

C-6 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Consolidated Statements of Comprehensive Income

Year ended December 31 2010 2009 *) 2008 *) NIS millions

Net profit (loss) 1,954 1,203 (2,313)

Other comprehensive income (loss) from continuing operations (net of tax effect):

Gain (loss) from available-for-sale financial assets 346 269 (377)

Loss from cash flow hedges, net (5) (115) (13)

Exchange differences on translation of foreign operations (381) 19 (2)

Company share of other comprehensive income (loss) of associates (85) 12 6

Other comprehensive income (loss) from continuing operations (125) 185 (386)

Other comprehensive income from discontinued operations (2) (309) (1,262)

Amounts released following loss of control (27) 523 -

Total other comprehensive income (loss) (154) 399 (1,648)

Total comprehensive income (loss) 1,800 1,602 (3,961)

Attributable to:

Equity holders of the parent 1,586 1,113 (2,818) Non-controlling interests 214 489 (1,143)

1,800 1,602 (3,961)

*) Reclassified, see Note 14G(1) and 14M

**) In 2010, including disposal of capital reserves in the statement of income for sale of available-for sale financial assets amounting to NIS 42 million

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

C-7 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Consolidated Statements of Changes in Equity

Attributable to equity holders of the parent Exchange differences on translation Other Non- Share Share Retained of foreign capital Treasury controlling Total capital premium earnings operations reserves *) shares Total interests equity NIS millions

Balance as of January 1, 2008 13 1,574 3,017 (339) 331 - 4,596 4,587 9,183

Loss - - (1,809) - - - (1,809) (504) (2,313) Other comprehensive loss - - - (589) (420) - (1,009) (639) (1,648)

Total comprehensive loss - - (1,809) (589) (420) - (2,818) (1,143)***) (3,961)

Exercise of options - **) 9 - - - - 9 - 9 Acquisition of treasury shares - - - - - (105) (105) - (105) Dividends - - (164) - - - (164) - (164) Decrease in ownership in subsidiaries ------82 82 Share-based payment, net ------54 54 Acquisition of shares from non-controlling interests ------(408) (408) Dividend to non-controlling shareholders ------(327) (327)

Balance as of December 31, 2008 13 1,583 1,044 (928) (89) (105) 1,518 2,845 4,363

*) Mainly capital reserve for available-for-sale financial assets **) Represents an amount less than NIS1 million. ***) Composition of comprehensive income of non-controlling interests:

Loss attributable to non-controlling interests (504) Gain from available-for-sale financial assets (88) Loss from cash flow hedges, net (59) Exchange differences for translation of foreign operations (499) Revaluation of existing investment on acquisition of control 7

Total comprehensive income attributable to non-controlling interests (1,143)

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

C-8 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Consolidated Statements of Changes in Equity

Attributable to equity holders of the parent Exchange differences on translation Other Non- Share Share Option Retained of foreign capital Treasury controlling Total capital premium warrants earnings operations reserves *) shares Total interest equity NIS millions

Balance as of January 1, 2009 13 1,583 - 1,044 (928) (89) (105) 1,518 2,845 4,363

Net profit - - - 864 - - - 864 339 1,203 Other comprehensive income - - - - 188 61 - 249 150 399

Total comprehensive income - - - 864 188 61 - 1,113 489 ***) 1,602

Acquisition of treasury shares ------(33) (33) - (33) Sale of treasury shares by a subsidiary - 6 - - - - 9 15 8 23 Acquisition of shares from non-controlling interests ------(109) (109) Distribution of a subsidiary’s shares as a dividend in kind, see Note 14(G)(1) - - - (679) 574 (66) - (171) (835) (1,006) Dividends - - - (360) - - - (360) - (360) Issuance of options - - 25 - - - - 25 - 25 Conversion of convertible debentures into Company shares - **) 1 - - - - - 1 - 1 Share-based payment, net ------44 44 Acquisition of a subsidiary ------55 55 Decrease in ownership and issuance of shares in subsidiaries ------130 130 Dividend to non-controlling shareholders ------(147) (147)

Balance as of December 31, 2009 13 1,590 25 869 (166) (94) (129) 2,108 2,480 4,588

*) Mainly capital reserve for available-for-sale financial assets **) Represents an amount less than NIS 1 million ***) Composition of comprehensive income of non-controlling interests:

Net profit attributable to non-controlling interests 339 Profit from available-for-sale financial assets 92 Loss from cash flow hedges, net (19) Exchange differences for translation of foreign operations 78 Share in other comprehensive loss of associates, net (1)

Total comprehensive income attributable to non-controlling interests 489

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

C-9 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Consolidated Statements of Changes in Equity

Attributable to equity holders of the parent Capital Exchange reserve differences from Proceeds on transaction from translation s with non- Other Non- Share Share conversion Retained of foreign controlling capital Treasury controlling Total capital premium option earnings operations interests reserves *) shares Total interest equity NIS millions

Balance as of January 1, 2010 13 1,590 25 869 (166) - (94) (129) 2,108 2,480 4,588

Net profit - - - 1,701 - - - - 1,701 253 1,954 Other comprehensive income (loss) - - - - (373) - 258 - (115) (39) (154)

Total comprehensive income (loss) - - - 1,701 (373) - 258 - 1,586 214 ***) 1,800 Sale of treasury shares by a subsidiary - 3 - - - - - 5 8 3 11 Acquisition of shares from non-controlling interests - - - - (148) - - (148) (56) (204) Exercise of options - **) 29 ------29 - 29 Dividends - - - (960) - - - - (960) - (960) Conversion component for convertible debentures (net of issuance expenses) - - 7 - - - - - 7 - 7 Share-based payment, net ------42 42 Exercise of options for shares by non-controlling interests - - - - - (12) - - (12) 21 9 Expiry of options in a subsidiary - - - - - 8 - - 8 (8) - Deconsolidation of a subsidiary ------(336) (336) Sale of shares to non-controlling interests, net - - - - - 26 - - 26 - 26 Issuance of shares to non-controlling interests ------24 24 Dividend to non-controlling shareholders ------(159) (159)

Balance as of December 31, 2010 13 1,622 32 1,610 (539) (126) 164 (124) 2,652 2,225 4,877

*) Mainly capital reserve for available-for-sale financial assets **) Represents an amount less than NIS 1 million ***) Composition of comprehensive income of non-controlling interests:

Net profit attributable to non-controlling interests 253 Profit from available-for-sale financial assets 48 Exchange differences for translation of foreign operations (78) Share in other comprehensive loss of associates, net of associates (9)

Total comprehensive income attributable to non-controlling interests 214

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

C-10 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Consolidated Statements of Cash Flows

Year ended December 31 2010 2009 *) 2008 *) NIS millions Cash flows from operating activities

Net profit (loss) 1,954 1,203 (2,313) Adjustments to reconcile cash flows from continuing operating activities (a)(1,418 ) 1,742 3,695

Net cash flows from continuing operating activities 536 2,945 1,382 Net cash flows from discontinued operating activities 508 333 297

Net cash flows from operating activities 1,044 3,278 1,679

Cash flows from investing activities

Acquisition of property, plant and equipment and intangible assets(875 ) (1,513) (907) Acquisition of investment property(16 ) (6) (81) Proceeds from sale of property, plant and equipment and investment property 48 117 53 Property damage insurance proceeds, net 15 162 - Acquisition of financial assets, net(1,220 ) (185) (36) Grant of loans to associates, net (39 ) (13) (308) Short-term investments, net (72 ) 36 - Increase in joint ventures for oil and gas exploration(307 ) (353) (281) Proceeds from sale of investments in investees 33 409 **) - **) Proceeds from sale of investments in previously consolidated subsidiaries (c) 911 317 - Investment in investees (117 ) (109) **) (165) **) Payment for an option to acquire an investee (134 ) (340) - Acquisition of operations and companies consolidated for the first time (b)(1,059 ) 136 (678) Collection (grant) of loans to others, net 28 (102) (4)

Net cash used in continuing investment activities (2,804 ) (1,444) (2,407) Net cash from (used in) discontinued investment activities(4 ) 329 (835)

Net cash used in investing activities (2,808 ) (1,115) (3,242)

Cash flow from finance activities

Short-term loans from banks and others, net 451 (1,322) 916 Sale of shares to non-controlling interests 34 95 **) 80 **) Acquisition of shares from non-controlling interests (204) (103) **) (352) **) Receipt of long-term loans 4,653 3,992 1,441 Repayment of long-term loans (4,918) (3,684) (948) Issuance of shares to non-controlling shareholders 24 216 34 Exercise of options into subsidiary shares 5 - - Dividends paid (1,143) (177) (324) Dividend paid to non-controlling shareholders in subsidiaries (25) (51) (45) Exercise of options 16 - 6 Acquisition of treasury shares - (33) (105) Sale of treasury shares 11 31 - Cash of a previously consolidated subsidiary distributed as a dividend - (349) - Issuance of debentures and convertible debentures 2,894 2,769 416 Issuance of options by the Company - 25 - Repayment of debentures and convertible debentures(704 ) (443) (199)

Net cash from continuing finance activities 1,094 966 920 Net cash from (used in) discontinued finance activities(268 ) (551) 178

Net cash from finance activities 826 415 1,098

*) Reclassified, see Note 14G(1) and 14M **) Retrospective reconciliation, see Note 2A The accompanying notes and the appendix are an integral part of the consolidated financial statements.

C-11 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Consolidated Statements of Cash Flows

Year ended December 31 2010 2009 *) 2008 *) NIS millions

Exchange differences of balances of cash and cash equivalents from continuing operations (112) 6 (4)

Exchange differences on balances of cash and cash equivalents from discontinued operations - 16 (152)

Increase (decrease) in cash and cash equivalents – continuing operations (1,286) 2,473 (190)

Increase (decrease) in cash and cash equivalents – discontinued operations 236 127 (512)

Balance of cash and cash equivalents at beginning of year (including performance-based balance) 5,100 2,500 3,121

Balance of cash and cash equivalents at end of year (including performance- based balance) 4,050 5,100 2,500

*) Reclassified, see Note 14G(1) and 14M

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

C-12 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Consolidated Statements of Cash Flows

Year ended December 31 2010 2009 *) 2008 *) NIS millions

(A) Adjustments to reconcile statement of cash flows from continuing operating activities:

Income and expenses not affecting operating cash flows:

Loss (profit) from discontinued operation, net (315) (451) 1,441 Depreciation, depletion, amortization and impairment of assets 1,128 963 851 Deferred taxes, net 5 109 (257) Increase (decrease) in employee benefit liabilities, net (4) (2) 27 Changes in loans granted, net 7 1 (192) Gain from issuance of shares in an investee (4) (5) - Gain from the sale of property, plant and equipment, real estate and investments, net (113) (713) (104) Gain (loss) from disposal of investments in subsidiaries (1,824) 4 - Gain on involuntary conversion of assets (15) (162) - Gain from negative goodwill - (15) (53) Group’s share in losses (earnings) of associate companies partnerships (1) (117) (67) 103 Net change in fair value of financial assets and derivative instruments 208 59 156 Change in long-term liabilities, net 274 845 273 Change in deferred acquisition costs (80) 36 (30) Share-based payment 68 52 56 Change in financial investments of insurance companies, net (4,529) (5,216) 4,070 Net proceeds from the sale of available-for-sale assets in insurance companies (367) 365 (365) Increase (decrease) in reserves and outstanding claims in insurance companies 5,614 6,102 (2,162) Increase in reinsurance assets (130) (532) (266) Profit from premature payment and exchange of debentures - (82) (30)

Changes in asset and liability items:

Decrease (increase) in trade receivables (421) (540) 796 Decrease in other receivables 351 210 255 Decrease (increase) in inventory (86) (271) 408 Increase in other assets, net (43) (516) (47) Increase (decrease) in trade payables 428 736 (1,364) Increase (decrease) in other payables (1,453) 832 129

(1,418) 1,742 3,695

(1) Net of dividends received 39 24 91

*) Reclassified, see Note 14G(1) and 14M

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

C-13 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Consolidated Statements of Cash Flows

Year ended December 31 2010 2009 *) 2008 *) NIS millions (B) Acquisition of initially consolidated operations and subsidiaries

Working capital, net (excluding cash) (341) 124 210 Short-term finance investments - (9,462) - Long-term finance investments - (2,057) - Property, plant and equipment, real estate, investments and other property (including goodwill) (1,183) (1,319) (1,134) Short-term finance liabilities - 9,255 - Current liabilities 237 - - Non-current liabilities 203 3,102 54 Non-controlling interests - 107 - Investments in investees, elimination of investments and loans to associates 25 386 192

(1,059) 136 (678) Proceeds from sale of investments in previously consolidated (C) subsidiaries

Working capital 1,065 - - Oil and gas assets - 332 - Short term finance investments and short-term investments in insurance companies (18) - - Investment property and property, plant and equipment 260 - - Goodwill 15 - - Other non-current assets 361 - - Borrowings from banks and others (832) - - Non-current liabilities (48) - - Non-controlling interests (336) - - Investment in an equity-accounted company (1,353) - - Capital reserve (27) (2) - Gain (loss) from the sale of subsidiaries 1,824 (4) - Receivables for sale of investment in a subsidiary - (9) -

911 317 -

*) Reclassified, see Note 14G(1) and 14M

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

C-14 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Consolidated Statements of Cash Flows

Year ended December 31 2010 2009 *) 2008 *) NIS millions (D) Significant non-cash activities

Purchase of property, plant and equipment 23 395 16

Liability for decommission of assets 8 1 1

Dividend payable to non-controlling shareholders - 22 11

Dividend declared - 183 -

Dividend declared by associates 51 - 26

Exchange of debentures - 658 -

Exercise of options 13 - 3

Liability for acquisition of shares from non-controlling interests 8 - -

Investment in oil and gas assets 190 43 129

Acquisition of participating units in an associate against issuance of shares in a subsidiary - 250 -

Receivables due to sale of an investee - 9 -

Receivables due to acquisition of an investee 99 - -

*) Reclassified, see Note 14G(1) and 14M

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

C-15 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Consolidated Statements of Cash Flows

Year ended December 31 2010 2009 *) 2008 *) NIS millions

(E) Cash and cash equivalents

Balance of cash and cash equivalents at beginning of year:

Cash and cash equivalents 3,997 1,895 2,815 Performance-based cash and cash equivalents in insurance companies 1,103 605 306

5,100 2,500 3,121

Cash and cash equivalents at the end of the year:

Cash and cash equivalents 3,443 3,997 1,895 Performance-based cash and cash equivalents in insurance companies 607 1,103 605

4,050 5,100 2,500

(F) Additional information on cash flows

Cash paid during the year for:

Interest 893 902 1,617

Income tax 361 111 319

Cash received during the year for:

Interest 461 997 144

Dividends 54 156 105

Taxes 72 - -

*) Reclassified, see Note 14G(1) and 14M

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

C-16 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 1 – GENERAL

A. Delek Group Ltd. ("the Company") is a holding company which holds two major companies that coordinate the operations of the Group companies as follows: Delek Petroleum Ltd. ("Delek Petroleum"), which coordinates the fuel sector and the operation of gas stations and convenience stores in Israel, Europe and the USA, including the operation of the oil refinery and marketing of fuels in the USA; and Delek Investments and Properties Ltd. ("Delek Investments"), which coordinates the remaining operations of the Group, including automotive, oil and gas exploration and production, insurance in Israel and in the USA, infrastructure, automotive, biochemistry, and other operations. See also Note 44 regarding the operating segments of the Group.

B. Definitions

In these financial statements -

The Company - Delek Group Ltd.

The Group - The Company and its subsidiaries and partnerships which are consolidated in the consolidated financial statements

Subsidiaries - Companies and partnerships controlled by the Company (as defined in IAS 27) and their financial statements are consolidated with the financial statements of the Company

Associates - Companies and partnerships over which the Company has significant influence or has a contractual arrangement for joint control and the Group investment in these companies is accounted for using the equity method

Investees - Subsidiaries or associates and partnerships See also the appendix to the financial statements listing the principle partnerships and investees

Interested parties - As defined in the Israeli Securities Regulations (Annual Financial and controlling Statements), 2010 shareholders

Related parties - As defined in IAS 24 and the Israeli Securities Regulations (Annual Financial Statements), 2010

CPI - The Consumer Price Index published by the Central Bureau of Statistics in Israel

USD - US dollar

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

A. Basis of presentation

The financial statements of the Company have been prepared on a cost basis, except for investment property, derivative instruments (including embedded derivatives) and certain financial instruments and liabilities in respect of share-based payments, which are measured at fair value.

The Company has elected to present the statement of income using the function of expense method.

The preparation format of the financial statements

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). These standards include the following:

C-17 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

1. International Financial Reporting Standards (IFRS) 2. International Accounting Standards (IAS) 3. International Financial Reporting Interpretations Committee (IFRIC) and Standing Interpretations Committee (SIC)

In addition, the financial statements have been prepared in accordance with the Israeli Securities Regulations (Annual Financial Statements), 2010, insofar as these regulations are applicable to consolidated insurance companies.

Consistent accounting policy

The accounting policies applied in the consolidated financial statements have been applied consistently to all the periods presented, except as mentioned below.

Changes in accounting policy in view of adoption of new standards

IFRS 3 (Revised) – Business Combinations and IAS 27 (Amended) – Consolidated and Separate Financial Statements

According to the new Standards:

− The definition of a business was broadened so that it contains also activities and assets that are not managed as a business as long as the seller is capable of operating them as a business.

− Non-controlling interests, including goodwill, can be measured either at fair value or at the proportionate share in the acquiree's fair value of net identifiable assets on the acquisition date, this separately in respect of each business combination transaction.

− Contingent consideration in a business combination is measured at fair value and changes in the fair value of the contingent consideration, which do not represent adjustments to the acquisition cost in the measurement period, are not recognized as goodwill adjustments. If the contingent consideration is classified as a financial derivative within the scope of IAS 39, it is measured at fair value through profit or loss. Contingent consideration in business combinations that occurred before January 1, 2010 will continue to be accounted for according to IFRS 3 (unamended), meaning that adjustments to liabilities, except for the time value of the discount, will continue to be recognized in goodwill.

− Direct acquisition costs attributed to a business combination are recognized in the statement of income as incurred, and not as part of the acquisition cost.

− Subsequent measurement of a deferred tax asset for acquired temporary differences which did not meet the recognition criteria at the measurement period is against profit or loss and not as adjustment to goodwill.

− Total comprehensive income is attributed to the equity holders of the parent and to the non controlling interests even if this results in the non controlling interests having a deficit balance. Such attribution of total comprehensive income should be made even if the non-controlling interest has not guaranteed or has no contractual obligation for sustaining the subsidiary or of investing further amounts.

C-18 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

− A transaction, whether sale or purchase, with non-controlling interests that does not result in a loss of control, is accounted for as an equity transaction. Accordingly, the acquisition of non- controlling interests by the Group is recognized as an increase or decrease in equity (capital reserve for transactions with non-controlling interests) and is calculated as the difference between the consideration paid by the Group and the proportionate amount of the non- controlling interests acquired on the acquisition date. Upon the disposal of an interest in a subsidiary that does not result in a loss of control, an increase or decrease is recognized in equity (capital reserve for transactions with non-controlling interests) for the amount of the difference between the consideration received by the Group and the carrying amount of the non-controlling interests in the subsidiary which has been added to the Company's equity (as for non-controlling interests share of other comprehensive income, the Company reattributes the cumulative amounts recognized in other comprehensive income between the equity holders of the Company and the non-controlling interests).

− Any classification or designation made when recognizing assets and liabilities are assessed in accordance with the contractual terms, economic circumstances and pertinent conditions that exist at the acquisition date, except for leases and insurance contracts.

− In a business combination achieved in stages, the acquirer remeasures its previously held equity interest in the acquiree at its acquisition date fair value and recognizes the resulting gain or loss, if any, including reverse of deferred amounts, in other comprehensive income. On the loss of control over a subsidiary, the remaining interests, if any, is revalued to fair value against profit or loss and this fair value will represent the cost basis for the purpose of subsequent treatment. When the balance of the investment is accounted for using the equity method, the Group applies purchase price allocation (PPA) to the balance of the former subsidiary’s assets and liabilities.

− Cash flows from transactions with non-controlling interests (with no change in control status) are classified in the statement of cash flows as financing activities (and are no longer classified as investing activities).

The standards have been applied prospectively as from January 1, 2010, except for accounting of the adjusted deferred tax balance for temporary differences acquired prior to application and which were not recognized at the acquisition date. In this case, the adjusted deferred tax is recognized in the statement of income. Pursuant to the aforesaid, in the reporting period, an amount of NIS 126 million was recognized directly in capital under capital reserve from transactions with non-controlling interests. See also Note 14(M) for information about the sale of shares of a subsidiary and its subsequent reclassification as an an associate.

IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations

A. According to the amendment to IFRS 5, when the parent decides to sell part of its interest in a subsidiary so that after the sale the parent retains a non-controlling interest, such as rights conferring significant influence, all the assets and liabilities attributed to the subsidiary is classified as held for sale if the relevant criteria of IFRS 5 are met, including the presentation as a discontinued operation.

B. The Amendment specifies the disclosures required in respect of non-current assets (or disposal groups) that are classified as held for sale or discontinued operations. Pursuant to the amendment, only the disclosures required in IFRS 5 will be provided. Disclosures in other IFRSs apply to such assets only if they require specific disclosures in respect of those non-current assets or disposal groups.

C-19 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

The amendments have been applied prospectively from January 1, 2010. See also Note 14K below.

IAS 1 – Presentation of Financial Statements

The amendment to IAS 1 deals with current or non-current classification of the liability component of a convertible instrument. According to the amendment, terms of a liability that can, at the option of the counterparty, be settled by the issue of the entity's equity instruments do not affect its classification as current or non-current.

This amendment has been applied prospectively from January 1, 2010 with a retrospective restatement of comparative figures.

IAS 7 – Statement of Cash Flows

According to the amendment to IAS 7, only expenditure that results in the recognition of an asset should be classified as cash flows from investing activities. This amendment has been applied prospectively from January 1, 2010. The amendment did not have a material effect on the financial statements.

IAS 17 – Leases

Pursuant to an amendment to IAS 17, the specific criteria for classification of land as an operating or a finance lease were removed . Consequently, the requirement to classify a lease of land as an operating lease when title does not pass at the end of the lease no longer exists but the classification of a lease of land is examined by reference to the general guidance in IAS 17 which addresses the classification of a lease as finance or operating while taking into account that land, normally, has an indefinite economic life. Accordingly, a lease of land from the ILA should be evaluated by comparing the present value of the amount reported as prepaid operating lease expense and the fair value of the land.

Some of the Group companies have capitalized leases from the ILA for land with an option to extend the lease period for an additional 49 years in some cases.

This amendment was adopted from January 1, 2010 with retrospective restatement of comparative figures. For the retrospective application, the classification of land from the ILA which is included in fixed assets was reassessed on the basis of information existing at the inception of the lease and therefore, it was concluded that the lease of land is a finance lease.

Accordingly, amounts previously presented in prepaid operating lease expenses of approximately NIS 398 million as of December 31, 2009, are presented in these financial statements under fixed assets as land which continues to be depreciated over the lease period, including the renewal period covered by the option.

The Group did not recognize an asset and a liability in respect of the future payment that is due upon the exercise of the option to extend the lease period since this payment is based on the fair value of the property on the date of future exercise and represents a contingent rental which according to IAS 17 should not be taken into consideration.

Initial application of the amendment did not have an effect on the results of the Group’s operations in all reporting periods.

C-20 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

IAS 36 – Impairment of Assets

The amendment to IAS 36 defines the required accounting unit to which goodwill is allocated for impairment testing of goodwill. Pursuant to the amendment, the largest unit permitted for impairment testing of goodwill recognized in a business combination is an operating segment as defined in IFRS 8 – Operating Segments before the aggregation for reporting purposes.

The amendment has been applied prospectively as from January 1, 2010.

Initial application of the amendment did not have an effect on the results of the Group’s operations in all reporting periods.

IAS 39 – Financial Instruments: Recognition and Measurement

A. The amendment to IAS 39 clarifies that the Company may designate a portion of the change in fair value or the fluctuation in cash flows of a financial instrument as a hedged item. This amendment has been applied prospectively from January 1, 2010 with a retrospective restatement of comparative figures.

B. The amendment clarifies that the scope exemption in IAS 39 is restricted to forward contracts between an acquirer and a seller with respect to the sale or acquisition of a controlled entity, in a business combination at a future acquisition date. The term of the forward should not be longer than the period normally necessary for obtaining the approvals required for the transaction. The amendment has been applied prospectively from January 1, 2010, to all unexpired contracts.

Initial application of the amendment did not have a material effect on the results of the Group’s operations in all reporting periods.

IFRIC 17, Distributions of Non-cash Assets to Owners

IFRIC 17 (“the Interpretation”) provides guidance on how to account for a non-cash asset distribution to owners.

The interpretation has been applied prospectively as from January 1, 2010.

According to the Interpretation, a liability to distribute is recognized when it is appropriately authorized by the entity. The liability is measured at the fair value of the asset to be distributed and carried directly to retained earnings in equity. At each balance sheet date, until the derecognition of the asset, the liability is measured at the fair value of the asset and the changes in fair value are carried to retained earnings. At the date of derecognition, a gain or loss is recognized in the statement of income for the difference between the amount of the liability and the carrying amount of the asset until the date of derecognition. Further, the scope of IFRS 5 was amended to include non-cash asset distributions to owners.

Early application of IFRS

Amendment to IAS 1

The Group has early adopted the amendment to IAS 1 commencing from these financial statements. According to the amendment, the changes between the opening and the closing balances of each other comprehensive income component may be presented in the statement of changes in equity or in the notes accompanying the annual financial statements. The Group has elected to present the changes in the statement of changes in equity. The amendment has been applied retrospectively to comparative data.

C-21 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

B. Principal judgments, estimates and assumptions in the preparation of the financial statements

Judgments

In the process of applying the significant accounting principals in the financial statements, the Group has made the following judgments which have the most significant effect on the amounts recognized in the financial statements:

− Impairment of available-for-sale financial assets

At each balance sheet date, the Group reviews whether there is objective evidence that the value of an asset has been impaired. In testing impairment, the Group has made judgments as to indications that support objective evidence of impairment of these assets. See also section L.

− Embedded derivatives

As part of Delek Israel’s operations in gas station and commercial facilities, Delek Israel has entered into contracts with the owners of gas stations, on various dates and for various periods, in which Delek Israel leases the gas stations in operating lease agreements.

In some of these contracts (approximately 50 contracts), the lessor has, at predetermined intervals, the option of choosing between two or three options (US dollar, CPI or the fuel marketing margin) for the linkage of the rental fees during the next period, as set out in the contract.

The management of the Group considered the need to separate and measure the options for determining linkage based on IAS 39 and, in its opinion, based on the external opinion that it received, it is not necessary to account for the above mentioned options separately.

In accordance with this position, as long as it is not required to separate and measure the embedded derivative of each linkage option separately from the host contract (since the embedded derivative economic characteristics and risks are closely related to those of the host contract), there is no need to separate the right to choose the linkage basis since it is also closely related the economic characteristics and risks of both the host contract and the embedded derivatives.

− Classification of insurance contracts and investment contracts

Insurance contracts are contracts in which the insurer takes a significant insurance risk for another party. Management considers each contract, or a group of similar contracts, and if they involve significant insurance risk, they are classified as either insurance contracts or investment contracts.

− Classification and designation of financial investments

Management exercises judgment when classifying and designating the financial investments into the following groups:

• Financial assets at fair value through profit or loss • Held-to-maturity investments • Loans and borrowings • Available-for-sale financial assets

See also section K below.

C-22 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

Estimates and assumptions

The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. The basis of the estimates and assumptions is reviewed on an ongoing basis. Changes in the accounting estimates are reported in the period of the change in estimate.

Presented hereunder is information about the main assessments and assumptions used in the financial statements in respect of uncertainty as of the balance sheet dates and the critical estimates made by the Group and for which significant change in the estimates and assumptions could change the carrying amount of the assets and liabilities in the financial statement in the next reporting period:

− Impairment of non-financial assets

The Group reviews the need to assess impairment of the carrying amount of non-financial assets when there are indications resulting from events or changes in circumstances indicating that the carrying amount is not recoverable. See Note U below. In addition, the Group reviews impairment of goodwill at least once a year. This requires management to assess the projected future cash flows from continued use of the cash- generating units and also to choose a suitable discounted rate for these cash flows. See additional information in section U below. As from the acquisition date, goodwill is allocated to a cash generating unit or a group of cash generating units which are expected to generate benefits from the synergy of the combination.

− Impairment of financial assets

When there is objective evidence of impairment on loans and borrowings recorded at amortized cost, or on available-for-sale financial assets, the amount of the loss is recognized in profit or loss. See Note L below. Management is required to determine whether there is such objective evidence.

− Allowance for doubtful accounts

The allowance for doubtful accounts is determined in respect of specific debts which the Group’s management believes are unlikely to be collected. The Company also recognizes a provision for groups of customers that are collectively assessed for impairment based on their credit risk characteristics. Impaired trade receivables are derecognized when they are assessed uncollectible.

− Deferred acquisition costs

Acquisition costs of life assurance policies are deferred and amortized over the term of the policy. Recoverability of deferred acquisition costs are assessed once a year using assumptions regarding the rates of their cancellation, mortality and morbidity rates and other variables.

− Liabilities for insurance contracts

Liabilities for insurance contracts are based on actuarial assessment methods and on assessments of demographic and economic variables. The actuarial estimates and assumptions are based on past experience and are based, primarily, on the past behavior and claims which represent what will happen in the future. The changing risk factors, frequency or severity of the events, and the change in the legal situation could have a material effect on the level of liabilities for insurance contracts.

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Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

− Estimates of proven gas reserves

Estimates of the proven and developed gas reserves are used to determine the amortization rate of the assets used in the operations over the reporting period.

Depreciation of investments associated with discovery and production of proven and developed gas reserves is based on the depletion method, in other words, in each accounting period the assets are depreciated at a rate determined by the number of units of gas actually produced, divided by the proven and developed gas reserves remaining according to estimates. The estimated gas volume in producing reservoirs during the reporting period is calculated each year, among others, based on assessments of oil and gas reserves by external experts.

− Deferred tax assets

A deferred tax asset is recognized for unused carryforward tax losses and temporary differences to the extent that it is probable that future taxable profits will be available against which the losses can be utilized. Management judgment is required to determine the amount of the deferred tax asset that can be recognized based upon the likely timing and the level of future taxable profits together with future tax planning strategies. See additional information in section W below.

− Legal claims

When assessing the possible outcomes of legal claims that were filed against the Company and its investees, the Group companies relied on the opinions of their legal counsel. The opinions of their legal counsel are based on the best of their professional judgment, and take into consideration the current stage of the proceedings and the legal experience accumulated with respect to the various matters. As the outcomes of the claims are determined by the courts, these outcomes could differ from the assessments.

− Fair value of an unquoted financial instrument

The fair value of non-marketable debentures, loans and deposits is based on the discounted cash flow model. The interest rates used for discounting are determined by a company that provides interest rate quotations for risk ratings.

− The fair value of non-marketable shares is usually based on the discounted future cash flow method.

C. Consolidated financial statements

Due to the first-time adoption of IFRS 3 (Revised) and IAS 27 (2008), the Group has changed its accounting policy for business combinations and transactions with non- controlling interests. For further information, see Note A above.

The consolidated financial statements include the statements of companies that are controlled by the Company (subsidiaries). Control exists when the Company has the power, directly or indirectly, to govern the financial and operational policies of the controlled company. When assessing control, the effect of potential voting rights that are exercisable at the balance sheet date is taken into account. The financial statements are consolidated from the date that control is obtained and ends when such control ceases.

Significant intragroup balances and transactions and gains or losses arising from transactions between the Group companies have been eliminated in full in the consolidated financial statements.

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Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

In the consolidated financial statements, the Group eliminates fair value measurement of securities of Group companies (shares of the Company and its subsidiaries and debentures issued by Group companies), which are held by special purpose companies that issue and manage exchange-traded funds and by profit-sharing policies of insurance companies, and account for these holdings in accordance with generally accepted accounting principles for the acquisition (sale) of treasury shares, acquisition (sale) of shares of subsidiaries and cross-holding of debentures, including the effect of tax, if required. The securities of associates held by special purpose companies are classified in the Group’s consolidated financial statements as financial assets at fair value through profit or loss (as presented in the financial statements of the special purpose companies).

The non-controlling interests represent their share in the comprehensive income (loss) of the subsidiaries and fair value of the net identifiable assets upon the acquisition of the subsidiaries. They are presented in equity separately from the equity attributable to the parent.

As from January 1, 2010, the acquisition of non-controlling interests by the Group is recognized as an increase or decrease in equity (capital reserve from transactions with non- controlling interests) and is calculated as the difference between the consideration paid by the Group and the proportionate amount of the non-controlling interests acquired at the date of acquisition (when non-controlling interests also include a share of other comprehensive income, the Company reattributes the cumulative amounts recognized in other comprehensive income between the equity holders of the parent and the non-controlling interests). If the difference is negative, a decrease in capital (capital reserve from transactions with non-controlling interests) is recognized in the amount of this difference. Upon the disposal of an interest in a subsidiary that does not result in a loss of control, an increase or decrease is recognized in equity (capital reserve for transactions with non- controlling interests) for the amount of the difference between the consideration received by the Group and the carrying amount of the non-controlling interests in the subsidiary which have been added to the Company's equity, also taking into account also the disposal of a portion of any goodwill in the subsidiary and any exchange differences from foreign operations which have been recognized in other comprehensive income, based on the relative decrease in the interests in the subsidiary. Until December 31, 2009, additional goodwill was recognized in respect of the acquisition of non-controlling interests and the effect of the sale of non-controlling interests was recorded in profit or loss.

As from January 1, 2010, losses are attributed to non-controlling interests even if they result in a negative balance of non-controlling interests in the consolidated statement of financial position. Until December 31, 2009, such losses were entirely attributed to the equity holders of the parent unless the non-controlling interests were obligated and able to make additional investments. Losses accrued through December 31, 2009, were not reallocated between the equity holders of the parent and the non-controlling interests.

Upon loss of joint control by the Group, any retained investment is recognized and measured at fair value. The difference between the carrying amount of the former company under joint control as of the date on which joint control ceases and the aggregate fair value of any remaining investment and the consideration from disposal is recognized in profit or loss. If the Group has significant influence over the remaining investment, it is as accounted for as an investment in an associate.

Jointly controlled operations are joint ventures where each party uses its own assets for the joint operation. The consolidated financial statements include the assets that the Group controls and the liabilities that it incurs in the course of pursuing the joint operation, and the expenses that the Group incurs and its share of the income that it earns from the joint operation.

The financial statements of the Company and its subsidiaries are prepared at the same dates and for the same periods. The accounting policy in the financial statements of the

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Notes to the Consolidated Financial Statements

subsidiaries is applied uniformly and consistently with the accounting policy in the Company’s financial statements.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

Joint ventures

A joint venture is a contractual arrangement whereby the parties (the participants) undertake an economic activity that is subject to joint control. The venturers have no interests in assets and no liabilities in agreements on behalf of the participants. The Group recognizes in its financial statements the assets that it controls, the liabilities that it incurs, the expenses that it incurs and its share of the income from the joint activity.

D. Functional currency and foreign currency

1. Functional currency and presentation currency

The presentation currency of the financial statements is the NIS, which is the functional currency of the Company.

The functional currency, which is the currency that best reflects the economic environment in which the Company operates and conducts its transactions, is separately determined for each investee, including associates, and is used to measure its financial position and operating results. When the investee's functional currency differs from the functional currency of the Company, that entity represents a foreign operation whose financial statements are translated so that they can be included in the consolidated financial statements as follows:

A. Assets and liabilities for each reporting date (including comparative data) are translated at the closing rate at the reporting date. Goodwill and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation are treated as assets and liabilities of the foreign operation and are translated at the closing rate at each reporting date. B. Income and expenses for each period presented in the statement of income (including comparative data) are translated at average exchange rates for the presented periods; however, if exchange rates fluctuate significantly, income and expenses are translated at the exchange rates at the date of the transactions. C. Share capital, reserves and other changes in capital are translated at the exchange rate prevailing at the date of incurrence. D. The profit balance is translated on the basis of the opening balance, which was translated according to the exchange rate on that date and other relevant movements, (such as a dividend) in the period in which they were translated as described in subsections (B) and (C) above. E. All exchange differences are recognized as other comprehensive profit (loss) in a separate item under capital, in capital reserve - Exchange differences on translation of foreign operations.

Up to December 31, 2009, upon the full or partial disposal of a foreign operation, the relevant portion of other comprehensive income (loss) is recognized in profit or loss. As from January 1, 2010, upon the partial disposal of a subsidiary that is a foreign operation which disposal results in the loss of control of the subsidiary, the cumulative gain (loss) recognized in other comprehensive income is transferred to profit or loss whereas upon the partial disposal of a subsidiary that is a foreign operation which disposal results in the retention of control, the relative portion of the cumulative amount recognized in other comprehensive income is reattributed to non-controlling interests.

Intragroup loans for which settlement is neither planned nor likely to occur in the foreseeable future are, in substance, a part of the net investment in that foreign operation and the exchange differences arising on these loans are recognized in the same component of equity as discussed in d) above.

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Notes to the Consolidated Financial Statements

Exchange differences in respect of financial instruments in foreign currency that constitutes a net investment hedge are recorded, net of tax effect, in other comprehensive income (loss).

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

2. Transactions, assets and liabilities in foreign currency

Transactions denominated in foreign currency are recorded on initial recognition at the exchange rate at the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are translated at each balance sheet date into the functional currency at the exchange rate at that date. Exchange differences are recognized in the statement of income. Non-monetary assets and liabilities measured at cost are translated at the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currency and measured at fair value are translated into the functional currency using the exchange rate prevailing at the date when the fair value was determined.

3. Index-linked monetary items

Monetary assets and liabilities linked to the changes in the Israeli Consumer Price Index ("Israeli CPI") are adjusted at the relevant index at each balance sheet date according to the terms of the agreement. These linkage differences arising from the adjustment are recognized in the statement of income.

E. The operating cycle

The Company's normal operating cycle does not exceed one year. Accordingly, the current assets and current liabilities include items that are held and are expected to be realized by the end of the Company’s normal operating cycle.

F. Cash equivalents

Cash equivalents are considered as highly liquid investments, including unrestricted short- term bank deposits with an original maturity of three months or less from the date of acquisition, which are not pledged.

G. Cash and cash equivalents for performance-based contracts

Cash and cash equivalents for performance-based contracts include cash earmarked to liabilities for performance-based life assurance policies. Insurance regulations in Israel restrict the use of these funds.

H. Short-term deposits

Short-term bank deposits are deposits with an original maturity of more than three months from the date of acquisition. The deposits are presented according to their terms of deposit.

I. Allowance for doubtful accounts

1. The allowance for doubtful accounts is determined in respect of specific debts whose collection, in the opinion of the Company's management, is doubtful. The Company also recognizes a provision for groups of customers that are collectively assessed for impairment based on their credit risk characteristics. . Impaired debts are derecognized when they are assessed as uncollectible.

2. A. Provisions in respect of premiums receivable in general insurance business are calculated according to the extent of amounts due and in respect of loans that are secured by mortgage over real estate assets and other loans. The provision was based on the extent of the arrears, plus a general provision, which reflect the assessment of the subsidiaries of the risks involved

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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

B. The subsidiaries set up provisions for doubtful accounts in respect of reinsurers’ debts whose collection is doubtful on the basis of individual risk estimates. In addition, for determining the reinsurers' share in outstanding claims and in insurance reserves, the insurance subsidiaries take into account, among other things, an assessment of the likelihood of collection from the reinsurers, while the reinsurers’ share, as mentioned, is computed on an actuarial basis. The share of those reinsurers who are in financial difficulties is computed in accordance with the actuary’s estimation, which takes all the risk factors into account. When reinsurers are in difficulties, they may raise various arguments that relate to recognition of the debt. In such cases, the insurance subsidiaries take into account, when setting up the provisions, the reinsurers’ willingness to make cut off agreements.

C. Credit granted for acquisition of securities

The allowance for doubtful accounts in respect of a loan provided for the acquisition of securities is included when there is objective evidence that the Group is unable to collect the amounts owed to it under the original terms of the debt balance. The impairment of the customer’s securities used as collateral for long-term borrowings and without the inflow of cash and/or securities are indications that there is impairment in the debt balance.

J. Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories comprises costs of purchase and costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated selling costs.

Cost of inventories is assigned as follows:

Fuels and consumer goods - Cost of fuels is based on the quarterly weighted average. Cost of consumer goods is based on the retail inventory method.

Inventory in refineries - Cost of crude oil is based on the quarterly weighted average. The cost of distillates includes also production costs.

Motor vehicles - Based on specific cost

Other - Based mainly on moving average

The Company periodically evaluates the condition and age of inventories and makes provisions for slow moving inventories accordingly.

If in a particular period production is not at normal capacity, the cost of inventories does not include additional fixed overheads in excess of those allocated based on normal capacity. Such unallocated overheads are recognized as an expense in the statement of income in the period in which they are incurred. Furthermore, cost of inventories does not include abnormal amounts of materials, labor or other costs resulting from inefficiency.

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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

K. Financial instruments

Financial assets within the scope of IAS 39 are initially recognized at fair value plus directly attributable transaction costs, except for investments at fair value through profit or loss in respect of which transaction costs are carried to the statement of income.

1. Financial assets at fair value through profit or loss

The Group has financial assets at fair value through profit or loss comprising financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss.

Financial assets are classified as held for trading if they are acquired principally for the purpose of selling or repurchasing in the near term, if they form part of a portfolio of identified financial instruments that are managed together to earn short-term profits or if they are derivatives not designated as hedging instruments. Gains or losses on investments held for trading are recognized in the statement of income when incurred.

Embedded derivatives are separated from the host contract and accounted for separately if: ((a) the economic characteristics and risks of the embedded derivatives are not closely related to those of the host contract; (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and (c) the combined instrument is not measured at fair value through profit or loss.

Derivatives, including separated embedded derivatives, are classified as held for trading unless they are designated as effective hedging instruments.

The Group assesses whether embedded derivatives are required to be separated from host contracts when the Group first becomes party to the contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

2. Loans and receivables

The Group has loans and receivables that are financial assets (non-derivative) with fixed or determinable payments that are not quoted in an active market. After initial recognition, loans and receivables are measured based on their terms at amortized cost using the effective interest method.

3. Available-for-sale financial assets

After initial recognition, available-for-sale financial assets are measured at fair value. Gains or losses from fair value adjustments, except exchange differences that relate to debt instruments, are recognized in other comprehensive income. When the investment is disposed of or in case of impairment, the amounts recorded in other comprehensive income (loss) are reclassified to the statement of income. Interest income on investments in debt instruments and dividends are recognized in the statement of income. Dividends received for investments in equity instruments are recognized in profit or loss on the date the entity’s right to receive the dividend is established. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost.

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Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

4. Fair value

The fair value of investments that are actively traded in organized financial markets is determined by reference to market prices on the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm's length market transactions; reference to the current market value of another instrument which is substantially the same; discounted cash flows or other valuation models.

5. Financial liabilities measured at amortized cost

Loans and borrowings, debentures, the debt component in convertible debentures, structured bonds and other liabilities are initially recognized at fair value less directly attributable transaction costs. After initial recognition, these interest liabilities are measured at amortized cost using the effective interest method.

6. Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities classified as held for trading and financial liabilities designated upon initial recognition at fair value through profit or loss.

Liabilities in respect of short-selling are classified as financial liabilities measured at fair value through profit or loss.

Derivatives, including separated embedded derivatives, are classified as held for trading unless they are designated as effective hedging instruments. In the event of a financial instrument that contains one or more embedded derivatives, the entire combined instrument shall be designated upon initial recognition as a financial liability at fair value through profit or loss.

The Group assesses whether embedded derivatives are required to be separated from host contracts when the Group first becomes party to the contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

7. Compound financial instruments

Convertible debentures that were issued in the issuing company's functional currency (NIS), which are unlinked and are not denominated in foreign currency, and which consist of an equity component in respect of conversion options and a liability component, are separated into an equity component (net of the tax effect) and a debt component. Each component is presented separately, net of the respective transaction costs of each component. This separation is calculated by determining the debt component based on the fair value of an equivalent non- convertible liability. The value of the equity component is the residual amount and is determined as the difference between the total proceeds received from the convertible debentures and the amount attributed to the liability component, as above, and, thus, presented in subsequent periods. Direct transaction costs are apportioned between the equity component (net of the tax effect) and the debt component based on the allocation of proceeds to the equity and liability components, as explained above.

After initial recognition, the liability component is classified as described above in respect of financial liabilities and presented in the statement of financial position as a non-current liability based on the repayment dates in cash.

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Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

8. Issue of a unit of securities

The issue of a unit of securities involves the allocation of the proceeds received (before issue expenses) to the components of the securities issued in the unit based on the following hierarchy: fair value is initially determined for financial instruments measured at fair value in each period, then the fair value is determined for other financial liabilities measured at amortized cost when the proceeds allocated in respect of equity instruments are determined as the residual value. The allocation of the consideration for components in the same level of hierarchy is based on relative fair value measurement. Issuance costs are allocated to each component pro rata to the amounts determined for each component net of tax effect.

9. Derecognition of financial instruments

Financial assets

A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the company has transferred its contractual rights to receive cash flows from the financial asset or assumes an obligation to pay the cash flows in full without material delay to a third party and has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

A transaction involving factoring of accounts receivable and / or credit card vouchers is derecognized when the abovementioned conditions are met.

If the Company transfers its rights to receive cash flows from an asset and neither transfers nor retains substantially all the risks and rewards of the asset nor transfers control of the asset, a new asset is recognized to the extent of the Company's continuing involvement in the asset. When continuing involvement takes the form of guaranteeing the transferred asset, the extent of the continuing involvement is the lower of the original carrying amount of the asset and the maximum amount of consideration received that the Company could be required to repay.

Financial liabilities

A financial liability is derecognized when the liability is extinguished.

Where an existing financial liability is exchanged with another liability from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is accounted for as an extinguishment of the original liability and the recognition of a new liability. The difference between the carrying amount of the above liabilities is recognized in the statement of income. If the exchange or modification is immaterial, it is accounted for as a change in the terms of the original liability, including adjustment of effect interest, and no gain or loss is recognized from the exchange.

When determining whether an exchange transaction of a debt instrument constitutes material change, the Group takes into consideration quantitative and qualitative criteria, such as the exchange of a shekel debt instrument linked to the CPI to a debt instrument at fixed interest.

10. Treasury shares

Company shares held by the Company and/or subsidiaries (including through exchange-traded funds) are recognized at cost and deducted from equity. Any profit or loss from purchase, sale, issue or cancellation of treasury shares is recognized directly in equity.

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Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

11. Put option granted to non-controlling shareholders

The Group granted non-controlling shareholders a put option to sell part or all of their interests in several subsidiaries during a certain period. On the date of grant, the non-controlling interests are classified as a financial liability. The Group measures the liability for the put option at the fair value of the liability on the date of the grant. Regarding business combinations occurring up to December 31, 2009 (including updates of the amount of liabilities subsequent to January 1, 2010), changes in subsequent periods, except for the time value, are recognized in goodwill. If the option is exercised in subsequent periods, the proceeds from the exercise are treated as settlement of a liability. If the option expires, its expiration is treated as the realization of the investment in the subsidiary.

12. Liability in respect of exchange-traded funds

The liability for exchange-traded funds (ETF) is a compound financial instrument that includes a host contract and an embedded derivative (index to which the ETF is linked).

The host contract is recognized initially at fair value less transaction costs. In subsequent periods, the host contract is measured at amortized cost. Changes in the amortized cost of the host contract are recognized in profit or loss.

The amortized cost is calculated using the effective interest method, taking into account the transaction costs, and with full reference to the period of the exchange-traded funds that constitute their expected useful life, among other things, in view of the Group's ability to renew trading of any exchange-traded certificate that was redeemed, at any time.

The embedded derivative with economic characteristics and risks that are not closely related to the economic characteristics and risks of the host contract is initially recognized at fair value and remeasured in subsequent periods at fair value. Changes in fair value are recognized in the statement of income.

According to IAS 39, the host contract and embedded derivative are accounted for separately and each is measured separately. IAS 39 does not require separate presentation of each of the components of the compound instrument.

In accordance with IAS 39, if an instrument can be resold at any time for cash, the effect of separating an embedded derivative and the accounting treatment for each component is measurement of the hybrid instrument at the repayment amount at the balance sheet date.

In the Group’s opinion, presentation of the components of the ETF together is the most appropriate presentation of the economic character of the liability for the ETF, since this reflects (before accounting for the issuance costs) the amount that the Group might be required to pay to index certificate holders, which may be redeemed at any time.

13. The insurance subsidiaries resolved to designate the assets as follows:

A) Assets in investment portfolios of policies participating in investment profits:

These assets, which include marketable and non-marketable financial instruments are recognized at fair value through profit or loss, for the following reasons: These are portfolios under management, separate and identified, whose statement at fair value significantly reduces an accounting mismatch of reporting financial assets and financial liabilities at different bases of measurement. Furthermore, the management is based on fair value and the portfolio's performance is measured at fair value, in accordance with a documented risk management strategy. The information about the financial instruments is reported to the management (the relevant investments committee) internally at fair value.

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Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

B) Non-marketable assets that are not included in investment portfolios of investments earmarked to profit-participating policies (nostro), that do not include embedded derivatives or do not constitute derivatives:

These assets, which include designated debentures (Hetz CPI-linked life agreements), other non-marketable debentures, commercial certificates, and loans and other receivables, are classified as loans and other receivables and recognized in the statement of financial position under non-marketable debt assets. Non-marketable shares are classified as available-for-sale financial assets.

C) Marketable assets which are not included in investment portfolios earmarked to profit- participating policies that do not include embedded derivatives or do not constitute derivatives (including investment funds):

These assets are classified as financial instruments available for sale.

D) Derivatives and financial instruments that include embedded derivatives requiring separation:

These assets are assigned to the group of fair value through profit or loss (excluding derivatives designated as effective hedging instruments).

E. Financial assets and liabilities of certain liability certificates

Marketable and non-marketable financial assets and liabilities of liability certificates included in a portfolio measured as a whole by the Company at fair value, are stated at fair value.

L. Impairment of financial assets

The Group assesses at each balance sheet date whether there is any objective evidence that the following financial asset or group of financial assets is impaired.

1. Financial assets carried at amortized cost

Where there is objective evidence of impairment of loans and receivables carried at amortized cost, the amount of the loss carried to the statement of income is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred) discounted at the financial asset's original effective interest rate.

2. Available-for-sale financial assets

Where there is objective evidence of impairment, the amount of the loss carried to the statement of income is measured as the difference between the acquisition cost (less principal payments and amortization) and the fair value less loss previously recorded in the statement of income.

In considering impairment of available-for-sale financial assets that are equity instruments, the Group also take into consideration the rate of the difference between the asset's fair value and the asset's original cost, the duration that the asset's fair value is lower than its original cost and changes in the technological, market, economic or legal environment in which the issuer operates. Impairment is considered as significant impairment usually with existence of a decline in fair value of more than 20% from the original cost and is considered continuous when the duration of the decline in fair value is over one year. Debt instruments are tested individually for impairment for each instrument for which there is a decline in fair value over 20% from the cost of the investment, taking into consideration information regarding the entity issuing the debt instrument.

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Notes to the Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

Impairment loss is reclassified from other comprehensive income to the statement of income. In subsequent periods, reversal of the impairment for equity instruments is not recognized in the statement of income and is recognized instead in equity as other comprehensive income (loss). Reversal of the impairment loss for debt instruments is recognized in the statement of income if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized.

M. Derivative financial instruments

Sometimes the Group enters into contracts with derivative financial instruments such as forward currency contracts (forward) in respect of foreign currency and interest rate swaps (IRS) and transactions to fix gas prices and inventory prices in order in order to hedge its risks associated with foreign exchange rates, interest rate fluctuations and changes in the purchase or selling prices of gas and inventory. Such derivative financial instruments are initially recognized at fair value. After initial recognition, the derivatives are measured at fair value. Any gains or losses arising from changes in the fair values of derivatives that do not qualify for hedge accounting are carried directly to the statement of income.

The fair value of forward exchange contracts is based on the exchange rates for contracts with similar maturity dates. The fair value of IRS contracts and of transactions to fix gas and inventory prices are based on the market prices of similar instruments.

The fair value of non-traded financial instruments is determined using commonly used valuation techniques for similar financial components.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument's effectiveness in offsetting the exposure to changes in the hedged item's fair value or cash flows attributable to the hedged risk. The hedge effectiveness is assessed at each balance sheet date.

Hedges which meet the criteria for hedge accounting are accounted for as follows:

Cash flow hedges

The effective portion of the gain or loss on the hedging instrument is recognized directly in equity as other comprehensive income (loss), while any ineffective portion is recognized immediately in the statement of income.

Amounts recognized as other comprehensive income (loss) are transferred to the statement of income when the hedged transaction affects profit or loss, such as when the hedged income or expense is recognized or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, this cost also includes the associated other comprehensive income (loss) reclassified from equity in the same period during which the asset or liability are recognized.

If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognized in equity are transferred to the statement of income. If the hedging instrument expires or is sold, terminated or exercised, or if its designation as a hedge is revoked, amounts previously recognized in equity remain in equity until the forecast transaction or firm commitment occurs.

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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

N. Leases

The tests for classifying leases as finance or operating leases depend on the substance of the agreements and are made at the inception of the lease in accordance with the principles below as set out in IAS 17.

1. Finance lease

Finance leases transfer substantially all the risks and benefits incidental to ownership of the leased asset. At the commencement of the lease term, the leased asset is measured at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. The liability for lease payments is presented at its present value and the lease payments are apportioned between finance charges and a reduction of the lease liability using the effective interest method.

After initial recognition, the leased asset is accounted for according to the accounting policy accepted for this type of asset.

2. Operating lease

Lease agreements are classified as an operating lease if they do not transfer substantially all the risks and benefits incidental to ownership of the leased asset. Initial direct costs incurred for the lease, which are not accounted for as investment property which are recognized in profit or loss, are added to the cost of the leased asset and recognized as an expense together with income from the lease. The lease payments are recognized as an income in profit or loss, on a straight-line basis over the lease term.

O. Business combinations and goodwill

Business combinations are accounted for by applying the acquisition method. According to this method, the identifiable assets and liabilities of the acquired business are recognized and recorded at fair value on the acquisition date. The cost of the acquisition is the aggregate fair value of the assets transferred, liabilities incurred and equity interests issued by the acquirer on the date of acquisition. In respect of business combinations that occurred on or after January 1, 2010, non-controlling interests are measured at fair value on the acquisition date or at the proportionate share of the non-controlling interests in the acquiree's net identifiable assets. In respect of business combinations that occurred up to December 31, 2009, the non-controlling interests were measured at their proportionate share of the fair value of the acquiree's net identifiable assets. For business combinations that occurred on or after January 1, 2010, direct costs related to the acquisition are recognized immediately as an expense in the statement of income. For business combinations that occurred before December 31, 2009, these costs were recognized as part of the acquisition cost.

Any classification or designation made when recognizing assets and liabilities are assessed in accordance with the contractual terms, economic circumstances and pertinent conditions that exist at the acquisition date.

As from January 1, 2010, in a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition date at fair value and recognize the resulting gain or loss, if any. For business combinations that occurred before December 31, 2009, the Company elected to measure goodwill for each separate acquisition.

Goodwill is initially measured at cost which represents the excess of the acquisition consideration and the amount of non-controlling interests over the net identifiable assets acquired and liabilities assumed as measured on the acquisition date. If the resulting amount is negative, the acquisition is considered a bargain purchase and the acquirer recognizes the resulting gain in profit or loss on the acquisition date.

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After initial recognition, goodwill is measured at cost less any accumulated impairment losses and is not systematically amortized. For testing the impairment of goodwill, see section U.

For business combinations that occur after January 1, 2010, contingent consideration is recognized at its fair value at the acquisition date and constitutes a financial asset or liability according to IAS 39. Subsequent changes in fair value of the contingent consideration are recognized in the statement of income. When the continent consideration is classified as an equity instrument, it is measured at its cost on the acquisition date. For business combinations occurring before December 31, 2009, contingent consideration was recognized on the acquisition date if the outcome of the contingency was probable and the amount could be measured reliably. Subsequent changes in the likelihood of the contingent consideration are accounted for prospectively as a change in estimate with a resulting adjustment to the acquisition cost and goodwill.

Upon the disposal of a subsidiary resulting in loss of control, the Company:

− Derecognizes the subsidiary’s assets (including goodwill) and liabilities − Derecognizes the carrying amount of the non-controlling interests − Derecognizes the exchange differences that were charged to equity − Recognizes the fair value of the consideration received − Regarding loss of control on or after January 1, 2010, recognizes the fair value of any remaining investment Regarding loss of control up to December 31, 2009, the portion of the investment sold is derecognized with recognition of the resulting gain or loss and any remaining investment is accounted for either by the equity method (IAS 28) or as a financial asset (IAS 39). − Recognizes any resulting difference (surplus or deficit) as gain or loss − Reclassifies the components recognized in other comprehensive income on the same basis as would be required if the Company had directly disposed of the related assets or liabilities

Acquisitions of subsidiaries that are not business combinations

Upon the acquisition of subsidiaries and operations that do not constitute a business, the acquisition consideration is only allocated between the acquired business identifiable assets and liabilities based on their relative fair values on the acquisition date without attributing any amount to goodwill or to deferred taxes, whereby the non-controlling interest, if any, participates at its relative share of the fair value of the net identifiable assets on the acquisition date. Direct acquisition costs are discounted as part of the acquisition consideration.

P. Equity-accounted investments

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies.

The investment in an associate is accounted for using the equity method. According to this method, the investment in the associate is presented in the statement of financial position at cost plus changes in the Group’s share of net assets and the other comprehensive income (loss) of the associate. This does not include holdings of special purpose companies that issue and manage exchange-traded funds and assets for performance-based contracts of The Phoenix, which are stated at fair value in the statement of income.

The equity method is implemented up to the earlier of the date the Group loses significant influence or the investment is reclassified as an investment held for sale according to IFRS 5. When an investment in an associate previously classified as held for sale no longer meets the criteria for this classification, it is accounted for retrospectively using the equity method, from the date it is classified as held for sale, with reconciliation of the fiancial statements for prior periods.

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Goodwill relating to the acquisition of an associate is initially measured as the difference between the acquisition cost and the Group's share in the net fair value of the associate's identifiable assets, liabilities and contingent liabilities. After initial recognition, goodwill is measured at cost and is not systematically amortized. Goodwill is examined for impairment as part of the investment in an associate as a whole. See also section U.

If additional shares are acquired in equity-accounted investments, the Group calculates the purchase price allocation for each tranche separately. Upon a decrease in the equity interests in an associate while retaining significant influence in the associate, the Company realizes a relative portion of its investment in the associate and recognizes a gain or loss from the disposal, including the reclassification of the proportionate share of cumulative amounts previously recognized in other comprehensive income (loss) of the associate

The Group's share of the operating results of the associate is shown in the statement of comprehensive income as Group's share of earnings (losses) of associates. The Group’s share in other comprehensive income (loss), net, attributable to the associate is recognized as other comprehensive profit (loss) in the relevant equity item. Profits or losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate.

Losses of associates in amounts which exceed their equity are recognized by the Company to the extent of its investment in the associates with the addition of any losses that the Company may incur as a result of a guarantee or other financial support provided in respect of these associates. For this purpose, the investment includes long-term receivables (such as loans granted) for which settlement is neither planned nor likely to occur in the foreseeable future.

The financial statements of the Company and its associates are prepared as of the same dates and periods. The accounting policy in the financial statements of associates was applied consistently and uniformly with the policy applied in the financial statements of the Group.

Q. Investment property

An investment property is property (land or a building or both) held by the owner (lessor under an operating lease) or by the lessee under a finance lease to earn rentals or for capital appreciation or both, rather than for use in the production or supply of goods or services, for administrative purposes, or for sale in the ordinary course of business.

Investment property is measured initially at cost, including costs directly attributable to the acquisition. After initial recognition, investment property is measured at fair value which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment property are included in the statement of income when they arise. Investment property is not systematically depreciated.

The Group determines the fair value of an investment property on the basis of a valuation by an outside independent valuator who holds a recognized and relevant professional qualification.

R. Property, plant and equipment

Items of fixed assets are measured at cost with the addition of direct acquisition costs, less accumulated depreciation and impairment losses and excluding day-to-day servicing expenses. Cost includes spare parts and auxiliary equipment that can be used only in connection with the machinery and equipment.

The cost of self-constructed assets includes the cost of materials, direct labor and borrowing costs as well as any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, and the

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present value of the expected cost item for decommissioning and restoring the site on which they are located (see below).

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Depreciation is calculated on a straight-line basis over the useful life of the assets at annual rates as follows:

% Main %

Buildings 2-10 2.5 Machines, facilities and equipment 2.5-15 10 Motor vehicles 15-20 Office furniture and equipment 6-33 Leasehold improvements Over the shorter of the lease term, including the extension option held by the Group and intended to be exercised, and the expected life of the improvement.

The cost of property, plant and equipment (primarily for gas exploration and oil refineries) includes the initial estimate of the cost of decommissioning the item and restoring the site on which it is located, for which the Company was obligated when the item was acquired or as a result of the use of the item during a particular period. The liability is first measured at fair value and changes in the liabilities deriving from passage of time are recognized in the statement of income. The residual value and the useful life of each asset is reviewed at least at each year-end and changes are accounted for prospectively as a change in an accounting estimate. See section U below for further details of impairment of property, plant and equipment.

The Group recognizes the costs of periodic maintenance on a fixed asset item (particularly refineries) as part of the carrying amount of a fixed asset item, as incurred, when it is expected that economic benefits associated with the item will flow to the Group, and the cost of the item can be measured reliably. These costs are amortized over the period until the next maintenance (approximately four years). Ongoing maintenance costs are recognized in the statement of income as incurred.

Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized. An asset is derecognized on disposal or when no further economic benefits are expected from its use.

S. Borrowing costs in respect of qualifying assets

A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale and includes fixed assets and inventories.

The Group capitalizes borrowing costs to qualifying assets.

The capitalization of borrowing costs commences when the activities to prepare the qualifying asset are in progress and ceases when substantially all the activities to prepare the qualifying asset for its intended use or sale are complete. The amount of borrowing costs capitalized in the reported period do not exceed over the borrowing costs that have been incurred in the reported period.

Borrowing costs include exchange differences arising from foreign currency borrowing to the extent that they are regarded as an adjustment to interest costs.

The capitalization of borrowing costs is suspended during long periods when development is discontinued.

T. Intangible assets

Separately acquired intangible assets are measured on initial recognition at cost with the addition of costs directly attributable to the acquisition. Intangible assets acquired in a business combination are included at the fair value at the acquisition date. After initial

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recognition, intangible assets are carried at their cost less any accumulated amortization and any accumulated impairment losses. Expenditures relating to internally generated intangible assets, excluding capitalized development costs, are recognized in the statement of income when incurred.

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According to management's assessment, intangible assets have a finite useful life. The assets are amortized over their useful life using the straight-line method and reviewed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least once a year. Changes in the expected useful life are accounted for as prospective changes in accounting estimates. The amortization charge on intangible assets with finite useful lives is recognized in the statement of income.

The length of the useful life of the intangible assets is as follows:

Years

Marketing rights and customer relations 10-15 Software 3-10 Brands and trademarks 4-8 Franchises 15 Value of insurance portfolios 5-14 Non-competition agreements 5-13 Commission portfolios 2-10

U. Impairment of non-financial assets

The Group evaluates the need to record an impairment of the carrying amount of non- financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable. When the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount is the higher of fair value less costs of sale and value in use. When measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that does not generate independent cash flows is determined for the cash-generating unit to which the asset belongs.

When assessing the impairment of gas stations operated by a subsidiary in Israel, these stations are considered as a single cash generating unit, among others, due to the common customer base and the business inter-dependency of the various stations. Nevertheless, in cases where the subsidiary's management is of the opinion that certain stations do not contribute to the chain of gas stations, each of these stations is considered as a separate cash generating unit. Other assets are each tested separately for impairment.

The following criteria are applied in assessing impairment of these specific assets:

1. Goodwill

The Group reviews goodwill for impairment once a year or more frequently if events or changes in circumstances indicate that there is impairment.

Impairment is recognized for goodwill by assessing the recoverable amount of the cash- generating unit (or group of cash-generating units) to which the goodwill belongs. An impairment loss is recognized if the recoverable amount of the cash-generating unit (or group of cash- generating units) to which goodwill has been allocated is less than the carrying amount of the cash-generating unit (or group of cash-generating units). Impairment losses recognized for goodwill cannot be reversed in subsequent periods.

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2. Equity-accounted investees

After implementing the equity accounting method, the Group determines whether it is necessary to recognize further loss for impairment of the investment in associates. At each reporting date, the Group determines whether there is objective evidence of impairment in the investment in an associate. If this is required, the impairment loss is recognized in the amount of the difference between the recoverable amount of the investment in the associate and its carrying amount. The impairment loss is recognized in profit or loss under the Group's share in the profits (losses) of partnerships and associates, net.

V. Results of oil and gas exploration and development of proved reserves

Oil and gas investments and exploration are accounted for using the successful efforts method, according to which:

1. Expenses incurred in the participation in geological and seismic exploration phase are recognized in the statement of income when they are incurred.

2. Investments in oil and gas drillings that are in the drilling phase, that were not yet proven to produce oil or gas and that are yet to be classified as being non-commercial, are presented in the statement of financial position at cost.

3. Investments in oil and gas drillings that were proved to be dry and were abandoned, or that were classified as being non-commercial, or for which development programs were not set for the foreseeable future are written off.

4. Expenses entailed in drillings that were proven to have viable gas or oil reserves are presented in the statement of financial position at cost and amortized to the statement of income, based on the production volume relative to the total proven reserves for the said asset, as appraised by an expert.

5. Costs accrued for development of the proved reserves of the Yam Tethys joint venture were designed to provide options for the extraction, handling, collection and storage of gas. These costs, which include engineering planning, development drillings, and acquisition and establishment of production facilities and pipes for the delivery of the gas onshore, are stated in the statement of financial position at cost and amortized to the statement of income based on the production volume relative to the total proved reserves for the asset, as appraised by an expert.

Expenses entailed in the purchase of rights to licenses, titles and preliminary permits for oil and gas drilling, including increasing the Group's share in joint ventures, are accounted for as aforesaid.

The identifiable excess cost on the net assets of companies, partnerships and joint ventures that own such reserves, is allocated to investments in reserves and amortized as stated above.

W. Income tax

Taxes on income in the statement of income comprise current and deferred taxes. The tax results in respect of current or deferred taxes are carried to the statement of income except to the extent that the tax arises from items which are recognized directly in equity or in other comprehensive income. In such cases, the tax effect is also carried to the relevant item in equity or in other comprehensive income

1. Current taxes

The current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date as well as adjustments required in connection with the tax liability in respect of previous years.

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2. Deferred taxes

Deferred taxes are recognized for temporary differences between the amounts included in the financial statements and the amounts recognized for tax purposes, except for a limited number of exceptions. Deferred tax balances are calculated according to the tax rates that tax laws that have been enacted or substantively enacted by the balance sheet date.

The deferred taxes calculation does not take into account the taxes that will be incurred if investments in investees are realized, provided that the sale of these investments is not likely in the foreseeable future. In addition, the Group did not record deferred taxes due to the distribution of earnings as dividends by associates in those cases when this dividend distribution does not entail an additional tax liability and in respect of subsidiaries due to the Group's policy to refrain from initiating dividend distributions that involve an additional tax liability.

Deferred tax assets and deferred tax liabilities are reported in the statement of financial position as non-current assets and long-term liabilities, respectively. Deferred taxes are offset if there is a legal enforceable right that permits offsetting a current tax asset against a current tax liability and the deferred taxes refer to the same entity owing the tax to the same tax authority.

In cases where there is uncertainty with respect to the existence of taxable income in the future, deferred taxes are not recognized as an asset in the financial statements.

X. Share-based payments

The Company's employees are entitled to remuneration in the form of share-based payment transactions as consideration for equity instruments (“equity-settled transactions”) and cash- settled benefits (“cash-settled transactions”).

Equity-settled transactions

The cost of equity-settled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fair value is determined using a standard pricing model. Fair value estimates do not take into account vesting conditions (including service and performance conditions that are not market conditions). The only conditions taken into account in estimating fair value are market conditions and non-vesting conditions. As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.

The cost of equity-settled transactions is recognized in the statement of income, together with a corresponding increase in equity, during the period which the performance and/or service conditions are to be satisfied, ending on the date on which the relevant employees become fully entitled to the award ("the vesting period"). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The expense recognized in the statement of income reflects the change in the cumulative expense recognized at the end of the reporting period.

No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all the other vesting conditions (service and/or performance) are satisfied.

If the Group modifies the conditions on which equity-instruments were granted, an additional expense is recognized for any modification that increases the total fair value of the share-

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based payment arrangement or is otherwise beneficial to the employee at the modification date.

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If a grant of an equity instrument is cancelled, it is accounted for as if it had vested on the cancellation date, and any expense not yet recognized for the grant is recognized immediately. However, if a new grant replaces the cancelled grant and is identified as a replacement grant on the grant date, the cancelled and new grants are accounted for as a modification of the original grant, as described in the previous paragraph.

Cash-settled transactions

The cost of cash-settled transactions is measured at fair value on the grant date using a standard pricing model. The fair value is recognized as an expense over the vesting period and a corresponding liability is recognized. The liability is remeasured at each reporting date until settled at fair value with any changes in fair value recognized in the statement of income.

Y. Employee benefit liabilities

The Group has several employee benefit plans:

1. Short-term employee benefits

Short-term employee benefits include salaries, paid annual leave, paid sick leave, recreation and social security contributions and are recognized as expenses as the services are rendered. A liability in respect of a cash bonus or a profit-sharing plan is recognized when the Group has a legal or constructive obligation to make such payment as a result of past service rendered by an employee and a reliable estimate of the amount can be made.

2. Post-employment benefits

The plans are normally financed by contributions to insurance companies and classified as defined contribution plans or as defined benefit plans.

The Group has defined contribution plans pursuant to Section 14 to the Severance Pay Law in Israel, according to which the Group pays fixed contributions and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient amounts to pay all employee benefits relating to employee service in the current and prior periods. Contributions in the defined contribution plan in respect of severance pay or compensation are recognized as an expense when contributed simultaneously with receiving the employee's services and no additional provision is required in the financial statements.

Companies in the Group also operate a defined benefit plan in respect of severance pay pursuant to the Severance Pay Law in Israel. According to the Law, employees are entitled to severance pay upon dismissal or retirement. The liability for termination of employee-employer relation is measured using the projected unit credit method. The actuarial assumptions include future salary increases and rates of employee turnover based on the estimated timing of payment. The amounts are presented based on discounted expected future cash flows using a discount rate on Israeli Government bonds with maturity that matches the estimated term of the benefit payments.

The Company makes current deposits in respect of its liabilities to pay compensation to certain of its employees in pension funds and insurance companies ("the plan assets”).

Actuarial gains and losses are recognized in the statement of income in the period in which they occur.

The liability for employee benefits presented in the statement of financial position presents the present value of the defined benefit obligation less the fair value of the plan assets.

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Z. Revenue recognition

Revenues are recognized in the statement of income when the revenues can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenues are measured at the fair value of the consideration received less any trade discounts, volume rebates and returns.

Specific instructions for recognition of the Group's revenues required for recognition of the revenue are described below:

1. Revenues from the sale of goods

Revenues from the sale of goods are recognized when all the significant risks and rewards of ownership of the goods have passed to the buyer and the seller no longer retains continuing managerial involvement. The delivery date is usually the date on which ownership passes.

2. Revenues from rent

Rental income is recognized on a straight-line basis over the lease term. Rental income where there is a fixed increase in rental fees over the term of the contract is recognized as revenues on a straight-line basis only if there is certainty as to the collection of differences in rental fees in the future.

3. Revenues from production of fuels, storage and charter of tankers is recognized in the statement of income when the service is provided.

4. Revenues from the rendering of services (including management fees)

Revenues from the rendering of services are recognized by reference to the stage of completion at the balance sheet date. Under this method, revenues are recognized in the accounting periods in which the services are rendered. Where the contract outcome cannot be measured reliably, revenue is recognized only to the extent that the expenses incurred are recoverable.

5. Interest income

Interest income is recognized on a cumulative basis using the effective interest method.

6. Revenues from royalties

Revenues from royalties are recognized as they accrue in accordance with the substance and terms of the relevant agreement.

7. Revenues from dividends

Revenues from dividends on equity securities not accounted for using the equity method are recognized when the right to receive the dividend is established.

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8. Reporting on revenues either using gross basis or net basis

In cases where the Group acts as an agent or as a broker without being exposed to the risks and rewards associated with the transaction, its revenues are presented on a net basis. However, in cases where the Group operates as a principal supplier and is exposed to the risks and rewards associated with the transaction, its revenues are presented on a gross basis.

9. Income from insurance businesses

A. Premiums

1) Premiums in life assurance and health insurance, including savings premiums and with the exception of intakes in respect of investment contracts, are recognized as revenues when the Group is entitled to receive such premiums. Cancellations are recorded when the notification is received from the policyholder or when initiated by The Phoenix due to arrears in payments, subject to legal provisions. The policyholder's participation in profits is deducted from the premium.

2) General insurance premiums are accounted for as income based on monthly reports. Insurance premiums usually refer to an insurance period of one year.

In the motor act branch of insurance in Israel, the insurance comes into effect only after payment of the insurance premium, therefore the premium is accounted for on the date of payment.

Insurance premiums in respect of policies that come into effect after the balance sheet date or premiums in respect of policies for a period exceeding one year are recorded as a prepaid income.

Some of the premiums in Israel, primarily in the motor casco and comprehensive residential branches, include automatic renewals of policies due for renewal.

The income included in the financial statements is after cancellations requested by policyholders and net of cancellations and provisions due to non-payment of the premiums, subject to the law, and net of the policyholders participation in profits, based on valid agreements.

B. Management fees and commissions

1) Management fees for performance-based insurance contracts

Management fees include the following components: For policies sold as of 1 January 2004 – fixed management fees only For policies sold until December 31, 2003 – fixed and variable management fees

The management fees are computed in accordance with the Commissioner's directives on the basis of the yield and the accumulated saving of the policyholders in the profit- participating portfolio.

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The fixed management fees are computed at fixed percentages of the accumulated saving and are recorded on a cumulative basis.

The variable management fees are computed as a percentage of the annual real profit (from January 1 to December 31) attributed to the policy, less the fixed management fees collected from that policy. Only positive variable management fees can be collected, net of negative amounts accumulated in the preceding years.

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During the year, the variable management fees are recorded on a cumulative basis in accordance with the real monthly yield if it is positive. In months when the real yield is negative, the variable management fees are reduced to the amount of the cumulative variable management fees collected since the beginning of the year. Negative yield for which a reduction of the management fees was not made during a current year, will be deducted for the purpose of computing the management fees from the positive yield in the subsequent year.

2) Management fees of non-insurance subsidiaries

Income from the management of pension funds and provident funds is recognized on the basis of the balances of the managed assets and on the basis of the receipts from the members.

Income from the management of mutual funds and income from the management of customer portfolios are recognized on the basis of the managed asset balance.

Income from general insurance commission in insurance agencies is recognized as incurred.

Income from life assurance commissions are recognized on the basis of the date of entitlement for payment of the commissions according to agreements with the insurance companies, net of provisions for refunds of commissions due to expected cancellations of insurance policies.

3) Net investment income (losses) and other finance income

Interest income is recognized on a cumulative basis using the effective interest method. Income from dividends from investments that are not accounted using the equity method are recognized when the right to receive the dividend is established. Income from investments includes the profits or losses realized in respect of available-for-sale financial assets. Profits and losses from the sale of investments are calculated as the difference between the proceeds from the sale, net, and the initial or amortized cost and are recognized at the time of the sale. Income from investments includes profits or losses from revaluation of financial assets measured at fair value through the statement of income.

C. Recognition of revenue from underwriting and distribution and from brokerage fees

1 Revenues from underwriting and distribution - revenues from commission for underwriting and distribution are recognized when the issuance and distribution is carried out, after fulfillment of the terms in the agreement with the company and/or issuer.

2 Revenues from brokerage fees - revenues from commissions relating to transactions in securities are recognized on completion of the transactions.

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10. Finance income and expense

Finance income comprises interest income on amounts invested (including available-for-sale financial assets), revenues from dividend, gains from sale of financial assets classified as available-for-sale, changes in fair value of financial assets at fair value through profit or loss.

Changes in fair value of financial assets at fair value through profit or loss contain also interest income and revenues from dividends.

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Finance costs comprise interest expenses on liabilities measured at reduced cost, changes in the fair value of financial assets and financial liabilities measured at fair value through profit or loss and impairment losses of financial assets. Borrowing costs that are not capitalized to qualifying assets are recognized in the statement of income using the effective interest method.

Gains and losses on exchange differences are reported on a net basis.

11. Customer discounts

Current customer discounts are recognized in the financial statements when granted and are included in sales.

Customer discounts given at the end of the year and in respect of which the customer is not obligated to comply with certain targets, are recognized in the financial statements as the proportionate sales entitling the customer to said discounts are made. Customer discounts for which the customer is required to meet certain targets, such as a minimum amount of annual purchases (either quantitative or monetary) or an increase in purchases compared to previous periods are recognized in the financial statements in proportion to the purchases made by the customer during the year that qualify for the target, provided that it is expected that the targets will be achieved and the amount of the discount can be reasonably estimated.

AA. Cost of revenues and supplier discounts

Cost of sales includes expenses for loss, storage and conveyance of inventories to the end point of sale. Cost of sales also includes impairment provisions in respect of inventories, inventory write offs and provisions for slow-moving inventories.

Discounts are deducted from cost of purchase when the conditions entitling to those discounts are satisfied. Some of the discounts in respect of the portion of the purchases added to closing inventories are attributed to inventories and the balance reduces the cost of sales.

Supplier discounts received at the end of the year and in respect of which the Group is not obligated to comply with certain targets, are recognized in the financial statements as the proportionate purchases entitling the Group to the discounts are made.

Supplier discounts for which the Group is required to meet certain targets, such as a minimum amount of annual purchases (either quantitative or monetary) or increase in purchases compared to previous periods are recognized in the financial statements in proportion to the purchases made by the Group during the period that qualify for the target, provided that it is expected that the targets will be achieved and the amount of the discount can be reasonably estimated.

BB. Earnings (loss) per share

Earnings(loss) per share are calculated by dividing the net income(loss) attributable to equity holders of the parent by the weighted number of ordinary shares outstanding during the period. Basic earnings per share only include shares that were actually outstanding during the period. Potential ordinary shares are only included in the computation of diluted earnings per share when their conversion decreases earnings per share or increases loss per share from continuing operations. Further, potential ordinary shares that are converted during the period are included in diluted earnings per share only until the conversion date and from that date in basic earnings per share. The Company's share of earnings of investees is included based on the earnings per share of the investees multiplied by the number of shares held by the Company.

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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

CC. Provisions

A provision is recognized when the Group has a present obligation, legal or constructive, as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect is material, provisions are measured according to the estimated future cash flows discounted using a pre-tax interest rate that reflects the market assessments of the time value of money and, where appropriate, those risks specific to the liability.

1. Environmental liabilities

Environmental liabilities represent an estimate of the costs for restoration of the site. The provision is recorded when in the management's opinion it is probable that settlement of the liability will require outflow of economic resources and the amount of which can be reasonably estimated. Environmental liabilities represent the estimated costs involved in examination and remediation of the contaminations created.

The management's assessment is based on internal and external estimates of the contaminations and the existing relevant remediation technology, and a review of applicable environmental regulations. Environmental liabilities accrue mostly no later than upon completion of the remedial review. The provision in respect of these liabilities is adjusted as additional information is obtained or the circumstances change. The costs of purchasing the equipment required for the current remediation of environmental hazards are recorded as property, plant and equipment.

2. Legal claims

A provision for claims is recognized when the Group has a present, legal or constructive obligation, as a result of a past event, it is more likely than not that an outflow of resources embodying economic benefits will be required by the Group to settle the obligation and a reliable estimate can be made of the amount of the obligation.

3. Onerous contracts

A provision for onerous contracts is recognized when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received by the Group under it. The provision is measured at the lower of the present value of the anticipated cost of exiting from the contract and the present value of the net anticipated cost of fulfilling it. As described in Note 14 below, a subsidiary recorded a provision for an onerous contract to acquire an investee, in an agreement to obtain control in an existing associate that contains put and call options (syntactic forward. Accordingly, it was not subject IAS 39.

4. Restructuring

A provision for restructuring is recognized when the conditions for recognition of the provision have been fulfilled and the Company has approved a detailed and formal restructuring plan for a business or for part of the business that is relevant to restructuring, to the location and the number of employees who will be affected by the change, and there is a reliable detailed estimate of the related costs and planned schedule. Also, there must be a valid expectation by the parties affected by the restructuring that the restructuring will be implemented or it has already commenced.

DD. Advertising expenses

Advertising expenses are recognized in profit or loss as incurred.

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EE. Assets held for sale and discontinued operations

A non-current asset or disposal group is classified as held for sale if their carrying amount is recovered principally through a sale transaction rather than through continuing use. For this to be the case, the assets must be available for immediate sale in their present condition, the Group must be committed to sell, there must be a program to locate a buyer and it is highly probable that a sale will be completed within one year from the date of classification. These assets are not depreciated and are presented separately in the statement of financial position, at the lower of their carrying amount and fair value less costs to sell. When the carrying amount is higher than the fair value less selling costs, the impairment loss attributable to the asset (or group of assets) is recognized for the amount of the difference. Simultaneously, liabilities associated with these assets are presented separately in the statement of financial position in a similar manner. In addition, balances for other comprehensive income (loss) are presented separately in the statement of changes in equity.

According to the amendment to IFRS 5, when the parent decides to sell part of its interest in a subsidiary so that after the sale the parent retains a non-controlling interest, such as rights conferring significant influence, all the assets and liabilities attributed to the subsidiary will be classified as held for sale if the relevant criteria of IFRS 5 are met, including the presentation as a discontinued operation.

A discontinued operation is an operation that either has been disposed of or is classified as held for sale and represents a separate major line of business or geographical area of operations. In addition to being classified in the statement of financial position as above, the operating results and cash flows relating to the discontinued operation are presented separately in the statement of income and in the statement of cash flows with the comparative data including the segment information reclassified for that purpose.

FF. Insurance contracts

IFRS 4 - Insurance Contracts insurance contracts allows the insurer to continue with the same accounting policy that was in effect prior to the transition date to IFRS for insurance contracts that it issues (including related acquisition costs and related intangible assets) and the reinsurance contracts that it acquires.

In this context, it is noted that the accounting policy in general insurance business, applied by insurance subsidiaries in Israel (partially set by the Commissioner of Insurance in Israel) is substantially the same as that applied by insurance subsidiaries in other countries, with the exception of that stated in section (2) f (2) below and in Note 30(E).

1. Life assurance

A. Recognition of income – see section Z (10) above.

B. Liabilities for life assurance contracts

Life assurance reserves in Israel are computed according to the directives of the Commissioner of Insurance (“the Commissioner”) (regulations and circulars), generally accepted accounting principles and standard actuarial methods. The reserves are computed according to the relevant coverage data, such as the age of the policyholder, number of years of coverage, type of insurance and sum of insurance. Life assurance reserves and the reinsurers' share therein are determined on the basis of annual actuarial assessments carried out by the appointed actuaries of the insurance subsidiaries.

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C. Liabilities for CPI-linked life assurance contracts and CPI-linked investments used to cover these liabilities were included in the financial statements according to the most recently published CPI prior to the balance sheet date, including liabilities for life assurance contracts in respect of policies with semi-annual linkage.

D. Directives of the Commissioner of Insurance (“the Commissioner”) regarding reserves for annuities

A circular that was issued by the Commissioner in February 2007, regarding the method of calculating the reserves for annuities in life assurance policies, provides updated directives on how to calculate the provisions as a result of the improvement in life expectancy that requires monitoring the adequacy of the reserves in insurance policies that permit the receipt of an annuity, and their proper supplementation. Accordingly, the Company immediately supplements the reserve, to the extent necessary, with respect to policies in which annuities are currently being paid or when the policyholder has reached retirement age or for a group of unprofitable policies. Regarding other policies, where profits are expected, the reserve is supplemented alongside the receipt of the expected income, over the policy period.

E. Deferred acquisition costs

Deferred acquisition costs (DAC) of life assurance policies issued as from January 1, 1999 include commission for agents and acquisition supervisors and other expenses related to the acquisition of new policies, including part of the general and administrative expenses. The DAC is amortized at equal annual rates over the policy period but not over more than 15 years. The DAC in respect of cancelled policies are written off at the time of cancellation. Deferred acquisition costs of policies that were issued up to December 31, 1998 are computed by the actuaries of The Phoenix according to the “Zillmer deduction” method, based on a percentage of the premium or of the amount at risk according to the various insurance programs.

Pursuant to the directives of the Regulator of Insurance, the actuary of The Phoenix examines the recoverability of the DAC in each reporting period. This examination verifies that the liabilities for insurance policies, net of the DAC for policies sold since 1999 is sufficient, and that the policies are expected to generate future income to cover the DAC deduction and the insurance liabilities, operating expenses and commissions for those policies The examination is on the level of each separate product.

The assumptions used in this examination, including assumptions regarding cancellations, operating expenses, yield on assets, mortality and illness rates, are determined by the actuaries of The Phoenix every year on the basis of past experience and relevant current surveys.

Deferred acquisition costs for sale of pension plans

Direct acquisition costs (commissions to agents, acquisition supervisors and pension agents) that are indirectly attributable to acquisition of pension contracts, are recognized as deferred acquisition costs if they are separately identifiable and reliably measured and if if their refund is expected, the direct acquisition costs represent the Company’s right to receive management fees from the pension funds. These results are amortized in equal annual rates over 15 years.

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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

Liability adequacy testing for life assurance contracts

The Phoenix Insurance tests for liability adequacy for life assurance contracts. If the test indicates that the premiums received are insufficient to cover the expected claims, a special provision is recorded for the deficiency. Individual policies and collective policies are tested separately. Individual policies are tested on the product level and collective policies are tested on the single collective level.

The assumptions used in these tests include assumptions regarding cancellations, operating expenses, yield from assets, mortality and illness rates, and are determined by the actuary of The Phoenix Insurance every year on the basis of tests, past experience and other relevant surveys. For collective policies, the test is according to the claims experience of the single collective and subject to statistical reliability of this experience

F) Outstanding claims

Outstanding claims, net of the reinsurers’ share therein, are computed on an individual case basis, according to the valuation of insurance subsidiaries’ experts, based on the notifications regarding the insurance events and the sums insured. The provisions for pension payments, the provisions for long lasting payment claims for disability insurance, the direct and indirect expenses deriving from them, as well as the provisions for incurred but not yet reported claims (IBNR) are included under the insurance reserves.

G) Investment contracts

Intakes in respect of investment contracts are not included in the item of earned premiums but are directly recorded under liabilities in respect of insurance and investment contracts. Surrenders and maturities of these contracts are not included in the statement of income but are deducted directly from liabilities for insurance contracts and investment contracts.

In respect of these contracts, investment revenue, management fees collected from the policyholders, change in the reserve in respect of the share of the policyholders in investment revenue, commissions to agents, and general and administrative expenses are recognized in the statement of income.

H) Provision for participation in earnings of policyholders in group insurance

The provision is recognized under other payables. In addition, the change in the provision is offset by the income from the premium.

2. General insurance

A. Recognition of income – see section Z (10) above.

B. Payments and changes in liabilities in respect of insurance contracts include settlement and direct handling costs of claims paid and outstanding claims that occurred during the reported period, as well as an adjustment of the provision for outstanding claims and their direct handling costs that were recorded in previous years.

C. Provisions for outstanding claims include provisions for indirect expenses to settle claims

D. Liabilities for insurance contracts and deferred acquisition costs

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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

The reserve for unexpired risks and outstanding claims for insurance in Israel, included in liabilities for insurance contracts, and the reinsurers’ share in the reserve and in the outstanding claims under reinsurance assets, and the deferred acquisition costs in general insurance, are computed in accordance with the Supervision of Insurance Business Regulations (Methods of Calculating Provisions for Future Claims in General Insurance), 1984, as amended, the Commissioner's directives in this respect and standard actuarial methods for computing outstanding claims, that are applied according to the actuaries’ discretion.

E. The liabilities section for insurance contracts is composed of liabilities for insurance contracts, as follows:

1) The unearned premium reserve reflects the insurance premium for the insurance period subsequent to the balance sheet date.

2) Provision for premium deficiency. The provision is recognized if the unearned premium (less deferred acquisition costs) does not cover the expected cost for insurance contracts. In the motor casco, comprehensive residential and business branches, the provision is based on a model in the Supervision of Insurance Business Regulations (Methods of Calculating Provisions for Future Claims in General Insurance), 1984 (“the calculation of reserves regulations”).

F) Outstanding claims

The outstanding claims in the financial statements are computed as follows:

1 Outstanding claims and the reinsurers’ share thereof are included on the basis of an actuarial valuation, except for the branches detailed in section 2 below. Indirect expenses to settle claims are included on the basis of an actuarial valuation.

2 In the following branches, the actuary determined that it is not possible to apply the actuary model due to the absence of statistical significance: engineering insurance, insurance of freight, marine hull and aircraft, and incoming business. . These branches include outstanding claims based on the separate evaluation of each claim according to an opinion received from Company lawyers and experts of The Phoenix Insurance who handle the claims. The evaluations include a suitable provision for settlement and handling expenses not yet paid at the date of the financial statement. and based on ceding companies for incoming business, with the addition of IBNR if necessary.

3 Excess of income over expenses

In insurance companies incorporated in Israel, for all businesses with long tail claims (branches in which it could be several years before the claim is settled), such as the liability and motor act branches, excess of income over expenses is calculated on a tri-annual cumulative basis. In the sales law guarantee branch excess of income over expenses is calculated on a five-year cumulative basis (“the excess”).

The excess is comprised of premiums, acquisition costs and claims with the addition of yield at an annual rate of 3%, in real terms, all net of the reinsurers’ share, for each insurance branch and the respective underwriting year. The excess accumulated until its release, from the beginning of the insurance, net of the unexpired risk reserve and net of

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Notes to the Consolidated Financial Statements

outstanding claims calculated as aforesaid (“the accrual”), is included under liabilities for insurance contracts any deficit is recognized as an expense.

In insurance subsidiaries in other countries, the accumulation method is not applied. The insurance reserves are based on standard actuarial methods.

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G) Deferred acquisition costs

Deferred acquisition costs in general insurance include agents’ commissions and part of the general and administrative expenses related to the issuance of polices, in respect of the unearned insurance premiums on retention. The acquisition costs are calculated for each branch separately, on the basis of the actual rates of expenses or according to standard rates, as a percentage of the unearned premium, at the lower of the two.

H) The insurance premiums item includes all the amounts paid by the borrowers in connection with property insurance policies through a mortgage bank. The amounts paid to a mortgage bank for expenses are recognized under the item commissions and other acquisition costs.

I) Claims recoveries and salvage are taken into consideration in the data-base by which the actuarial valuations of the outstanding claims are calculated.

J) Participation in income in group insurance, recorded on the basis of valid agreements, is deducted from the premiums.

3. Health insurance

A. Recognition of income – see section Z (10) above.

B. Health insurance reserves

The insurance reserves are computed according to the Commissioner's directives (regulations and circulars), generally accepted accounting principles and standard actuarial methods. The reserves are computed according to the relevant coverage data, such as the age of the policyholder, number of years of coverage, type of insurance and sum of insurance. Health insurance reserves and the reinsurers' share therein are determined on the basis of annual actuarial assessments.

C. Outstanding claims

The provisions for long lasting payment claims with respect to long-term care insurance, the direct and indirect expenses deriving from them, as well as the provisions for incurred but not yet reported claims (IBNR) are included under the insurance reserves.

D. Provision for participation in earnings of policyholders in group insurance

The provision is recognized under other payables. In addition, the change in the provision is offset by the income from the premium.

E. The unexpired risk reserve, which is recognized under liabilities in respect of insurance contracts, includes, when necessary, a provision in respect of the anticipated loss (premium deficiency), which is computed on the basis of an actuarial valuation, as.an estimated cash flow for the contract.

F. Deferred acquisition costs

1 Deferred acquisition costs in health insurance include agents’ commissions and part of the general and administrative expenses related to the issuance of polices, in respect of the unearned insurance premiums on retention.

2. The deferred acquisition costs are amortized at equal rates over the period of the policy, but in no longer than six years Deferred

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acquisition costs relating to cancelled policies are written off on the cancellation date.

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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

3, The appointed actuary assesses the recoverability of the DAC every year. The assessment verifies that the liabilities for insurance policies (policies sold in 2005 and for which the DAC is calculated), net of the DAC is adequate and that the policies are expected to generate future income to cover the DAC deduction, insurance liabilities, operating expenses and commissions for those policies The assessment is on the product level. The assumptions used in this assessment, which include assumptions regarding cancellations, operating expenses, yield on assets, mortality and illness rates, are determined by the actuaries every year on the basis of past experience and relevant current surveys

GG. Foreign currency exchange rates and linkage

1. Assets and liabilities in foreign currency, or linked to foreign currency, are included as per the valid representative exchange rate published by the Bank of Israel on the balance sheet date.

2. The CPI-linked assets and liabilities are included as per the appropriate CPI for each linked asset or liability.

Exchange rates of the principal functional currencies and the CPI:

Euro USD representative representative December exchange rate exchange rate CPI NIS NIS Points (*)

December 31, 2010 4.738 3.549 211.7 December 31, 2009 5.442 3.775 206.2 December 31, 2008 5.297 3.802 198.4 December 31, 2007 5.659 3.846 191.1

Rate of change in the year ended: % % %

December 31, 2010 (12.9) (5.9) 2.7 December 31, 2009 2.7 (0.7) 3.9 December 31, 2008 (6.4) (1.1) 3.8

*) CPI at average basis 1993 = 100

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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

HH. Presentation of statement of comprehensive income

The Company elected to present comprehensive income in two statements: a statement of income and a statement of comprehensive income, which include, as well as the profit from the statement of income, all the items recognized in other comprehensive income.

IAS 34 – Interim Financial Reporting

Pursuant to the amendment to IAS 34, new disclosure requirements were introduced to interim financial reporting regarding the circumstances that are likely to affect the fair value of financial instruments and their classification, the transfers of financial instruments between different fair value levels, changes in the classification of financial assets and changes in contingent liabilities and contingent assets. The amendment will be adopted retrospectively in the financial statements for periods starting from January 1, 2011. Earlier application is permitted.

The required disclosures will be included in the Company's financial statements.

IFRS 7 - Financial Instruments: Disclosure

The amendments to IFRS 7 address the following issues:

1. The amendment to IFRS 7 clarifies the disclosure requirements prescribed by the Standard. The Standard highlights the connection between the quantitative and qualitative disclosures and the nature and scope of the risks arising from financial instruments. The disclosure requirements regarding securities held by the company have been minimized and the disclosure requirements regarding credit risk have been revised. The amendment will be adopted retrospectively in the financial statements for periods starting from January 1, 2011. Earlier application is permitted.

2. New and extensive disclosure requirements about derecognition of financial assets and disclosure requirements for unusual transfer activity near the end of a reporting period. The objective of the amendment is to enable the users of the financial statements to better assess the Company’s exposure to risks arising from the transfer of financial assets and the effect of these risks on the Company’s financial position. The amendment is designed to enhance the reporting transparency of transactions, specifically securitization of financial assets. The amendment will be applied prospectively for accounting periods commencing on January 1, 2012. Earlier application is permitted.

The appropriate disclosures will be included in the Company's financial statements.

IFRS 9 - Financial Instruments

1. In November 2009, the IASB issued IFRS 9 – Financial Instruments, which represents the first phase of a project to replace IAS 39 – Financial Instruments: Recognition and Measurement. IFRS 9 focuses mainly on the classification and measurement of financial assets and it applies to all financial assets within the scope of IAS 39.

According to IFRS 9, upon initial recognition, all the financial assets (including hybrid contracts with financial asset hosts) will be measured at fair value. In subsequent periods, debt instruments can be measured at amortized cost if both of the following conditions are met:

− The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.

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− The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

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Subsequent measurement of all other debt instruments and financial assets will be at fair value.

Financial assets that are equity instruments will be measured in subsequent periods at fair value and the changes will be recognized in the statement of income or in other comprehensive income (loss), in accordance with the election of the accounting policy on an instrument-by- instrument basis. Nevertheless, if the equity instruments are held for trading, they must be measured at fair value through profit or loss. This election is final and irrevocable. When an entity changes its business model for managing financial assets it shall reclassify all affected financial assets. In all other circumstances, reclassification of financial instruments is not permitted.

The Standard will be effective starting January 1, 2013. Earlier application is permitted. Earlier application will be made with a retrospective restatement of comparative figures, subject to the reliefs set out in the Standard.

2. In October 2010, amendments to IFRS 9 were published regarding derecognition and financial liabilities. According to those amendments, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value option has not been elected (designated as measured at fair value through profit or loss); that is, the classification and measurement provisions of IAS 39 will continue to apply to financial liabilities held for trading and financial liabilities measured at amortized cost.

The changes arising from these amendments affect the measurement of a liability for which the fair value option had been chosen. According to the amendments, the amount of change in fair value of a liability attributable to changes in credit risk is recognized in other comprehensive income. All other changes in fair value are recognized in the statement of income. All other fair value adjustments should be presented in profit or loss rather than in other comprehensive income.

Furthermore, according to the amendments, derivative liabilities in respect of certain unquoted equity instruments can no longer be measured at cost but rather only at fair value.

The amendments are effective as from January 1, 2013. Earlier application is permitted, provided the Company also applies IFRS 9 regarding classification and measurement of financial assets. Initial adoption of the amendments is retrospective, with restatement of comparative information subject to the exemptions in the amendments.

The Company is assessing the effect of these standards, however at this stage, it is not possible to estimate the impact.

IAS 12 - Income Taxes

The amendment to IAS 12 applies to investment property measured at fair value. According to the amendment, the deferred tax asset/liability in respect of such property should be measured based on the presumption that the carrying amount of the property will be recovered in full through sale (and not through use). However, if the investment property is depreciable and is held within a business model with the objective of recovering substantially all of the underlying economic benefits through use and not sale, the sale presumption is rebutted and the Company should apply the regular guidelines of IAS 12. The amendment supersedes the provisions of SIC 21 that require separation of the land component and the building component of investment property measured at fair value in order to calculate the deferred tax. The amendment should be applied retrospectively commencing from the financial statements for annual periods beginning on January 1, 2012. Earlier application is permitted.

The Company believes that the effect of the standards on the financial statements is not expected to be material.

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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

IAS 24 – Related Party Disclosures

The amendment to IAS 24 clarifies the definition of a related party in order to simplify the identification of such relationships and to eliminate inconsistencies in its application. In addition, government-related companies are provided a partial exemption of disclosure requirements for transactions with the government and other government-related companies. The amendment will be adopted retrospectively in the financial statements for annual periods starting from January 1, 2011. Earlier application is permitted.

The appropriate disclosures will be included in the Company's financial statements.

IAS 32 – Financial Instruments: Presentation - Classification of Rights Issues

The amendment to IAS 32 determines that rights, options or share options to acquire a fixed number of the Company's equity instruments for a fixed amount of any currency are classified as equity instruments if the Company offers the rights, options or share options pro rata to all of its existing owners of the same class of its non-derivative equity instruments. The amendment will be adopted retrospectively in the financial statements for annual periods starting from January 1, 2011. Earlier application is permitted.

The Company believes that the effect of the standard on the financial statements is not expected to be material.

IFRIC 14 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

The amendment to IFRIC 14 provides guidance on assessing the recoverable amount of a defined benefit plan asset. It allows companies to account for prepayments of minimum funding requirements as an asset. The amendment will be adopted retrospectively in the financial statements for periods starting from January 1, 2011. Earlier application is permitted.

The Company believes that the effect of the interpretation on the financial statements is not expected to be material.

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NOTE 3 – CASH AND CASH EQUIVALENTS

December 31 2010 2009 NIS millions

A. Cash balances and deposits available for immediate withdrawal

NIS 395 675 Foreign currency 1,231 1,482

1,626 2,157

B. Short-term deposits

NIS 1,427 1,526 Foreign currency 390 314

1,817 1,840

3,443 3,997

Short-term NIS deposits in banks are for periods of between one week and three months. As of December 31, 2010, deposits bear weighted annual interest at a rate of 2.07%.

Short-term foreign currency deposits in banks are for periods of between one week and three months. At December 31, 2010, the deposits bear weighted annual interest at a rate of 1.37%.

NOTE 4 – PERFORMANCE-BASED CASH AND CASH EQUIVALENTS IN AN INSURANCE COMPANY

December 31 2010 2009 NIS millions

Cash balances and deposits available for immediate withdrawal 214 123 Short-term deposits 393 980

Cash and cash equivalents 607 1,103

At December 31, 2010, cash in banks bears weighted annual current interest at a rate of 1.72% based on interest rates for daily deposits

Short-term bank deposits in banks are for periods of between one week and three months. At December 31, 2010, deposits bear weighted annual interest at a rate of 2.0%.

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Notes to the Consolidated Financial Statements

NOTE 5 – SHORT-TERM INVESTMENTS OF THE FINANCE SECTOR (MAINLY EXCHANGE-TRADED FUNDS AND DEPOSITS)

December 31 2010 2009 NIS millions A. Financial assets measured at fair value through profit or loss (1)

Marketable securities 99 73

Non-marketable securities Debentures 148 267 Assets held by special purpose entities that issue exchange-traded funds and deposits 13,380 12,580

13,627 12,920 B. Credit for acquisition of securities

Open accounts 97 143 Less - allowance for doubtful accounts (5) (4)

Receivables, net 92 139

C. Designated deposits:

NIS 1,993 932 In USD 1,446 1,014 Other 1,088 1,151

4,527 3,097

18,246 16,156

(1) Financial assets at fair value through profit or loss, other than assets used as back-up assets held by special purpose entities that issue exchange-traded funds and deposit are classified as held for trading and, therefore, are recognized at fair value through profit or loss. Assets held by special purpose entities that issue exchange-traded funds and deposit are designated by the Group at initial recognition at fair value through profit or loss.

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NOTE 6 – OTHER SHORT-TERM INVESTMENTS

December 31 2010 2009 NIS millions A. Financial assets measured at fair value in the statement of income

Shares 72 69 Government and corporate debentures and government loans 551 452

623 521

B. Available for sale financial assets

Shares 45 - Debentures 127 180

172 180

C. Bank deposits (1) 213 141

1,008 842

(1) At December 31, 2010, deposits are denominated in the dollar and bear annual interest at a rate of 0.58%. The Balance as of December 31, 2010 includes deposits of NIS 110 million (in 2009, NIS 68 million), restricted by the bank for the fulfillment of certain conditions. See Note 28 for the linkage conditions.

NOTE 7 – TRADE RECEIVABLES

December 31 2010 2009 NIS millions

Open accounts 3,077 2,971

Checks receivable 67 789

3,144 3,760 Less - allowance for doubtful accounts 108 100

Trade receivables, net 3,036 3,660

See Note 28 for linkage conditions.

Trade receivables do not bear interest. At December 31, 2010, the average credit term for customers in Israel, Europe and the United States is 53, 21 and 11 days, respectively.

C-67 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 7 – TRADE RECEIVABLES (CONTD.)

Changes in allowance for doubtful accounts:

NIS millions

Balance as of January 1, 2009 106

Provision for the year 5 Doubtful accounts written off (10) Exchange differences on translation of foreign operations (1)

Balance as of December 31, 2009 100

Provision for the year 20 Doubtful accounts written off (7) Exchange differences on translation of foreign operations (5)

Balance as of December 31, 2010 108

Ageing analysis of gross trade receivables Balance as of the balance sheet date:

Trade receivables Trade receivables past due not yet Up to 90 91-180 181-270 271-365 Over 1 past due days days days days year Total NIS millions

December 31, 2010 2,851 142 44 3 2 102 3,144

Less – allowance for doubtful accounts 108

December 31, 2010 3,036

December 31, 2009 3,433 146 52 5 5 119 3,760

Less allowance for doubtful accounts 100

December 31, 2009 3,660

C-68 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 8 – INSURANCE PREMIUM RECEIVABLE

A. Composition:

December 31 2010 2009 NIS millions

Premium receivables (b) 938 999 Less - allowance for doubtful accounts 6 5

Premium receivables, net 932 994

For linkage terms of premium receivables, see Note 28.

B. Ageing:

December 31 2010 2009 NIS millions Premium receivables, neither past due nor impaired Not past due 744 849 Past due *): Less than 90 days 113 108 90-180 days 16 12 More than 180 days 51 18

Total premium receivables past due, but not impaired 180 138 Impaired premium receivables 14 12 Less - allowance for doubtful accounts 6 5

Premium receivables, net 932 994

*) Primarily past due receivables in life assurance. These receivables are largely secured by the maturity value of the policy.

NOTE 9 – OTHER RECEIVABLES

December 31 2010 2009 NIS millions

Prepaid expenses and advances to suppliers 215 244 Current maturities of long-term debts and loans (1) 33 37 Related parties – current balances 39 66 Institutions 59 48 Dividend receivable 51 - Insurance companies and insurance agents 47 105 Customer deposits held in trust 66 133 Receivables for joint ventures 77 18 Receivables for acquisition of operations 99 - Other receivables 202 241

888 892 (1) At December 31, 2010, inlcudes NIS 3 million current maturities for the loan to the interested party

C-69 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

(1) NOTE 10 – INVENTORIES

December 31 2010 2009 NIS millions

Fuel products in gas stations and facilities 615 470 Inventory of consumables in gas stations 163 152 Oil and distillates in the refinery 354 322 Vehicles and spare parts - 619 Other 141 120

1,273 1,683

NOTE 11 – FINANCIAL INVESTMENTS OF INSURANCE COMPANIES

A. Composition:

December 31 2010 2009 NIS millions

Financial investments for performance-based contracts (1) 19,986 16,155 Other financial investments (2) 15,242 14,078

35,228 30,234

(1) Financial investments for performance-based contracts

December 31 2010 2009 NIS millions

Marketable debt assets 7,332 6,452 Non-marketable debt assets 3,936 3,769 Shares 4,683 2,889 Other financial investments 4,035 3,045

19,986 16,155

Fair value of financial assets classified in accordance with IFRS 7

December 31, 2010 Level 1 Level 2 Level 3 Total NIS millions

Marketable debt assets 7,332 - - 7,332 Non-marketable debt assets - 3,826 110 3,936 Shares 4,594 - 89 4,683 Other 2,668 458 909 4,035

Total 14,594 4,284 1,108 19,986

C-70 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 11 – FINANCIAL INVESTMENTS OF INSURANCE COMPANIES (CONTD.)

December 31, 2009 Level 1 Level 2 Level 3 Total NIS millions

Marketable debt assets 6,452 - - 6,452 Non-marketable debt assets - 3,612 157 3,769 Shares 2,812 - 77 2,889 Other 1,794 457 794 3,045

Total 11,058 4,069 1,028 16,155

Changes in level-3 financial assets measured at fair value

Financial assets measured at fair value through profit or loss Non- Other marketable financial debt assets Shares investments Total NIS millions

Balance as of January 1, 2010 157 77 794 1,028

Total gains recognized 32 7 46 85 Purchases 30 22 199 251 Sales - (17) - (17) Redemptions (74) - (130) (204) Transfer to level 3 16 - - 16 Transfer from level 3 (51) - - (51)

Balance as of December 31, 2010 110 89 909 1,108

Total gains for the period included in profit or loss for assets held at December 31, 2010 16 9 44 69

(2) Other financial investments

December 31, 2010 Available- At fair value for-sale through financial Loans and profit or loss assets receivables Total NIS millions

Marketable bonds (C) 50 4,443 - 4,493 Non-marketable bonds (D) - 1,417 8,112 9,529 Shares (E) 14 569 - 583 Other (F) 270 367 - 637

Total 334 6,796 8,112 15,242

C-71 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 11 – FINANCIAL INVESTMENTS OF INSURANCE COMPANIES (CONTD.)

December 31, 2009 Available- At fair value for-sale through financial Loans and profit or loss assets receivables Total NIS millions

Marketable bonds (C) 43 5,598 - 5,641 Non-marketable bonds (D) - - 7,762 7,762 Shares (E) - 193 - 193 Other (F) 360 123 - 483

Total 403 6,094 7,762 14,078

B. Financial investments in insurance companies as presented in the balance sheet:

December 31 2010 2009 NIS millions

Current assets 1,660 1,917 Non-current assets 33,568 28,317

35,228 30,234

C. Marketable bonds in other financial investments

December 31 2010 2009 NIS millions

Government bonds or government-guaranteed bonds 3,092 3,494 Other non-marketable bonds 1,399 2,144 Other marketable bonds 2 3

Total marketable bonds 4,493 5,641

Impairment recognized in profit or loss (cumulative) 17 32

D. Non-marketable bonds in other financial investments

Carrying amount Fair value 2010 2009 2010 2009 NIS millions

Government debentures or government guarantee 5,260 4,888 6,379 5,482 Other non-convertible bonds 4,269 2,874 4,473 3,156

Total non-marketable bonds 9,529 7,762 10,852 8,638 Impairment recognized in the statement of income (cumulative) 43 72

C-72 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 11 – FINANCIAL INVESTMENTS OF INSURANCE COMPANIES (CONTD.)

E. Shares

December 31 2010 2009 NIS millions

Marketable shares 553 151 Non-marketable shares 30 42

Total shares 583 193

Impairment recognized in profit or loss (cumulative) 24 24

F. Other financial investments

December 31 2010 2009 NIS millions

Marketable financial investments 470 372

Non-marketable financial investments 167 111

Impairment recognized in profit or loss (cumulative) 66 79

Other financial investments include mainly investments in exchange-traded funds, mutual funds, investment funds, financial derivatives, future contracts, options and structured products.

G. Disclosure of other financial investments measured at fair value

December 31, 2010 Level 1 Level 2 Level 3 Total NIS millions

Marketable debt assets 4,493- - 4,493 Non-marketable debt assets 70 1,347 - 1,417 Shares 556 - 27 583 Other 455 64118 637

Total 5,574 1,411145 7,130

December 31, 2009 Level 1 Level 2 Level 3 Total NIS millions

Marketable debt assets 5,821 - - 5,821 Shares 151 - 42 193 Other 279 60 144 483

Total 6,251 60 186 6,497

C-73 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 11 – FINANCIAL INVESTMENTS OF INSURANCE COMPANIES (CONTD.)

2010 Other financial Shares investments Total NIS millions

Balance as of January 1, 2010 42 144 186

Total profits or losses:

In the statement of income - 13 13 In other comprehensive income 1 4 5

1 17 18 Movement:

Purchases 6 20 26 Sales (22) (6) (28) Deposits - (57) (57)

(16) (43) (59)

27 118 145 Total gains (losses) included in profit or loss for assets held at December 31, 2010 3 (3) -

2009 Other financial Shares investments Total NIS millions

Balance as of January 1, 2009 45 251 296

Total profits or losses:

In the statement of income (1) 8 7

(1) 8 7 Movement:

Purchases - 105 105 Sales (3) - (3) Deposits - (217) (217) Transfer to level 3 1 - 1 Transfer from level 3 - (3) (3)

(2) (115) (117)

42 144 186

Total gains (losses) included in profit or loss for assets held at December 31, 2009 3 (5) (2)

C-74 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 11 – FINANCIAL INVESTMENTS OF INSURANCE COMPANIES (CONTD.)

H. Interest rates used for determining fair value in Israel

The fair value of non-marketable financial assets that are measured at fair value through profit or loss, and the fair value of non-marketable financial assets, which information is provided for disclosure purposes only, are determined by discounting estimated future cash flows. The discount rates are based on the yields of government bonds and margins of corporate debentures as reported on the TASE plus a premium for non-marketability. The interest rates used for discounting are determined by a company that provides interest rate quotations in relation to different risk ratings.

NOTE 12 – LONG-TERM LOANS, DEPOSITS AND RECEIVABLES

A. Composition:

Annual weighted interest December 31 (1) 2010 2009 % NIS millions Loans

CPI-linked (2) 6.5 79 81 Dollar-linked 5.5 9 14 Unlinked (5) 6.4 82 128

177 223 Less - current maturities 30 30

147 193 Loan to the Fuel Administration (3) 235 249 Long-term trade receivables 43 342 Restricted deposits (4) 51 77 Other 113 121

589 982

(1) At December 31, 2010

(2) At December 31, 2010, includes NIS 11 million from related parties (in 2009, NIS 24 million). See also Note 45.

(3) The balance is in respect of fuel inventory purchased by Delek Israel for the Fuel Administration. Considering the financial characteristics of the agreement with the Fuel Administration regarding the inventory, the balance in respect of this inventory is recognized as a receivable and not as inventory. The debt is linked to the dollar exchange rate and bears interest at Libor + 0.75% up to December 31, 2007. As from January 1, 2008, following the agreement with the Fuel Administration, the interest rate was adjusted to Libor 1.5%-3.3%. The repayment date for the debt principal has not yet been set (the interest is paid on an ongoing basis). See also Note 32A(2)(h). At December 31, 2010, the interest rate is 3.5%.

(4) The deposits were restricted to secure repayments to credit providers. Mainly dollar-linked deposits.

(5) The Balance as of December 31, 2009 includes NIS 34 million for a loan provided by Delek Motor Systems to a former investee of Delek Real Estate (Vitania) for a joint venture to acquire Mazda-Ford House.

C-75 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 12 – LONG-TERM LOANS, DEPOSITS AND RECEIVABLES (CONTD.)

B. Maturities of loans

December 31 2010 NIS millions

First year – current maturities 30 Second year 47

Third year 17 Fourth year 12 Fifth year 16 Sixth year and onwards 28 Not yet determined 20

170

C. See Note 33 for liens.

NOTE 13 – INVESTMENTS IN OTHER FINANCIAL ASSETS

December 31 2010 2009 NIS millions

Financial derivatives - 4

Investment in available-for-sale financial assets

Marketable shares (1) 2,172 643 Non-marketable shares (2) 328 629 Non-marketable participating units - 1

2,500 1,273

Investments in financial assets designated as fair value through profit or loss - marketable shares 27 141

2,527 1,418

(1) In August 2009, the Company’s board of directors resolved to approve an investment of USD 218 million to acquire in the US company Noble Energy Inc. (“Noble”), which is traded on the NYSE (approximately 2% of the share capital of Noble). In July 2010, the Company’s board of directors resolved to increase the investment in Noble shares in an additional amount that will not exceed 1% of the share capital of Noble. In August 2010, the Company’s board of directors resolved to increase the limit of the investment in Noble up to a total holding of 4% of the share capital of Noble.

The investment in Noble shares is an available-for-sale financial asset and is measured at fair value, with changes recognized in other comprehensive income.

In 2010, the Group sold Noble shares. The pre-tax profit created for the Group from the sale of Noble shares amounted to NIS 38 million in 2010 (in 2009 – NIS 46 million).

C-76 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 13 – INVESTMENTS IN OTHER FINANCIAL ASSETS (CONTD.)

To finance the acquisition of Noble shares, in 2009, the Group entered into an agreement with a foreign bank for a non-recourse loan of USD 120 million. The Group pledged Noble shares in favor of the foreign bank as collateral for the loan. In November 2010 the loan was increased and was replaced with a new loan, for the acquisition of up to 5,244,000 Noble shares, representing 3%, which will not exceed USD 230 million, for repayment by November 2013. The Group has undertaken to maintain, during the loan period, a ratio of 55% between the value of the collateral and the outstanding debt. If the ratio between the outstanding debt and the value of the collateral exceeds 66% (subject to changes under certain circumstances), the Group is required to act immediately to maintain the ratio of 55% between the balance of the outstanding debt and the value of the collateral. The Group calculates the value of the collateral and outstanding debt at the end of each trading day. The Group calculates the outstanding debt and value of total holdings and measures the ratio between the two. The Group is entitled to draw dividends distributed for the pledged shares, subject to compliance with the required collateral-debt ratio. Moreover, the agreement includes provisions for immediate forced repayment, including in the event of extreme change in the trading volume of Noble shares, suspension of trading or a sharp fall in Noble’s share price. The interest for the utilized loan is annual Libor interest plus 1.57%, repayable annually. At December 31, 2010, and shortly before publication of the report, NIS 563 million and NIS 365 million of the loan were utilized, respectively.

At December 31, 2010, the investment in Noble shares amounts to NIS 1.472 billion, representing 2.7% of the share capital of Noble. The positive balance of the capital reserve (before tax) reflecting gains from unrealized appreciation amounts to NIS 281 million.

At December 31, 2009, the investment in Noble shares amounted to NIS 440 million, representing 1% of the share capital of Noble. The positive balance of the capital reserve (before tax) amounts to NIS 40 million.

Subsequent to the balance sheet date, in the first quarter of 2011, the Group sold part of Noble shares for NIS 718 million. The profit (before tax) arising from this sale is NIS 177 million. The balance of the investment (representing 1.5% of Noble share capital) and the positive capital reserve shortly before the approval date of the financial statements amounts to NIS 890 million and NIS 236 million, respectively.

(2) A. Delek US holds 34.6% of the shares of Lion Oil (“Lion”). The remaining shares in Lion are held by a third party who is the controlling shareholder. From the date of acquisition (July 2007) through September 30, 2008, the investment in Lion was presented using the equity method. In the fourth quarter of 2008, Delek US assessed the accounting treatment and concluded that it does not have significant influence over Lion because, among other reasons, Delek US is unable to influence decisions made by the board of directors of Lion and because it does not have access to necessary financial information about Lion. Therefore, as from the fourth quarter of 2008, the investment in Lion is treated as an available-for-sale asset. Delek US notified the US Securities and Exchange Commission (SEC) for such accounting treatment and the SEC did not object Delek US's conclusion. In 2010, Delek US recognized impairment of USD 60 million for the investment, based on a transaction for the acquisition of a further 53.7% of Lion shares as set out above. At December 31, 2010, the balance of the investment in Lion amounts to USD 71.6 million.

B. Subsequent to the reporting date, on March 17, 2011, Delek US entered into an agreement with Ergon Inc. (“the sellers”) for the acquisition of 53.7% of the share capital of Lion, which owns, among other companies, a refinery in El Dorado, Arkansas. Subsequent to the acquisition, US Delek will own 88.3% of the share capital of Lion.

Delek USS will acquire the sellers’ holdings in Lion according to the following outline:

1. The sellers will be paid USD 50 million in cash.

C-77 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 13 – INVESTMENTS IN OTHER FINANCIAL ASSETS (CONTD.)

2. Delek US will issue the sellers shares of Delek US equivalent to USD 45 million (the number of shares will be determined according to the average closing price of Delek US shares in the ten trading days preceding the completion date of the transaction). Based on the closing price of Delek US shares shortly before the reporting date (USD 12.02 per share), this represents 6.5% of Delek US share capital.

3. Lion will issue the sellers a new promissory note of USD 50 million guaranteed by Delek US. The promissory note bears annual interest at a rate of 4% (paid quarterly) and the principal will be repaid in five equal annual payments as from the end of the second year of its issue.

4. Lion will transfer its rights in the oil pipeline (worth USD 50 million) and all its asphalt inventory against repayment of Lion’s debt to the sellers.

Furthermore, Delek US will participate in Lion’s refinancing of the net working capital of Lion, which is currently financed with the participation of the sellers.

When the agreement was signed, Delek US paid the sellers an advance payment of USD 5 million. The balance of the consideration will be paid and the debt to the sellers will be arranged on completion of the transaction.

Completion of the transaction is subject to the fulfillment of preconditions and must be completed by April 29, 2011, unless the parties agree to extend this date. The material preconditions are regulatory approvals, including approval from the Antitrust Commissioner and approvals under the Defense Production Act. The acquisition agreement may be canceled if certain events occur, including by mutual consent or by either party if all of the preconditions are not fulfilled by April 29, 2011. Moreover Delek US has the right to cancel the acquisition agreement at its sole discretion and the advance payment of USD 5 million will serve as agreed compensation.

(3) In February 2010, Delek - The Israel Fuel Corporation Ltd. (“Delek Israel”) sold all of its holdings (11.5%) in Haifa Basic Oils Ltd. to the controlling shareholder in this company (Oil Refineries Ltd.) for NIS 29 million. Delek Israel recognized a profit of NIS 20 million (before income tax) for the sale (recognition of capital reserve accrued up to the date of the sale in the statement of income).

C-78 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 14 – BUSINESS COMBINATIONS AND INVESTMENTS IN INVESTEES AND PARTNERSHIPS

A. Composition:

Associates December 31 2010 2009 NIS millions

Shares 2,886 1,452 Loans and capital notes (1) (2) 939 950

3,825 2,402

Less - provision for impairment 33 19

3,792 2,383

(1) See Note 28 for linkage conditions of loans to associates.

(2) The balance as of December 31, 2010 includes NIS 384 million for loans provided by the Company to Delek Real Estate. See section G below.

B. Summarized financial information of associates

December 31 2010 2009 NIS millions Group share of net assets of associates, based on percentage of interest held as of the balance sheet date

Current assets 4,643 3,737 Non-current assets *) 5,130 3,303 Assets in the insurance and financial sectors 2,731 2,536 Current liabilities (4,735) (3,734) Long-term liabilities (2,659) (2,294) Liabilities in the insurance and financial sectors (2,224) (2,096)

Net assets 2,886 1,452

*) Including fair value differences

Year ended December 31 2010 2009 2008 NIS millions

Group share of results of associates, based on percentage of interest held during the period

Revenues 4,804 2,578 3,138

Net income (loss) *) 156 91 (12)

*) After adjustment of fair value differences

C-79 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 14 – BUSINESS COMBINATIONS AND INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.)

C. Condensed financial information of an associate

The Group owns 50% of the shares of IDE Technologies Ltd. (“IDE”). The Group’s investment in IDE is accounted for using the equity method. In 2010, the Group’s share in the profits of IDE amounted to NIS 61 million, which is more than 20% of the Group’s profit (loss) from continuing operations attributable to equity holders of the parent. The financial statements of IDE were not attached to the Group’s financial statements since in the prior reporting period, the Group’s share in the results of IDE did not exceed 20% of the profit attributable to the equity holders of the parent and it is expected that it will not exceed this amount in the next reporting period. Following is condensed information about IDE for each reporting period (USD millions):

December 31 2010 2009 USD millions

Current assets 181 212 Non-current assets 393 346

Current liabilities 98 138 Non-current liabilities 300 270

Equity attributable to equity holders of the parent 177 150

Year ended December 31 2010 2009 2008 USD millions

Revenues 195 377 270

Gross profit 53 96 55

Operating profit 26 68 36

Finance income (expenses), net 20 12 (22)

Net profit 32 71 11

The exchange rate at December 31, 2010, used to translate the financial statements of the associate, is USD 1 = NIS 3.549 (change in 2010 – a decrease of 6%).

Unamortized goodwill

At December 31, 2010, the balance of goodwill attributable to the investment in IDE is NIS 42 million.

D. Investments in shares listed for trading on the TASE:

December 31, 2010 December 31, 2009 Carrying Market Carrying Market amount value amount value NIS millions

Subsidiaries (1) 5,479 15,978 5,826 13,539 Partnerships and associates (2) 2,253 6,743 729 2,924

C-80 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 14 – BUSINESS COMBINATIONS AND INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.)

(1) Composition of the investment in shares of subsidiaries listed for trading on the TASE

December 31, 2010 December 31, 2009 Carrying Market Carrying Market amount value amount value NIS millions

Delek US Holdings Inc. 1,086 1,027 1,424 1,022 The Phoenix Holdings Ltd. 1,964 1,731 1,760 1,349 Delek - The Israel Fuel Corporation Ltd. 810 1,180 810 1,411 Delek Energy Systems Ltd. (52) 5,594 22 3,871 Delek Automotive Systems Ltd. *) - - 367 2,113 Gadot Biochemical Industries Ltd. 119 79 149 106 Delek Drilling – Limited Partnership 491 5,476 323 2,805 Excellence Investments Ltd. 1,061 891 971 862

5,479 15,978 5,826 13,539

*) At December 31, 2010, presented on an equity basis (see section M below).

(2) Composition of the investment in associates listed for trading on the TASE

December 31, 2010 December 31, 2009 Carrying Market Carrying Market amount value amount value NIS millions

Avner Oil Exploration - Limited Partnership 828 5,000 605 2,739 Delek Automotive Systems Ltd. 1,316 1,551 - - Mehadrin Ltd. 177 172 164 156 Delek Real Estate Ltd. (68) 20 (40) 29

2,253 6,743 729 2,924

C-81 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 14 – BUSINESS COMBINATIONS AND INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.)

E. Additional information about an associate held directly by the Company

Company’s Amounts provided by Balance interest in the Company to an of equity and associate investme voting Guarante nt in the Country of rights Loans es associate incorporation % NIS millions 2010

Delek Real Estate *) Israel 4.98% 361 58 (68)

Company’s Amounts provided by Balance interest in the Company to an of equity and associate investme voting Guarante nt in the Country of rights Loans es associate incorporation % NIS millions 2009

Delek Real Estate *) Israel 4.98% 353 60 (40)

*) See Note (G)(1) below.

F. Subsidiaries

1. Additional information about subsidiaries held directly by the Company

Balance of investment Company’s Amounts provided by in the interest in the Company to the subsidiary equity and subsidiary (based) voting Guarante on equity Country of rights Loans es method incorporation % NIS millions

2010

Delek Investments and Properties Ltd. Israel 100 3,561 12 *) 3,526 Delek Petroleum Ltd. Israel 100 1,384 - 1,311

4,945 12 4,837

2009

Delek Investments and Properties Ltd. Israel 100 3,053 189 *) 1,697 Delek Petroleum Ltd. Israel 100 925 - 1,766

3,978 189 3,463

*) A corresponding guarantee of Delek Investments was provided in respect of this guarantee.

C-82 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 14 – BUSINESS COMBINATIONS AND INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.)

2. Dividends from subsidiaries

In 2010, Delek Investments distributed a dividend of NIS 300 million.

Dividends received at headquarter companies from their investees:

Year ended December 31 2010 2009 2008 NIS millions

Delek Automotive Systems Ltd. 245 92 399 Delek US Holdings Inc. 21 22 15 Delek - The Israel Fuel Corporation Ltd. 21 21 44 Delek Drilling – Limited Partnership - 2 5 Avner Oil Exploration - Limited Partnership - 4 10 Republic 36 - - IDE 20 - -

343 141 473

G. Principal changes in investees

Distribution of Delek Real Estate shares as a dividend in kind.

1. In October 2008, the Company’s board of directors resolved to distribute all or most of its shares in Delek Real Estate to the Company’s shareholders, subject to receiving the required approvals by virtue of the obligations and covenants of the Company and Delek Real Estate towards third parties.

On March 31, 2009, after receiving these approvals, the board of directors resolved to distribute most of Delek Real Estate shares held by the Company as a dividend to the shareholders of the Company. The record date was April 20, 2009 and the distribution date was May 3, 2009. After the distribution, the Group owns approximately 5% of Delek Real Estate’s issued and paid up share capital. Accordingly, the Company no longer consolidates the accounts of Delek Real Estate in its financial statements. The balance of the investment in Delek Real Estate is accounted for in the financial statements by the equity method and amounts to NIS 294 million at December 31, 2010 (including the loans provided by the Company to Delek Real Estate).

The results of Delek Real Estate operations up to the date of distribution are presented separately in the statement of income under profit (loss) from discontinued operations.

C-83 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 14 – BUSINESS COMBINATIONS AND INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.)

The table below presents information on the results of operations attributable to the discontinued operations.

Year ended December 31 2009 *) 2008 NIS millions

Revenues 406 1,654 Cost of revenues 118 389

Gross profit 288 1,265

Increase (decrease) in value of investment property, net 3 (746) Selling and marketing expenses 2 16 General and administrative expenses 45 302 Other income, net 2 23

Operating profit 246 224

Finance income 54 155 Finance expenses 251 2,244

49 (1,865)

Group share in earnings (losses) of associates and partnerships, net 3 (363)

Profit (loss) before income tax 52 (2,228) Income tax (tax benefit) 35 (336)

Net profit (loss) 17 (1,892)

*) The information for 2009 relates to the operating results of Delek Real Estate up to the date of deconsolidation.

The table below presents information on the comprehensive income attributable to discontinued operations.

Year ended December 31 2009 *) 2008 NIS millions

Gain (loss) for available-for-sale financial assets 1 (50)

Loss for cash flow hedges (63) (136)

Exchange differences for translation of foreign operations 268 (1,009)

Company’s share of other comprehensive loss of associates (8) (87)

Revaluation of existing investment upon obtaining control - 20

Other comprehensive income (loss) from discontinued operations 198 (1,262)

*) The information for 2009 relates to the operating results of Delek Real Estate up to the date of deconsolidation.

C-84 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 14 – BUSINESS COMBINATIONS AND INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.)

The statement of income and the statement of comprehensive income, the data for discontinued operations and other comprehensive income from discontinued operations for 2008 and 2009 include also data for Delek Automotive, which was presented as a discontinued operation in those years. See also Note 14M.

In connection with the distribution of the shares of Delek Real Estate as a dividend in kind, the Company entered into an agreement with a bank, according to which, among others, the bank cancelled the lien on the shares of Delek Real Estate. In addition, the Company undertook that when Delek Real Estate repays any part of the loans provided by the Company to Delek Real Estate for RoadChef (principal of NIS 280 million), the Company will acquire from the bank, in an amount equal to the repayment part of the rights in the debt that Delek Real Estate owed the bank, up to a total of NIS 150 million. The bank will sell the debt to the Company without transferring any of the rights of the bank to the collateral that was or will be provided in its favor to secure the debt. The Company is entitled to record a lien on all the assets securing the debt, subject to a number of conditions. To guarantee the liabilities of the Company towards the bank, the Company assigned, by way of a first lien in favor of the bank, all its rights in accordance with the loan agreements of Delek Real Estate for RoadChef.

Following the distribution of Delek Real Estate shares, the equity of the Group attributed to equity holders of the parent was reduced by the amount of the investment distributed, including the related tax effects (the total amount is NIS 171 million). The Company and its subsidiaries provided loans and guarantees to Delek Real Estate amounting to NIS 451 million at December 31, 2010 (not including investments in profit-sharing insurance policies and exchange-traded funds through debt instruments of Delek Real Estate).

The loans that the Company provided to Delek Real Estate, which amount to NIS 362 million at December 31, 2010 (including accrued interest), and which are included in the above amount, are linked to the CPI and bear interest at a rate of 10.7%. The Company included a provision for impairment of the loans provided to Delek Real Estate amounting to NIS 22 million, based on the estimated fair value of the outstanding loans to Delek Real Estate on completion of the transaction. For the balance of the decrease in the balance and change in the loan terms, subsequent to the balance sheet date following the Roadchef transaction, see section 2 below.

2. At December 31, 2010, the Group holds 25% of the share capital of Delek Motorway Services UK (“DMS”) through Delek Petroleum. The balance of the shares of DMS are held indirectly by Delek Real Estate (a company owned and controlled by the controlling shareholder of the Company). DMS holds the entire share capital of a UK company (MSA), which owns RoadChef Ltd. RoadChef owns 29 roadside service stations in the UK, operating under the RoadChef brand (the group of companies is referred to hereunder as RoadChef).

In November 2008, Delek Petroleum and Delek Real Estate decided to dispose of their investment in RoadChef. Therefore, as from that date, the investment in Roadchef is presented as held for sale assets.

In 2009, and up to February 2010, selling activities were undertaken during which potential buyers evaluated the investment and offers to purchase the investment were received. In 2009, based, among others, on the offers received during the selling process and based on the impairment of assets included in the financial statements of RoadChef, the Group reduced its investment in RoadChef by NIS 74 million, which was included in other income (expenses), net. The balance of the investment at December 31, 2009, presented as held for sale assets, amounted to NIS 177 million.

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Further to the aforesaid, in February 2010, due to the stagnation in negotiations with a potential buyer, the managements of Delek Real Estate and Delek Petroleum concluded that there is a significantly lower likelihood of selling the asset at the asking price and that a sale under the requested terms is no longer highly probable. Therefore, and in accordance with IAS 28 – Investments in Associates, as from the first quarter of 2010, the investment in RoadChef will be accounted for retrospectively according to the equity method.

As a result of the aforesaid, the investment in RoadChef of NIS 177 million at December 31, 2009 was reclassified from available-for-sale assets to investments in companies and investees, and other expenses of NIS 75 million in 2009 was reclassified from other income (expenses) to finance income and to the Company’s share in the profits of partnerships and investees, net. The effect of the aforesaid on the Group’s capital reserve as a result is not significant.

On November 24, 2010, and further to the negotiations between the Company and Delek Real Estate, the audit committee and board of directors of the Company approved an agreement to purchase the holdings (75%) of Delek Belron International Ltd., a wholly owned subsidiary of Delek Real Estate (“Delek Belron”) in companies owning RoadChef. The transaction is in NIS equivalent to GBP 86.25 million at the closing date of the transaction, reflecting a value of GBP 115 million for Roadchef. The Company paid the amount by partially offsetting Delek Real Estate’s debt to the Company and a cash payment. At the date of the agreement, 51% of Roadchef shares are pledged in favor of the bank (24% of Roadchef’s shares are pledged in favor of the Company for Delek Real Estate’s debt to the Company), on account of Delek Real Estate’s liabilities to the bank. It was agreed that after the bank pledge is lifted, the Company will take ownership of Delek Real Estate’s debt to the bank, amounting to NIS 77 million at an interest rate of 1% above the Company’s funding cost and the principal will mature in 2018.

Moreover, in accordance with the Company's commitment to the bank granted in respect of the distribution of shares in Delek Real Estate as a dividend in kind, as described above, the Company will acquire an additional debt of Delek Real Estate towards the bank in the amount of NIS 150 million. The Company is entitled to a bank loan of NIS 150 million at an interest rate of prime minus 0.25%, which will be repayable in 2018 (under the same terms as Delek Real Estate’s debt towards the bank prior to acquisition of the loan).

Subsequent to the balance sheet date and after the approval of the general meetings of the Company and Delek Real Estate, on January 10, 2011, the transaction for the acquisition of Roadchef shares was completed. The final consideration for the transaction amounted to NIS 497 million (before impairment). After completion of the transaction, the loans provided to Delek Real Estate by the Group amount to NIS 226 million (in addition to the loans of NIS 31 million provided by The Phoenix (nostro) and are repayable in August 2012).

Subsequent to the transaction, Delek Petroleum holds 100% of the share capital of Roadchef.

3. On December 3, 2009, the Securities Authority conducted a search in the offices of Delek Real Estate, in respect of the assets belonging to subsidiaries of Delek Real Estate outside of Israel.

On January 2, 2010, Delek Real Estate reported that, to the best of its knowledge, the matters under investigation by the Securities Authority are in respect of the following:

− Evaluation of the accounting treatment of Delek Real Estate’s investments in Hilton and Marriot hotels − Valuation of a foreign company owning parking lots in the UK, leased to NCP Ltd., as presented in the financial statements of Delek Real Estate in 2007-2009

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− Evaluation of the agreement of a foreign subsidiary of Delek Real Estate with a third party in respect of the operation of RoadChef properties

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On August 31, 2010, the Securities Authority announced that it had completed the investigation of Delek Real Estate and sent the investigative material to the prosecution, which will decide how to proceed. The Securities Authority also claims that the results of the investigation include suspicions regarding the issues set out in sections 2 and 3 above, which refer mainly to classification and valuation of Roadchef in the Company’s financial statements and the valuation of a sub-subsidiary of Delek Real Estate that owns parking lots in the UK. On September 16, 2010, Delek Real Estate received notice from the District Attorney’s Office in Tel Aviv (Taxation and Economy) pursuant to section 60(A) of the Criminal Procedure Law [Consolidated Version], 1982, regarding the transfer of the investigative material to the prosecution.

The managements of the Company and Delek Real Estate estimate, based on their knowledge at this stage, that the investigation has no effect on the financial statements. However, the Company cannot estimate the prosecution’s decision in the case and any consequences that this decision may have. Furthermore, it is not possible to estimate the outcome of any investigations by the Securities Authority, if at all, on the accounting classification of the issues set out above and on the financial statements.

Up to May 2009, Delek Real Estate was a subsidiary of the Group. As from this date (the date Delek Real Estate shares were distributed as a dividend in kind), the Group owns 5% of the shares of Delek Real Estate. Any investigation of the financial statements of Delek Real Estate could affect the Group’s financial statements for the relevant reporting periods.

4. In May 2010, Delek Real Estate completed a rights offering. Under the offering, rights were exercised for the acquisition of 114,698,115 shares for NIS 126 million. The Group exercised the rights that were offered to it and acquired Delek Real Estate shares for NIS 6 million. The Group's holdings in Delek Real Estate after the acquisition remained unchanged.

5. Subsequent to the date of the financial statements, in February 2011, Delek Real Estate completed a rights offering for acquisition of 86,154,310 shares for NIS 60 million. The Group exercised the entire quantity of rights that it was offered for USD 3 million. The Group's holdings in Delek Real Estate subsequent to the acquisition remained unchanged.

H. Insurance and finance operations

1. Acquisition of Excellence shares

In April 2006, The Phoenix Investments, a wholly-owned subsidiary of the Company (“The Phoenix Investments”) completed the acquisition of 40% of the shares of Excellence for NIS 322.5 million. According to the agreement, as from January 1, 2009, The Phoenix Investments has a call option and from February 1, 2009, the sellers have a put option for the sale of an additional 40.88% of shares to The Phoenix Investments. The agreement also sets out adjustments to profit and equity, which should be included in calculation of the consideration.

The agreement was amended in 2009 (“the new agreement”). According to the new agreement, The Phoenix Investments will acquire 40.88% of the issued share capital of Excellence, in five lots from 2009 to 2013. The first lot is 20.44% of the issued share capital of Excellence. The second to fifth lots are 5.11% of the issued share capital of Excellence. The total consideration paid between the lots will be between NIS 620 million and a maximum of NIS 730 million, linked to the CPI of March 2009.

According to the new agreement, up to the reporting date, The Phoenix acquired the first lot and the second lot for NIS 342.7 million and NIS 105 million, respectively.

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The acquisition date of the shares in each of the third to fifth lots will be up to 35 days after approval of the financial statements of Excellence for each year from 2010 to 2012.

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The Phoenix Investments may accelerate the purchase of Excellence shares at any time and the sellers may accelerate the purchase of the shares that are outstanding at the acceleration date, in the circumstances set out in the agreement.

The Company guaranteed all the undertakings of The Phoenix Investments for an unlimited amount, in accordance with the terms of the new agreement.

In 2009 and 2010, The Phoenix Investments completed a number of transactions for the acquisition of Excellence shares, traded on the TASE and in off-floor transactions, for a total consideration of NIS 47.3 million and NIS 28 million, respectively.

At December 31, 2010, The Phoenix owns 73.32% of the issued and paid up share capital of Excellence. The share of The Phoenix in the equity of Excellence, including outstanding shares that can be accelerated, amounts to 88.65%, as of the balance sheet date.

The Phoenix Investments carried out periodic impairment assessment of the goodwill attributable to its investment in Excellence as of December 31, 2010, the balance of which at this date amounted to NIS 680 million. To assess the recoverability of the goodwill, the recoverable amount of the cash-generating units to which the goodwill was assigned was assessed (pension and financial services). The recoverable amount of the provident fund and financial services unit is calculated on the basis of a valuation by an external assessor and on the projected representative operating cash flow multiplier method, which is similar to the discounted cash flow method. The value of each of the units is assessed separately. According to this assessment, the pension unit requires amortization of NIS 50 million. In respect of the financial services unit, based on the valuation, the recoverable amount of the unit exceeds its carrying amount.

2. Subsequent to the balance sheet date, the Company acquired on the TASE an additional 528,438 shares, par value NIS 1 each of The Phoenix for NIS 7 million. Subsequent to this acquisition, the Group owns 55.55% of The Phoenix.

3. Subsequent to the balance sheet date, in February 2011, Barak Capital Ltd. (“Barak Capital”) entered into an agreement, whereby subject to fulfillment of preconditions, it will sell all of its shares in its associate, Index Teudot Sal Ltd., to DS Apex Holdings Ltd. for NIS 35 million. The expected pre-tax gain for Barak capital is estimated at NIS 32 million (the Group’s share in this profit is NIS 15 million).

4. As set out in Note 2(C), the Group eliminates the revaluation to market value of securities of Group companies (shares and debentures), held by SPCs that issue and manage ETFs and which are held for profit-sharing policies in insurance companies. Conversely, these holdings are accounted for in accordance with generally accepted accounting principles for the acquisition (sale) of treasury shares, acquisition (sale) of other shares of subsidiaries and intercompany holdings of debentures.

The effect of the accounting treatment on the net profit for 2010 attributable to equity holders of the parent amounted to a loss of NIS 7 million (in 2009, NIS 25 million).

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I. Fuel operations in the US

1) On November 20, 2008, a fire broke out at Delek US refinery in Tyler, Texas. Two employees died of injuries sustained in the fire. The refinery was shut down to enable a thorough investigation of the circumstances of the event and the extent of the damages. The fire caused damage in two of the refinery’s operating units. As well as repairing the damage, it was decided to carry out periodic renovation and work to improve facilities. In May 2009, the refinery restarted operations.

In 2009, Delek US received USD 116 million (NIS 465 million) from the insurance company, including USD 64.1 million (NIS 257 million) for loss of profits and USD 51.9 million (NIS 208 million) for property damage, which was recorded in the financial statements, net of expenditures incurred in the amount of USD 11.6 million (NIS 46 million). Net gain of NIS 419 million was recorded in the statement of income for 2009 in the line item, other income (expenses).

In the second quarter of 2010, Delek US received USD 17 million (NIS 64 million) from the insurance company, including USD 12.8 million (NIS 49 million) for loss of profits and USD 4.2 million (NIS 15 million) for damage to property, which was recorded in the financial statements less costs in the amount of USD 0.2 million (NIS 0.8 million). Net income was recorded in the statement of income under compensation from an insurance company. The receipts in the second quarter of 2010 constitute the completion of the accounting with the insurance company for damages caused by the fire. In 2009-2010, the receipts from the insurance company amounted to USD 141.4 million (NIS 562 million).

2) For information about the agreement for the acquisition of Lion shares, see Note 13(2).

J. Fuel operations in Europe

On October 1, 2010, Delek Europe BV, owned 80% by the Company and 20% by Delek Israel (“Delek Europe”) finalized a transaction to acquire the fuel marketing operations of BP France SA (“BP”) in France, including 410 gas stations, 300 convenience stores and holdings in three terminals. Ownership of the assets was transferred to a subsidiary.

The consideration of the transaction was set at EUR 170 million before working capital adjustments. The acquisition agreement defined a mechanism of the amount of the adjustment for the working capital, which will be added to the consideration for the acquisition. The working capital adjustments at the transaction date, as announced by BP, amounted to EUR 60 million and the transaction amounted to EUR 230 million. Subsequent to the balance sheet date, an agreement between Delek Europe and BP stipulated that working capital adjustments will be reduced to EUR 39 million, reflecting a total consideration of EUR 209 million for the transaction (an amount of EUR 21 million was presented under other receivables at the reporting date). Delek Europe temporarily attributed the agreed acquisition consideration (EUR 209 million) for the assets and liabilities of the acquired companies at the acquisition date, as follows: EUR millions

Current assets 81 Property, plant and equipment 134 Investments in investees and long-term debit balances 9 Other assets (mainly customer loyalty program) 26 Goodwill 37 Current liabilities (47) Long-term liabilities (31)

209

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Had Delek France been fully consolidated from the beginning of the year, the effect on revenues would have amounted to an increase of EUR 811 million (NIS 4.006 billion) and on net profit would have amounted to an increase of EUR 3 million (NIS 15 million).

The consideration for acquisition of fuel operations in France was financed by a loan of EUR 80 million from a bank in Israel. The loan is for seven years, at variable LIBOR interest for three months plus the margin. To secure payment of the loan, the shares of Delek Europe subsidiaries were pledged and financial covenants were set, based mainly on the debt to EBITDA ratios and coverage ratios. In addition, as part of the guarantees, it was determined that Delek Petroleum and Delek Israel would each provide separate guarantees according to their share of ownership.

The balance of the consideration was financed through shareholders’ loans, which were provided by Delek Petroleum (EUR 84 million) and Delek Israel (EUR 11 million). The shareholders’ loans are linked to the CPI and bear interest at a rate of 5.5%. At this stage, these loans are repayable on December 31, 2012. Working capital adjustments were mainly financed by the operations of the acquired companies.

Moreover, as of December 31, 2010, the Company also provided additional guarantees of EUR 97 million to third parties for the operations acquired to finance working capital in favor of the VAT authorities and to purchase fuel from BP. Delek Petroleum and Delek Israel undertook to provide the parent company with back to back letters of indemnity In return for the guarantees, Delek Petroleum and Delek Israel charge an annual fee of 1.5%. Furthermore, Delek Petroleum and Delek Israel will be entitled to receive annual management fees of EUR 12 million, according to their proportionate share in the transaction.

K. Fuel operations in Israel

In June 2009, Delek Petroleum sold 6.51% of Delek Israel shares for NIS 95 million. As a result of the sale, the Group’s holding in Delek Israel decreased to 79.17%. The gain on this sale amounted to NIS 31 million (before income taxes).

L. Oil and gas exploration and production

1. In November 2009, a subsidiary, Delek Energy Systems Ltd. (“DES”), pursuant to a shelf registration statement, issued a tender offer to purchase from holders of participation units of Avner Oil Exploration Limited Partnership (an associated partnership, “Avner”) up to 325,899,000 participation units of NIS 0.01 par value in consideration of up to 517,300 ordinary shares of NIS 1 par value of Delek Energy (that is, one ordinary share for each 630 participation units). Following the tender offer, notices of acceptance were received from the holders of 247,926,781 participation units in Avner (representing 7.43% of Avner’s total participation units). In consideration, Delek Energy issued 393,535 ordinary shares. As a result, DES’s holdings in Avner increased to 45.55% and the Group’s holding in Delek Energy decreased to 81.9%. Following the share issuance and acquisition of the participation units in Avner, the equity of Delek Energy increased by NIS 350 million, according to the fair value of Delek Energy shares that were issued (net of issuance expenses). As a result of the decrease in the Group's holdings in DES, the Group recorded a gain of NIS 200 million (after elimination of a gain of NIS 150 million to reflect the effective increase in the participation units in Avner, which were acquired by the Group in this transaction). This gain was included in gain from the disposal of investments in investees.

2. In November 2009, Delek Investments sold 107,750 shares of Delek Energy representing 2.15% of the share capital of Delek Energy (after completion of the tender offer, as described above), to third parties, in consideration of NIS 94 million. The Group recorded a gain of NIS 90 million in respect of the sale (before

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income taxes), which was recognized in the line item, gain from the disposal of investments in investees. At December 31, 2009, the Company owns 79.7% of the share capital of DES.

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3. In June 2010, Delek Investments sold 31,696 shares of Delek Energy for NIS 33 million. The difference between the consideration received and the increase in non- controlling interests amounted to NIS 32 million (before income tax) and was included in the consolidated statements of changes in equity under exercise and issue of shares to non-controlling interests. At December 31, 2010, Delek Investments owns 78.9% of the share capital of DES.

Subsequent to the balance sheet date, the Group acquired an additional 37,634 shares in Delek Energy on the TASE for NIS 52 million. Subsequent to this acquisition, the Group owns 79.67% of DES.

4. In the reporting period, Delek Energy and Delek Investments acquired 7,592,482 participating units in Delek Drilling on the TASE for NIS 87 million. The difference between the consideration paid and the value of the acquired equity amounted to NIS 78 million and was recognized directly in capital reserve from transactions with holders of non-controlling interests. On December 31, 2010, Delek Energy and Delek Investments own 62.73% and 7.78%, respectively, of Delek Drilling.

Subsequent to the balance sheet date, the Group acquired 4,752,285 additional participating units in Delek Drilling on the TASE for NIS 65 million, representing 0.87% of the equity of DES. Delek Investments owns 8.65% of the share capital of Delek Drilling.

5. In the reporting period, Delek Energy and Delek Investments acquired an additional 50,237,819 participating units in Avner on the TASE for NIS 94 million. At December 31, 2010, Delek Energy and Delek Investments own 47.42% and 13.71%, respectively of Avner. The excess cost arising from the acquisitions were attributed to oil and gas assets.

Subsequent to the balance sheet date, the Group acquired 17,480,015 additional participating units in Avner on the TASE for NIS 43 million. Subsequent to this acquisition, the Company and Delek Investments own together 14.23% of the partnership's equity.

M. Automotive operations

On September 15, 2010, an agreement was signed between Delek Investments and a company controlled by Gil Agmon, who serves as CEO of Delek Automotive Systems Ltd. (“Delek Automotive”) and who is a shareholder in the company. According to the agreement, Delek Investments will sell to Gil Agmon 22% of the share capital of Delek Automotive that it owns, for NIS 1 billion. Finalization of the transaction was subject to fulfillment of the following preconditions: Approval from the manufacturers of Mazda and Ford cars to transfer control in Delek Automotive to Gil Agmon and approval from the banks. Prior to finalization of the transaction, Delek Investments owned 55% of the share capital of Delek Automotive.

Gil Agmon undertook (unilaterally) towards Delek Investments that as long as Delek Investments maintains more than 20% of the share capital of Delek Automotive, he will act to appoint two directors recommended by Delek Investments and as long as Delek Investments owns more than 15%, he will act to appoint one director recommended by Delek Investments. Pursuant to the Articles of Incorporation of Delek Automotive, up to ten directors can be appointed at Delek Automotive (including independent directors).

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The transaction was completed on October 20, 2010. After finalization of the transaction, Gil Agmon owns 38% of the share capital of Delek Automotive and Delek Investments owns 33% of the share capital of Delek Automotive. As from this date, Delek Investments is no longer the exclusive controlling interest of Delek Investments, therefore Delek Investments no longer consolidates Delek Automotive in its financial statements. Pursuant to IAS 27 (revised), Consolidated and Separate Financial Statements, Delek Investments recognized the remaining investment in Delek Automotive at fair value at the date of loss of control and as from this date, the balance of the investment in Delek Automotive is accounted for on an equity basis The profit produced for Delek Investments from the sale of the shares and revaluation of the remaining shares to their market value as set out above, amounted to NIS 2 billion (before income tax).

Of this amount, NIS 1.1 billion is attributable to revaluation of the outstanding shares and will be attributable to the assets and liabilities of Delek Automotive as follows:

Amortization NIS millions period (years)

Inventories 27 0.3 Property, plant and equipment 33 45 Franchise 679 30 Goodwill 549 According to the relevant assets Deferred taxes (139) and liabilities Share-based payment (14)

1,135

Following the sale of Delek Automotive shares, as described above, the operating results of Delek Automotive were presented separately in the statement of income under profit from discontinued operations, with reclassification of comparative figures.

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The table below presents information on the results of operations attributable to the discontinued operations of Delek Automotive:

Year ended December 31 2010 *) 2009 2008 NIS millions

Revenues 3,363 4,744 4,770 Cost of revenues 2,865 4,218 3,832

Gross profit 498 526 938

Selling and marketing expenses 30 41 39 General and administrative expenses 22 28 31 Other revenues - - 43

Operating profit 446 457 911

Finance income 50 125 10 Finance expenses 79 16 168

Profit before income tax 417 566 753 Income tax 102 132 209

Net profit 315 434 544 Gain from disposal of an investment, net 1,824 - -

2,139434 544

Attributable to:

Equity holders of the parent 1,995 250 332 Non-controlling interests 144 184 212

2,139434 544

*) The information for 2010 relates to the operating results of Delek Automotive up to the date of deconsolidation.

The amounts of other comprehensive income and capital reserves for discontinued operations are insignificant.

The statement of income and the statement of comprehensive income, the data for discontinued operations and other comprehensive income from discontinued operations for 2008 and 2009 include also data for Delek Real Estate, which was presented as a discontinued operation in those years. See also Note 14G(1).

Other operations

In April 2010, Gadot Biochemical Industries Ltd. completed a rights issue for the acquisition of 3,971,226 shares for USD 10 million (approximately NIS 40 million). The Group exercised the entire quantity of rights that it was offered for USD 6 million (approximately NIS 23 million).

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O. Share-based payment in companies

1. Expense recognized in the financial statements

The expense recognized in the financial statements for services received from employees is presented in the table below:

Year ended December 31 2010 2009 2008 NIS millions Equity-settled share-based payment plans 28 31 52 Cash-settled share-based payment plans 33 23 8

Total recognized expense from share-based payments 61 54 60

2. Additional information:

Average no. No. of years of remaining outstanding Vested Exercise price Type of plan until Company options options per share settlement exercise December 31, 2010

Delek US 3,106,125 1,456,118 USD 6.7 Shares 3 Delek US 1,850,040 - USD 12.1 Shares/cash 3.8 NIS 131- Delek Israel 708,263 272,232 198 Shares 3.5 NIS 134- Delek Israel 75,000 75,000 *) 155 Cash 0.1 EUR 860- Delek Europe 750 510 1,045 Shares/cash 1.4 Delek Benelux 45,000 39,375 EUR 72-83 Shares/cash 0.7 NIS 349.96- DES 302,561 191,855 468.99 Shares 4.3 NIS 7.98- The Phoenix 9,567,479 2,800,270 20.8 Shares 2.12

For information about the phantom options plan for managers and officers in the Company, see Note 45H(4).

3. Principal share-based payment plans of Group companies granted during the reporting period:

A. In February 2010, the CEO of Delek US exercised his options for Delek US shares and he was issued 638,909 shares. Following this exercise, the Group holds 72.6% of the share capital of Delek US.

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B. Delek Israel

(1) On March 19, 2009, the audit committee and board of directors of Delek Israel approved the appointment of David Kaminitz as CEO of Delek Israel and an agreement for services between Delek Israel and a company wholly owned by David Kaminitz (the management company)

Delek Israel also signed an agreement with the management company for the grant of options. According to the agreement, Delek Israel will grant the management company 300,000 options for Delek Israel shares representing 2.7% of the issued and paid up capital of Delek Israel (2.38% fully diluted) exercisable into Delek Israel shares in equal portions of 75,000 options each, commencing from March 1, 2010 until March 1, 2013. The options will expire on March 1, 2014 or on other dates as stipulated in the agreement. The nominal exercise price is between NIS 134.24 and NIS 155.4 for each option, subject to adjustments for dividends.

On May 16, 2010, Mr. Kaminitz submitted notice of his resignation as CEO of Delek Israel to the chairman of the board of directors of Delek Israel. The CEO of Delek Israel remained in his position until August 15, 2010.

Subsequent to the balance sheet date, in January 2011, the former CEO exercised 75,000 phantom options which were due to him for his term of service in the Company.

The total net benefit for the exercise amounted to NIS 0.9 million and was paid in January 2011. The balance of the former CEO’s options (225,000 options) was forfeited. The balance of the provision for the former CEO, amounting to NIS 7.2 million, was recognized as income in the statement of income.

(2) On August 1, 2010, the audit committee and board of directors of Delek Israel approved the appointment of Avi Ben-Assayag as CEO of Delek Israel (“the new CEO”) as from August 22, 2010.

Delek Israel also signed an agreement with the new CEO for the allocation of 283,099 options for Delek Israel shares, representing 2.44% of the issued and paid up capital of Delek Israel (2.34% fully diluted) exercisable into Delek Israel shares in three equal portions of 94,366 options each, commencing from August 22, 2013 until August 22, 2015. Each portion will expire six months after the vesting date. The nominal exercise increment is between NIS 175.7 and NIS 193.7 for each option warrant, subject to adjustments for a dividend.

Exercise of the options will be based on a cashless exercise, net. In this case, the nominal value of the underlying shares will be paid. The financial value of the options at the approval date of the plan and shortly before the employment date of the new CEO was calculated on the basis of the binomial model and amounted to NIS 6.7 million.

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The main assumptions and factors used to calculate the economic value are as follows: The price of an ordinary share is NIS 117.8. The discount rate is based on the risk-free nominal yield curve in Israel for the term of the option (2.3%-3.5%). The standard deviation is 35.95%-37.99%.

In the reporting year, Delek Israel included expenses of NIS 0.7 million for the options according to their vesting terms.

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NOTE 14 – BUSINESS COMBINATIONS AND INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.)

C. The Phoenix

On May 13, 2010, the board of directors of The Phoenix resolved to grant 1,203,000 share options ("the offered share options") out of the Company's share options, for no consideration, to four officers in the Company and/or companies that it controls, directly and/or indirectly (“the offerees”).

The total financial value of all the offered share options to be allotted to the offerees, based on the binomial method, is NIS 5 million at the allocation date.

The following factors were used to calculate the value:

Share price (NIS) 11.22 Exercise price (NIS) 9.15-9.70

%

Volatility (%) 48.43-60.35 Risk-free interest (%) 2.23-3.86

D. DES

(1) On January 17, 2010, a new chairman of the board of directors of Delek Energy was appointed, to replace the outgoing chairman of the board. At that date, the audit committee and the board of directors of Delek Energy approved a package of phantom units for the new chairman of the board of directors, at no cost, in an amount of 2% of the issued and paid up share capital of DES, that is, 100,108 phantom units, in four equal installments. The exercise price is NIS 1,007 for each phantom unit of the first installment, which is the share price of Delek Energy on the day on which the agreement was approved by the board of directors, and the price increases by 5% for the second and each of the following installments. The exercise price is subject to adjustments for the distribution of cash dividends.

The economic value of the options is NIS 40 million. The value of the options was estimated using the Merton method, based on the Black and Scholes option pricing formula. On March 3, 2010, the general meeting of Delek Energy approved the option plan.

(2) In view of the change in the position of the chairman of the board of directors of the Group from chairman of the board of Delek Energy to active deputy chairman of the board of DES, in March 2010, the general meeting of Delek Energy approved a number of changes to the options plan granted in the past for Delek Energy shares, such that the fifth lot of options (11,069 options) will be cancelled and the fourth lot will remain valid. The other terms will remain unchanged.

In June 2010, the chairman of the Group’s board of directors exercised 11,069 share options (the first lot) for 11,069 Delek

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Energy shares at an exercise price of NIS 349.96 per option. After the exercise, the Group owns 78.92% of the share capital in DES.

P. At December 31, 2010, the Company, Delek Investments and Delek Petroleum have no pledges on the shares of investees, other than a pledge of 159,000 Delek Energy shares (representing 3% of its share capital) registered by by Delek Investments in favor of banks in Israel.

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NOTE 15 – INVESTMENT PROPERTY

A. Composition and change

2010 2009 NIS millions

Balance as of January 1 451 13,354

Purchases 28 28 Transfer from property, plant and equipment 21 Exchange differences on translation of foreign operations (15) 1,169 Sales - (345) Deconsolidation (34) (13,752) Adjustment to fair value 28 (3)

Balance as of December 31 479 451

B. Investment property is presented according to fair value on the basis of valuations of external, independent assessors having the requisite qualifications and experience in the location and type of property being assessed. The fair value is based on recent market transactions in properties and locations similar to those of the properties owned by the Group companies, and based on estimated future cash flows from the property. In estimating cash flows, current leases are taken into consideration and discount rates are used which reflect market estimates of uncertainties with regard to the future amount and timing of the cash flows. In calculating the fair value, assessors have used discount rates between 7%-9%. In calculating the fair value of investment property, assessors take into account similar transactions for similar assets in similar places (at December 31, 2010, an amount of NIS 212 million is in respect of performance-based assets.)

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NOTE 16 – INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION

A. Composition and change

Exploration and Oil and gas evaluation production assets assets Total NIS millions Cost

Balance as of January 1, 2009 71 1,748 1,819

Additions during the year Investments 128 195 323 Carry forwards (168) 168 - Disposals (primarily for deconsolidation of a company) - (331) (331) Exchange differences on translation of foreign operations 1 (19) (18)

Balance as of December 31, 2009 32 1,761 1,793

Additions during the year Investments 82 411 493 Disposals (6) (2) (8) Exchange differences on translation of foreign operations (5) (118) (123)

Balance as of December 31, 2010 103 2,052 2,155

Accumulated depreciation, depletion and amortization

Balance as of January 1, 2009 - 339 339 Additions during the year - 128 128 Exchange differences on translation of foreign operations - (6) (6 )

Balance as of December 31, 2009 - 461 461

Additions in 2010 8 130 138 Impairment 8 57 65 Exchange differences on translation of foreign operations (1) (31) (32 )

Balance as of December 31, 2010 15 617 632

Amortized cost as at December 31, 2010 88 1,435 1,523

Amortized cost as at December 31, 2010 32 1,299 1,331

*) Including provision for impairment of the full cost of the investment in the Tzuk Tamrur 3 and 4 wells amounting to USD 2 million, following expiry of the license on December 31, 2010. In January 2011, the project partnerships filed an appeal with the Minister of National Infrastructures against the Commissioner’s decision regarding expiry of the license. At the publication date of the report, the Minister's decision on the appeal is still pending.

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NOTE 16 – INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.)

B. Offshore drilling in the Yam Tethys project

1. The Yam Tethys project is an oil and gas exploration and production project on the continental shelf of the State of Israel. This project included a number of offshore drillings, some of which resulted in material gas discoveries and production commenced in 2004 (see section 2 below).

At the date of approval of the financial statements, the following companies own rights in the Yam Tethys project: %

Noble Energy Mediterranean Ltd. (“Noble”) *) 47.059 Delek Drilling – Limited Partnership (subsidiary partnership) 25.5 Avner Oil Exploration - Limited Partnership (associate partnership) 23 Delek Investments 4.441

100

*) Noble is the drilling operator of the project (“the operator” or “Noble”).

2. Additional information about the Yam Tethys project:

A. In 1999-2001, the joint venture carried out offshore drillings at the Noa lease (Noa and Noa South I) and at the Ashkelon lease (Mari 1, Mari 2 and Mari 3), where two gas reservoirs were discovered (Noa and Mari gas reservoirs).

B. In 2003, the construction of the platform over the Mari gas field was completed and the underwater gas pipeline was linked to the temporary onshore receiving terminal at Ashdod. At the date of the financial reports, the Noa reservoir has not yet been connected to the platform and its connection requires substantial financial investment.

C. On February 18, 2004, natural gas started to flow from the Mari gas reservoir to Israel Electric Corporation Ltd. (:IEC”), pursuant to the agreement with IEC. Gas is delivered to IEC at the Eshkol, Reading, Gezer, Hagit and Zafit power stations. See section G below for additional information about agreements for gas supply to other customers.

D. The partners in the joint venture approved an agreement between Noble and foreign suppliers for the acquisition of a compression system, which, together with the drillings in the project, will increase production capacity from the Mari gas field, in view of the decrease in pressure at the Mari reservoir, in order to meet the requirements of the Yam Tethys project customers and which may also comprise part of the natural gas delivery system at the Mari gas field (if and to the extent that such shall be decided upon). Installation and operation of the compression system is expected to be completed in the first half of 2011. The project budget amounts to USD 80 million. Up to December 31, 2010, the investment amounted to USD 64.3 million.

E. Mari B9 and Mari B10 production drillings

In 2010, there were another two production drillings at Mari B9 and Mari B10 (which replaced the Mari B8 drilling). The Mari B9 drilling was completed in July 2010 and the Mari B10 drilling was completed in October 2010.

The cost of these drillings amounted to USD 89 million. The drillings were designed to increase production capacity from the Mari gas field and thereby comply with the requirement to supply various customers of the Yam Tethys project and they might also comprise part of the natural gas delivery system at the Mari gas field (if and to the extent that such shall be decided upon).

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NOTE 16 – INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.)

For information about the approval by the Minister of National Infrastructures for the development of the Tamar gas field by the project partners as a dual pipeline for the delivery of natural gas from the field to a platform that will be constructed next to the Yam Tethys platform and from there, through the existing pipeline to the Yam Tethys receiving terminal in Ashdod, see section C(2)(d) below .

F. Gas reserves in the Mari reservoir

According to reports received from Netherland Swell & Associates Inc. (“NSAI”), an engineering consulting company that provides estimates of oil and gas reserves, the natural gas reserves (in BCM) in the Mari B field are as follows:

Proved gas reserves at the Mar reservoir

Total at December 31, 2008 16.4*) Gas sold in 2009 (2.9) Gas sold in 2010 (3.3)

Balance as of December 31, 2010 10.2

Proved and probable gas reserves at the Mari reservoir

Balance as of December 31, 2010 10.8

*) This amount was increased by BCM 2.1 in the reserves report for 2008-2010 received from NSAI.

G. Contingent resources in the Noa lease

According to a report received from NSAI, the amount of contingent resources (in BCM) in the Noa lease (including the Noa reservoir and the Noa Darom reservoir) is between 3.26 BCM (lower estimate) and 3.74 BCM (upper estimate). The resources in the Noa lease are classified as contingent and not a reserves as classified in the reserves report of 2001, as according to the Society of Petroleum Engineers petroleum resources management system (SPE-PRMS), on which NSAI’s report is based this year, the amount defined as contingent reserves are contingent as at this stage, there is no approved development plan for the Noa lease. NSAI’s assessment of the resources is significantly lower that the assessment in the previous reserves report, mainly due to the different assumption regarding the thickness of the layers and the size of the reservoir.

These estimates of the natural gas reserves in the Noa lease are assessments and the professional estimates of NSAI only, which are as yet uncertain. These estimates are expected to be adjusted as additional information is gathered and/or as a result of a range of factors related to oil and gas exploration and production projects, including as a result of continued analysis of the drilling findings

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NOTE 16 – INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.)

C. Michal and Matan joint venture (Tamar and Dalit leases)

1. The Michal Matan joint venture is an oil and gas exploration project in the area of the Tamar and Dalit leases, 50-100 km west of the Haifa coast. At the date of approval of the financial statements, the following companies own rights in the project:

%

Noble *) 36 Delek Drilling 15.625 Avner Oil Exploration 15.625 Isramco Negev 2 Limited Partnership 28.75 Dor Gas Exploration - Limited Partnership, 4

100

*) Noble is the operator of the joint venture.

2. Tamar 1 and Tamar 2 wells:

A. On November 18, 2008, drilling at Tamar 1 commenced.

On January 16, 2009, Noble informed the project partners that the drilling, which was carried out at a water depth of 1,680 m, had reached a depth of 4,900 meter and had passed through Tertiary layers below a thick salt layer, in the Levantine Basin. Drilling logs identified three high quality reservoirs which include sand layers of a total net thickness of 140 m, containing natural gas. On February 11, 2009, Noble informed the project partners that the production tests at the Tamar 1 well had been completed with success. Noble estimates, based on the test results, that after completion of the production drilling, it will be possible to produce natural gas at a rate of more than 150 Mcf/D. On April 2, 2009, the operator of the joint venture announced that the Petroleum Commissioner in the Ministry of National Infrastructures (“the Commissioner”) had confirmed the Tamar discovery as a commercial discovery. On December 3, 2009, the Commissioner granted Lease I/12 Tamar to the holders of the 308/Matan license, for exploration and production of oil and natural gas in the license area. The total investment for the Tamar 1 drilling at December 31, 2010, amounted to USD 136.9 million.

B. On April 27, 2009, drilling at Tamar 2 commenced. The objective of the drilling, among other things, was to allow better definition of the natural gas reserves to be found in the Tamar formation and to consolidate additional information pertaining to the quality and nature of the reservoir. On July 8, 2009, Noble submitted the results of the Tamar 2 appraisal well to the project partners. The drilling, which was drilled at a water depth of 1,685 meters and is 5.5 km east of the Tamar 1 discovery well, reached a final depth of 5,145 m. The drilling was down-dip of the Tamar formation, and was designed, among other things, to verify the data regarding the qualities of the reservoirs and their continuity.

Noble estimates that the results of the Tamar 2 drilling and the updated appraisal of the gas reserves in the Tamar formation are as follows:

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NOTE 16 – INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.)

1) The findings of the Tamar 2 drilling regarding the thickness and quality of the reservoirs correspond with the findings of the Tamar 1 drilling. The findings regarding the pressures at the well confirm the continuity and high quality of the reservoirs in the formation.

2) The results of the Tamar 2 drilling reduced the uncertainty in previous appraisals regarding the natural gas reserves in the Tamar formation. The total investment for the Tamar 2 drilling at December 31, 2010, amounted to USD 77 million.

C. Estimated natural gas reserves in the Tamar field

According to a report received by NSAI, the amount of contingent reserves in the Tamar lease at December 31, 2010 is between 183 BCM (lower estimate) and 295 BCM (upper estimate). After the development plan is approved by the limited partnerships that are not the operator, the contingent resources will be classified in categories of proved reserves, probable reserves and possible reserves.

These estimates of the contingent resources in the Tamar lease are assessments and the professional estimates of NSAI only, which are as yet uncertain. These estimates are expected to be adjusted as additional information is gathered and/or as a result of a range of factors related to oil and gas exploration and production projects, including as a result of continued analysis of the drilling findings.

D. Development of the Tamar natural gas field

According to the partnership’s announcement on August 11, 2010, on August 10, 2010, the Minister of National Infrastructures granted the partners in the Tamar project approval to develop the Tamar gas field as a dual pipeline for the delivery of natural gas from the field to a rig that will be constructed next to the Yam Tethys rig and from there, through the existing pipeline to the Yam Tethys receiving terminal in Ashdod, which will be expanded to receive the gas. The project operator announced that the project budget will be similar to the operator’s estimated budget, according to the original development plan that natural gas will flow to the receiving terminal in the north of Israel.

The Petroleum Commissioner asked the project operator for a reservoir development plan, including the arrangements between the partners in the Tamar lease and the relevant holders of rights in the Ashkelon lease regarding the pipeline and receiving terminals and onshore handling facilities, including storage arrangements.

On September 26, 2010, Noble announced that the board of directors of Noble had approved the development plan for the Tamar project. The plan, which was updated in February 2011, includes mainly the completion of the Tamar 2 drilling and four other drillings, including their completion, so that each of the five producing wells in the Tamar field will be capable of producing 200-250 million cubic feet per day of natural gas, flowing through two 16-inch pipelines to a new platform that will be constructed off the Ashdod coast, adjacent to the Mari B platform. The Tamar platform will connect to the existing 30- inch pipeline that delivers natural gas to the Yam Tethys onshore receiving terminal in Ashdod, with an initial processing capacity of up to 1.2 billion cubic feet of gas per day. Development drilling is due to begin after completion of drilling at the Leviathan 1 well (see below).

According to Noble’s announcement, the development plan will also allow storage of natural gas from the Tamar reservoir in the Mari B reservoir and significant expansion of

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gas supply capacity, if required and according to the needs of the country. The total development cost (100%) is estimated at USD 3 billion.

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NOTE 16 – INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.)

At this stage, the development costs are estimates only, received from the operator, and there is no certainty as to the actual costs. At the date of approval of the financial statements, Noble has yet to submit the development plan (including the budget and timetables) to the project partners for formal approval and accordingly the plan has yet to be approved. Furthermore, the partners estimate, based on information received from Noble, that commercial operation of the Tamar project is expected to begin in the second half of 2013

From an estimate of the total development cost, up to the approval date of the financial statements, the limited partnerships approved agreements for the acquisition of equipment and services amounting to USD 2.2 billion, (for 100% of the project).

In view of these estimates of the scope of costs, the development budget of the Tamar project requires the partnerships and limited partnerships to raise substantial amounts to finance their share in the project.

In June 2010, the limited partnerships (Delek Drilling and Avner) signed an agreement for a bridge loan (“the finance agreement”), through a special purpose company, with Barclays Bank Plc and HSBC Bank Plc (hereinafter together: “the financing banks”). According to the finance agreement, the partnerships will receive a non-recourse loan of up to USD 190 million (“the loan”) to finance their share in the development costs in the Tamar field ("the Tamar project"). The loan is for the period until the agreement is signed for long-term non- recourse project finance to fully finance the partnerships’ share in the Tamar project development costs (“the project finance”) or for 18 months, whichever is earlier (with an option for extension to a total of 24 months under certain terms). The loan will be repaid in a bullet payment at the end of the loan period. The partnerships intend to take steps to raise financing for the project before the finance agreement expires, such that the project finance will repay the loan. The partnerships may repay the loan prematurely, subject to the terms set out in the finance agreement.

To secure the loan, each of the partnerships pledges its rights to the assets related to the Tamar project and the partnerships committed to the covenants that are typical in this type of transaction. The financing agreement establishes a mechanism that allows the partnerships, under certain conditions, to raise additional financing of up to USD 100 million, using the same collateral.

On December 31, 2010, the partnerships received USD 40 million on the account of this loan.

The total investments for development, including development drillings at the Tamar natural gas field as of December 31, 2010 amounted to USD 469.8 million.

3. Dalit well

Drilling of the Dalit well commenced on March 6, 2009. The drilling, which was carried out at a water depth of 1,390 m and is 50 km off the coast of Israel, reached a depth of 3,660 meters.

On March 30, 2009, Noble informed the partners that the electric tests (logs) conducted at the drilling identified a high quality reservoir which includes sand layers of total net thickness of at least 33 m, containing natural gas. In view of these results, the partners decided, based on Noble's recommendation, to carry out production test drillings. Noble estimates, based on the test results, that after completion of the production drilling, it will be possible to produce natural gas at a rate of more than 200 Mmcf/D.

On April 2, 2009, the operator of the joint venture announced that the Petroleum Commissioner in the Ministry of National Infrastructures had confirmed the Dalit discovery as a commercial

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discovery. On December 3, 2009, the Commissioner granted Lease I/13 Dalit to the holders of the 308/Michal license for exploration and production of oil and natural gas in the license area.

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NOTE 16 – INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.)

According to a report received by NSAI, the amount of contingent reserves in the Dalit lease at December 31, 2010 is between 6.1 BCM (lower estimate) and 9.5 BCM (upper estimate).

These estimates of the contingent resources in the Dalit lease are assessments and the professional estimates of NSAI only, which are as yet uncertain. These estimates are expected to be adjusted as additional information is gathered and/or as a result of a range of factors related to oil and gas exploration and production projects, including as a result of continued analysis of the drilling findings.

The total investment for the Dalit drilling at December 31, 2010, amounted to USD 56.8 million.

D. Ratio Yam joint venture

1. The Ratio Yam project is a joint venture for oil and gas exploration between the following companies that own rights in the venture:

%

Noble *) 39.66 Avner Oil Exploration – Limited Partnership (associate partnership) 22.67 Delek Drilling – Limited Partnership (subsidiary partnership) 22.67 Ratio Yam – Oil and Gas Exploration 15.00

100 *) The project operator

2. On October 18, 2010, Noble, the operator of the exploration project in the Ratio Yam licenses (Rachel, Amit, Hannah, David and Eran) (“the licenses”) informed the license partners that drilling had commenced at Leviathan 1 (“the drilling”) in the Rachel license.

The drilling is 135 km west of Haifa and 47 km south-west of the Tamar discovery at a water depth of 1,634 m. Drilling of three targets is planned (see below) down to 7,200 m (including water depth) and is expected to take about five months.

This drilling was planned as the deepest water depth drilled to date off the coast of Israel and there is limited information about pressure and other conditions prevailing at the depths of the secondary targets depths.

After drilling at Leviathan 1, the drilling rig is expected to start development drilling at the Tamar project. The main target in the Leviathan 1 well is the NG10 prospect, a gas target located in Tertiary- Oligocene age sands (which geologically match the reservoir sands identified in the NG10 prospect in the Tamar project) to a depth of about 5,095 meters (including water depth).

On December 29, 2010, the partners announced a significant gas discovery at the well. The drilling reached a depth of 5,170 m (including water depth) to the bottom of the main target (NG10 prospect ) and a series of tests were carried out, including electrical logs and coring from the target layers, for the purpose of further analysis.

Noble announced that in the drill, very high quality reservoir sands containing natural gas were discovered in the target layer, in a total net thickness of at least 67 m in several different Tertiary- Oligocene layers (which geologically match the reservoir sands identified in the Tamar field).

The partners intend to examine various options for exportation of the natural gas that was discovered, including through a pipeline and/or liquid natural gas (LNG). The partners estimate

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that the preliminary results of the well may support an export project in at least one of the alternatives (under the current fiscal terms).

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NOTE 16 – INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.)

According to a report received by NSAI, the amount of contingent reserves in the Leviathan discovery at December 31, 2010 is between 322 BCM (lower estimate) and 597 BCM (upper estimate). After the development plan is approved by the partners, which include a reasonable expectation for the sale of natural gas, the contingent resources will be classified in categories of proved reserves, probable reserves and possible reserves. These estimates of the contingent resources in the Leviathan lease are assessments and the professional estimates of NSAI only, which are as yet uncertain. These estimates are expected to be adjusted as additional information is gathered and/or as a result of a range of factors related to oil and gas exploration and production projects, including as a result of continued analysis of the drilling findings.

The total budget approved by the partners for the Leviathan 1 drilling is estimated at USD 150 million (including transportation costs for the drilling rig). This budget does not take into account production tests, which would need to be approved by the partners in a separate budget. The total investment for the Leviathan drilling at December 31, 2010, amounted to USD 87.5 million. The total investment of the subsidiary partnership in the Ratio Yam project at the balance sheet date is USD 20.9 million.

Subsequent to the balance sheet date, on March 9, 2011, the partners in the Leviathan 1 well approved the updated drilling budget to an amount that could reach USD 190 million (100%), compared to the original budget of USD 150 million, as set out above. Noble informed the partners that the increased budget is due to the extension of drilling for two months beyond the plan, mainly due to technical delays and implementation of strict work procedures (health, environment and safety), which the partners apply to the drilling works. As of the publication date of the financial statements, drilling underway, with the aim of reaching a total depth of 7,200 m.

Additionally, the partners approved an appraisal drilling for Leviathan 2 and approved another drilling by the rig after completion of the drilling at Leviathan 2. A decision has not yet been made regarding the identity of this additional drilling, its location and budget.

3. Secondary targets in the Leviathan 1 well

Since January 2011, the Sedco Express rig has been carrying out continuation drillings towards the lower layers (secondary lower Oligocene layers and lower Cretaceous layer), as follows:

A. Leviathan prospect (lower Oligocene)

This prospect is at lower Oligocene layers at a total depth of 5,800 meters (including water depth). Based on seismic information in its possession, Noble estimates that the gross unrisked mean resources of oil and natural gas in this prospect is equivalent to about 3 billion barrels of oil. This estimate does not account for the probability of geological success (pg) of finding hydrocarbons in this prospect. The probability of geological success (pg)of finding hydrocarbons in the Leviathan prospect is estimated at 17%.

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NOTE 16 – INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.)

B. Leviathan prospect (lower Cretaceous)

The partners intend to deepen the drill to examine an additional prospect in the lower Cretaceous prospect at a total depth of 7,200 meters (including water depth). Based on seismic information in its possession, Noble estimates that the gross unrisked mean resources of oil and natural gas in this prospect is equivalent to about 1.2 billion barrels of oil. This estimate does not account for the probability of geological success (pg) of finding hydrocarbons in this prospect. The probability of geological success (pg) of finding hydrocarbons at the Leviathan prospect is estimated at 8%.

If the Leviathan prospect (lower Cretaceous) is deeper than estimated, technical limitations will prevent the rig from completing the drilling of this prospect. These appraisals and information, including the gross unrisked mean resources of the natural gas reserves and the probability of geological success of finding hydrocarbons in the Leviathan prospect (lower Oligocene) and in the Leviathan prospect (lower Cretaceous), are as provided by Noble.

4. Leviathan 2 appraisal well

Subsequent to the balance sheet date, on March 9, 2011, the partners approved the Leviathan 2 appraisal well. As described above, the Leviathan field covers a vast area of 325 square km, therefore at least two appraisal wells are required to continue the appraisal of the natural gas reserves in the main target layers (NG10) in the Leviathan field. Accordingly, it was decided to drill the Leviathan 2 appraisal well in the Amit license, 14 km from the Leviathan 1 discovery well at a total depth of 5,400 m (including water depth of 1,700 m). The Pride North America drilling rig (“the rig”) started drilling on March 20, 2011 and drilling is expected to continue for three months at an estimated total cost (100%) of USD 70 million. The budget and estimated duration of the drilling do not include production tests, to the extent that it is decided to carry out these tests. The production tests are expected to continue for 2-3 weeks at an estimated budget of USD 34 million (100%). It is clarified that the Leviathan 2 well is an appraisal well for the Leviathan discovery in the NG10 layer only, therefore it is not expected to be affected by the drilling results of the Leviathan 1 well to the deep secondary targets.

5. Additional prospects

Noble informed the limited partnerships that based on 2D and/or 3D seismic data, it has identified additional tertiary prospects in the Ratio Yam licenses. It is noted that as the other Ratio prospects are in the initial stages, the final geological probability has yet to be formulated, and it could be lower than that of the Leviathan prospect.

E. Oil exploration and production in the United States

1. A wholly owned subsidiary of DES, Delek Energy International Ltd., owns 100% of Delek Energy Systems US Inc. (“Delek Energy US”), which was incorporated in 2006 in the United States and which coordinates the oil and gas exploration and production activities in the United States. In September 2006, Delek Energy US acquired the rights in the limited partnership registered in the United States as AriesOne Limited Partnership (“AiresOne”), which engages in gas and oil exploration and production.

The rights acquired by Delek Energy US are those rights of the limited partner reflecting 83.49% of the rights in AiresOne. The other 16.51% of the rights in the partnership are owned by the general partner. Delek Energy US and the general partner signed a partnership agreement, which includes procedures for management and decision making in the partnership. According to the partnership agreement, Delek Energy US is entitled to replace the general partner after December 30, 2010, in accordance with the terms in the agreement.

C-114 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

AriesOne owns oil assets located in the Southern USA (Texas, Louisiana, Colorado, Kansas, Oklahoma and New Mexico), including exploration and production areas containing 200 oil- and natural-gas-producing wells.

C-115 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 16 – INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.)

The payments for acquisition of the rights amounted to NIS 34.3 million. In addition, the partnership had a liability for hedge transactions on the price of oil and gas that the partners carried out prior to the acquisition. The fair value of the liabilities at the acquisition date amounted to NIS 80 million.

On January 27, 2010, Delek Energy US, AriesOne and the general partner in the partnership signed an agreement cancelling the partnership between the parties. According to the agreement, Delek Energy US received gas and oil assets and bore the liabilities of the hedge transactions according to its proportionate share in the partnership. Following this agreement, the partnership transferred to Delek Energy US oil assets that it owns, representing 83.5% of the value of the gas reserves of the partnership’s assets, according to the proportionate share of Delek Energy US in the partnership. The agreement was valid until January 1, 2010 and the transaction was completed on February 25, 2010. As from March 1, 2010, Delek Energy US operates the assets that were transferred from AriesOne. On completion of the transaction, Delek Energy US repaid its share in the liabilities for the hedge transactions for USD 5.7 million (approximately NIS 21 million).

2. On February 11, 2008, the transaction was completed for acquisition of the full share capital of Elk Resources LLC (“Elk”), according to the agreements signed on January 14, 2008. Acquisition of the shares was carried out by Delek Energy Systems (Rockies) LLC (“the subsidiary”), a wholly-owned associate of DES. In consideration for the acquisition of Elk, the subsidiary paid an amount of USD 95.5 million, of which USD 17 million was used for the shares (including USD 0.5 million for working capital at the record date) and the balance to repay Elk's loan from a hedge fund in the USA.

The acquisition of Elk was fully financed by a loan received by a subsidiary of the Bank of Scotland (“BoS”) in the amount of USD 100 million (“the loan”). The loan is a revolver loan at variable interest, for an inclusive period of up to 10 years. As collateral for repayment of the loan, the shares of the subsidiary and all its assets and the hedge transactions made by the subsidiary on oil and gas prices were pledged in favor of BoS. Delek Energy also placed guarantees in the amount of USD 30 million up to February 11, 2010 (under certain conditions, the lenders may require the replacement of DES’s guarantee with a financial guarantee). The guarantee has expired.

In addition, Delek Energy undertook to provide the subsidiary with any financing that may be required for the development plan for Elk for 2008-2010 and to indemnify BoS in the event of any material breaches in the Elk transaction, for a period of one year. The loan agreements includes numerous terms, including a provision that the subsidiary will comply with the financial relations, breach and immediate payment events, declarations and evidence. As part of the financing transaction, Delek Energy hedges against higher oil and gas prices, including put and call options, as required by the financing bank. The total cost of the transaction amounted to USD 3.3 million. The fair value of the transaction at the reporting date is USD 0.5 million, and it is included in current assets under financial derivatives.

3. Elk is a private company registered in the USA. The company produces and sells oil and gas, develops existing oil and gas assets and conducts low-risk explorations for oil and gas. Elk has production and exploration rights covering an area of 215 square km in Utah and New Mexico. As accepted in the industry, exploration and production rights are contingent on exploration and production operations. Elk's main asset is the Roosevelt field in northern Utah. Most of Elk's proven and developed reserves are in this field and this is where most of its oil production operations are conducted.

C-116 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 16 – INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.)

Elk is the operator of most of the assets and the drillings are conducted by external contractors. In 2008-2010, Elk has significantly developed oil wells and carried out completion and development works of existing wells, at an investment of USD 62 million, in order to significantly increase oil production. According to the reserve report of December 31, 2010, prepared by NSAI, Elk's share in the proved reserves, less royalties, amounts to 8.5 million barrels of oil (1.5 million barrels in producing oil assets) and 2.7 BCF of natural gas (0.4 BCF in producing gas assets).

Following the impairment of the oil and gas assets of Elk, in 2010 Elk included a provision of NIS 57 million for impairment of oil and gas assets.

4. Subsequent to the balance sheet date, on February 14, 2011 a transaction was signed and completed for the sale of part of the oil and gas assets of Delek Energy US, in Texas USA (“the assets”), which include oil wells producing (as of the fourth quarter of 2010) about 100 barrels of oil net per day (less royalties), for USD 11 million in cash. According to the agreement, the operating results of these assets as from January 1, 2011 will be transferred to the acquiring company. This transaction is expected to produce a profit of NIS 8.5 million for Delek Energy (after transaction expenses), which will be recognized in the first quarter of 2011.

Subsequent to the balance sheet date, on February 15, 2011, an agreement was signed for the sale of an additional part of the oil and gas assets of Delek Energy US (“the agreement"). Most of the assets in the agreement are in Texas, Oklahoma and New Mexico, and include oil wells producing (as of the fourth quarter of 2010) about 250 barrels of oil net per day (less royalties) (“the assets”).

According to the agreement, the assets and the operating results of the assets as from January 1, 2011 were transferred to the acquiring company. The transaction was completed on March 25, 2011 for a total consideration of USD 31.3 million.

This transaction is expected to produce a profit of NIS 16.7 million for Delek Energy (after transaction expenses), which will be recognized in the first quarter of 2011, Delek Energy US is continuing to negotiate for the sale of oil and gas assets in the United States, and the entire operations of Delek Energy in the United States may be sold.

It is uncertain whether all the oil and gas assets in the United States will be sold.

F. Petroleum Profits Tax, Bill 2011

1. Petroleum Profits Tax Law, 2011 (not yet published in the records):

On April 12, 2010, the Minister of Finance appointed a committee to evaluate the fiscal policy of Israel’s oil and gas resources (“the Sheshinski Committee”). The Sheshinski Committee is mandated to examine the fiscal system in Israel for oil and gas reserves and to propose updated fiscal policies.

On January 3, 2011, the Sheshinski Committee submitted its final recommendations to the Minister of Finance. On January 23, 2011, the government adopted the report of the Sheshinski Committee and its recommendations.

The main recommendations of the Sheshinski Committee and the Petroleum Profits Tax Law, 2011 (“the Law”), are as follows:

(A) The rate of royalties paid to the state remain unchanged

(B) The depletion deduction is eliminated.

C-117 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 16 – INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.)

(C) Oil and gas profits levy: The proposed formula for the levy is based on the recovery factor (“the R factor”), according to the ratio between the net cumulative revenues from the project and the cumulative investments as defined in the bill. The initial rate of the levy will be 20% if the R factor is 1.5, and will rise progressively up to 50%, until the R Factor reaches 2.3. Additional provisions were set for the levy, such as: the levy will be recognized as a deductible expense for income tax purposes, will not include export installations, will be calculated and imposed on each reservoir separately (ring fencing), for payments by the payor calculated as a percentage of the produced oil, the payee will be required to pay a levy on the amount of payment received, and this amount will be deducted from the levy liability of the payor.

(D) Investments will be awarded accelerated depreciation at a rate of 10%, with an option of choosing depreciation in the amount of the taxable income in that year.

(E) Taxation of oil partnerships: The law stipulates provisions for calculation and reporting of the partners’ profits in oil exploration partnerships, including the calculation of taxes for these profits.

(F) The following transitional provisions were prescribed:

(1) The provisions of the law will apply to projects that commenced commercial production before the effective date, with the following changes:

a. If a levy is imposed on a project in the tax year of effective date, the rate of the levy in that tax year will be half of the rate of the levy that would have been imposed on the oil profits were it not for the provisions of this section and no more than 10%.

b. If the R factor in the tax year of the effective date exceeds 1.5, rules were determined for calculation of the R factor for each subsequent tax year.

c. The levy on the oil profits of the project in each of the tax years from 2012 to 2015 will be equal to half of the levy that would have been imposed were it not for the provisions of this section.

(2) The following provisions will apply to projects that commenced commercial production after the effective date but before January 1, 2014:

a. The minimum levy factor will be 2 instead of 1.5, and the maximum levy R factor will be 2.8 instead of 2.3.

b. The depreciation rate of an asset acquired in 2011-2013 will be 15% instead of 10%.

The depletion allowance was eliminated in the amendment to the Income Tax Regulations, which was approved by the Knesset Finance Committee.

Subsequent to the balance sheet date, in February 2011, the Knesset passed the first reading and in March the Knesset passed the second and third reading of the Petroleum Profits Taxation Law, 2011. At the publication date of this report, the final draft of the law has not yet been published in the records. Application of the law will change the taxation applicable to the partnership’s revenue as set out above.

C-118 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

The Law will significantly increase the tax burden and will adversely affect the businesses of the Company, Delek Energy and the business of their limited partnerships.

C-119 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 16 – INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.)

G. Gas supply agreements

1. Agreements with Israel Electric Corporation for the supply of natural gas

On June 25, 2002, the partners in the Yam Tethys group entered into an agreement with Israel Electric Corporation (“IEC”) for the supply of natural gas to IEC (“the agreement”).

According to the terms of the agreement, Yam Tethys group will provide natural gas to Israel Electric Corp. for a period of about 11 years or until such a time when Yam Tethys has provided to Israel Electric Corp. natural gas in the total amount of about 18 BCM, according to the terms set in the agreement.

The financial scope of the transaction (for all partners) is estimated at USD 1.5 billion. The actual revenue of Yam Tethys group are affected by a number of conditions, including the construction pace of the national natural gas pipeline and the actual quantity taken by the IEC.The gas price set in the agreement was denominated in US dollars per British Thermal Unit (BTU), and is linked to the oil index and the US Producer Price Index according to the mechanism set forth in the agreement, with a maximum and a minimum price (see also Note 28 below for details of a transaction entered into for the fixation of the gas price). On February 18, 2004, the joint venture began supplying natural gas to IEC facilities.

In August 2006, the partners in the Yam Tethys group signed an addendum to the agreement with IEC, according to which IEC was granted an option to purchase additional quantities of natural gas. The option is valid (after the extension) until March 31, 2009 and pertains to additional gas volumes purchased since July 2006 (in practice, the parties acted in accordance with the terms in the addendum to the extension agreement up to June 30, 2009). The price for gas purchased under the addendum to the agreement is higher than the price at which IEC purchases natural gas under the original agreement.

In August 2009, IEC and the Yam Tethys project partners signed a memorandum of understanding (“the MOU”) for the supply of an additional 1 BCM of gas per year for five years (a total of 5 BCM). The financial scope of the agreement (for all partners) is estimated at USD 1 billion. The actual revenue of Yam Tethys project from the sale of additional quantities to IEC will be affected by a number of conditions, mainly global fuel prices, supply schedule and other conditions.

Pursuant to the MOU, the price of natural gas is higher than the price paid by IEC pursuant to the original agreement. The parties reached an agreement regarding distribution of the additional quantity of gas supplied according to the MOU out of the entire quantity of gas supplied to IEC in the period commencing from July 1, 2009. See section 3(A) below regarding the letter of intents signed with IEC for the additional amounts of natural gas.

2. Other agreements

At December 31, 2010, the partners in the Yam Tethys group have entered into agreements for the supply of natural gas to several parties (including Delek Ashkelon, (a subsidiary), Paz Ashdod Refinery, Hadera Paper Ltd. and Dead Sea Works) for periods ranging between 5 and 15 years totaling 5.5 BCM and at an estimated financial scope between USD 580 and 650 million. The actual revenue will be affected by a number of conditions, as set forth in the agreements.

C-120 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 16 – INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.)

3. Letters of intent for supply of natural gas

A. Letters of intent with IEC

On December 24, 2009, IEC and the Yam Tethys partners and Michal Matan partners signed a letter of intent for the supply of natural gas for 15 years, in an annual scope of at least 2.7 BCM and an estimated financial scope of USD 400 million to USD 750 million. The actual revenue will be affected by a number of conditions. The revenue from the sale of gas to IEC, according to the MOU, is estimated at USD 9.5 billion (for 100% of the rights in the Tamar project).In accordance with another letter of intent signed by IEC and the partners in the Yam Tethys project, IEC will negotiate for the acquisition of strategic inventory of natural gas and the acquisition of storage and transportation service for the gas purchased from the Mari field.

A third letter of intent was also signed by the partners in the Yam Tethys project and the partners in the Tamar project, according to which the strategic inventory will be supplied by the Tamar project, subject to the agreement between the partners in both projects.

B. Additional letters of intent

1) In December 2009, Dalia Energies and the partners in the Michal Matan project signed a letter of intent for the supply of natural gas over 17 years, as from the commencement of operation of the power station, in a total quantity of 5.6 BCM and an estimated financial scope of at least USD 1 billion. The actual revenue will be affected by a number of conditions.

2) In February 2010, Darom Power Station and Dimona Silica and the partners in the Michal Matan project signed a letter of intent for the supply of natural gas for 17 years, in a total scope of 2.8 BCM and an estimated financial scope of USD 0.5 billion. The actual revenue will be affected by a number of conditions.

Notwithstanding the aforesaid in section A and B above, there is no certainty that binding contracts will be signed under said terms or under other terms, and there is no certainty that the supply quantity and financial scope of the agreements will be as estimated above if a binding contract is signed.

4. Royalties to the State and others

The Commissioner of Petroleum Affairs in the Ministry of National Infrastructures informed the Yam Tethys joint venture that the State has decided not to take the royalties it is entitled to (in kind) from gas discoveries, but rather to take the market value of the royalties per well in US dollars. The method for calculating the royalties due to the State was agreed according to the Commissioner of Petroleum Affairs' announcement on July 19, 2004 and a summary of a discussion held with the Commissioner. According to the agreements, the financial statements include royalty payments to the State, representing 11.2% (in 2009, 10.9%; in 2008, 10.5%) of the gross sales of the joint transaction. The method for calculating the royalties is used also to calculate the market value per well of the super royalties paid to the companies in the Group and to others.

C-121 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 17 – PROPERTY, PLANT AND EQUIPMENT

A. Composition and movement

2010 Computers, Pumps, Leasehold Machinery, furniture and tanks and improve- facilities and office station ments equipment equipment equipment Refineries Works of art Vehicles Total NIS millions Cost

*) Balance as of January 1, 2010 4,368 565 654 2,367 1,729 76 102 9,861 Additions during the year 340 14 47 123 159 - 12 695 Exchange differences for translation of foreign operations()146 ) ()30 (8 ()158) (--)109 (450 Additions for a company consolidated for the first time 254 - 3 536 - - - 793 Deconsolidation(-)264 ) (26 ---)()7 (297 Transfer to investment property (22 ) ------)(22 Assets held for sale(--6 ) (14) ---)(20 Disposals during the year (-)68)(2 ()60) ()57 (2 (18)(200 )

Balance as of December 31, 2010 4,456 549 668 2,7941,722 74 89 10,360

Cumulative depreciation

Balance as of January 1, 2010 753 186 426 962 222 - 66 2,615 Additions during the year 125 24 55 176131 - 9 520 Exchange differences for translation of foreign operations()20 ) ()13 (5 ()36) (-(3))19 (94 Deconsolidation (38) - (18) - - - (5)(42 ) Assets held for sale(--3 ) (12) ---)(15 Reclassified to investment property (2 ) ------)(2 Disposals during the year (-)32)(2 ()23) (57 - (17)(148 )

Balance as of December 31, 2010 783 197 456 1,067277 - 50 2,837

Amortized cost as at December 31, 2010 3,676 352 212 1,727 1,445 74 39 7,523

Less - provision for impairment 17 - - 30 - 2 - 49

Reduced balance for December 31, 2010 3,656 352 212 1,697 1,445 72 39 7,474

C-122 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 17 – PROPERTY, PLANT AND EQUIPMENT (CONTD.)

2009 Computers, Pumps, Leasehold Machinery, furniture and tanks and improvement facilities and office station s *) equipment equipment equipment Refineries Works of art Vehicles Total NIS millions Cost

Balance as of January 1, 2009 4,163 540 578 2,177 1,155 80 103 8,796 Additions during the year 539 29 61 90 607 - 9 1,335 Exchange differences for translation of foreign operations 3 (3) - 15 (14) - - 1 Additions for a company consolidated for the first time - - 36 - - - - 36 Deconsolidation()153 ) (1 (9) - - - (2) (165) Transfer between groups (111 ) - - 111 - - - - Adjustments for attribution to excess cost - - - 15 - - - 15 Disposals during the year (73) - (12) (41) (19) (4) (8) (157)

Balance as of December 31, 2009 4,368 565 654 2,367 1,729 76 102 9,861

Cumulative depreciation

Balance as of January 1, 2009 673 170 372 828 126 - 62 2,231 Additions during the year 127 17 54 153 102 - 11 464 Exchange differences for translation of foreign operations 2 - - 1 (5) - - (2) Additions for a company consolidated for the first time - - 18 - - - - 18 Deconsolidation (39) (1) (7) - - - (1) (48) Disposals during the year (10) - (11) (20) (1) - (6) (48)

Balance as of December 31, 2009 753 186 426 962 222 - 66 2,615

Amortized cost as at December 31, 2010 3,540 454 228 1,405 1,507 76 36 7,246

Less - provision for impairment 17 - - 30 - 3 - 50

Reduced cost at December 31, 2009 3,523 454 228 1,375 1,507 73 36 7,196

*) Reclassified, see Note 2A

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Notes to the Consolidated Financial Statements

NOTE 17 – PROPERTY, PLANT AND EQUIPMENT (CONTD.)

B. Capitalized credit costs

December 31 2010 2009 NIS millions

59 60

C. See Note 33 for liens.

NOTE 18 – DEFERRED ACQUISITION COSTS IN INSURANCE COMPANIES

A. Composition: December 31 2010 2009 NIS millions

Life assurance and long-term savings 680 642 Health insurance 116 106 General insurance 318 296

1,114 1,044

Stated in the balance sheet as follows: December 31 2010 2009 NIS millions

Current assets 393 364 Non-current assets 721 680

1,114 1,044

C-124 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 18 – DEFERRED ACQUISITION COSTS IN INSURANCE COMPANIES (CONTD.)

B. Change in deferred acquisition costs in life assurance and long-term savings:

Life assurance and long- term savings Health NIS millions

Balance as of January 1, 2009 697 96

Additions Acquisition commissions 66 19 Other acquisition costs 64 13

Total additions 130 32 Current write off (68) (11) Write-off for cancellations (117) (11)

Balance as of December 31, 2009 642 106

Additions Acquisition commissions 118 20 Other acquisition costs 72 15

Total additions 190 35 Current write off (75) (19) Write-off for cancellations (77) (6)

Balance as of December 31, 2010 680 116

C-125 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 19 – STRUCTURED BONDS

At December 31, 2010, the balance of the structured bonds amounts to NIS 918 million (NIS 148 million recognized in short-term investments).

The structured bonds were issued through special purpose companies that engage exclusively in issuing debentures and handling assets mortgaged in favor of the debenture holders (“Heharim companies”). The issuing companies are special purpose companies (“SPC”), which were set up for the sole purpose of issuing debentures and these companies may not engage in any other commercial activity. The SPC acquires non-marketable structured bonds (“notes”) from the proceeds of the issuance, which constitute the sole source of repayment of the liabilities of the Heharim companies (non-recourse liabilities).

At December 31, 2010, there are nine series of structured bonds: one is listed on the TASE, two for which trading was suspended and six were issued in private offerings. The bonds (except for Keshet and part of the Matbeot Olam – World Currencies series), which are traded on the TASE, have been rated by Maalot - the Israel Securities Rating Company Ltd. (“Maalot”) at AA-AAA. The fair value of the notes backing up the marketable structured bonds at December 31, 2010, based on the market price of the marketable debenture as of the balance sheet date is NIS 462 million.

NOTE 20 – GOODWILL AND OTHER INTANGIBLE ASSETS

A. Composition: Marketing, rights, brands, franchises and Value of customer insurance Goodwill portfolios Software portfolios *) Other Total NIS millions

Balance as of January 1, 2009 2,873 715 386 510 54 4,538

Deconsolidation (749) - - - (15) (764) Additions 244 50 119 4 - 417 Companies consolidated for the first time 900 207 - - - 1,107 Impairment (37) (16) - - - (53) Amortization recognized during the year - (161) (51) (63) (8) (283) Adjustment of fair value differences (47) - - - - (47) Exchange differences on translation of foreign operations 58 13 - - 6 77

Balance as of December 31, 2009 3,242 808 454 451 37 4,992

Deconsolidation (15) - - - - (15) Additions 23 53 130 3 - 209 Companies consolidated for the first time 196 138 - - - 334 Impairment (111) - - - - (111 ) Amortization recognized during the year - (86) ()88) (41 (8) (223) Exchange differences on translation of foreign operations ()130 ) (81 - (7) (3) (221)

Balance as of December 31, 2010 3,205 832 496 406 26 4,969

*) See also section B(1) below.

C-126 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 20 – GOODWILL AND OTHER INTANGIBLE ASSETS (CONTD.)

B. Impairment of goodwill and intangible assets with a defined useful life

To assess impairment of goodwill and intangible assets with a defined useful life, goodwill and the value of insurance portfolios were attributed to business sectors, as follows:

Value of insurance Goodwill portfolios December 31 2010 2009 2010 2009 NIS millions

Insurance and finance in Israel 1) 1,481 1,523 311 350 Fuel operations in Israel (2) 327 318 - - Insurance abroad (3) 374 455 - - Gas stations and convenience stores in the USA (4) 214 227 - - Gas stations and convenience stores in Europe (5) 727 633 - - Other segments 80 86 - -

Total 3,2033,242 311 350

(1) Goodwill of NIS 311 million and the value of the insurance portfolios in Israel with a balance of NIS 288 million at December 31, 2010, were created by acquisition of control of Phoenix in 2006. Examination of impairment of goodwill and value of insurance portfolios is based, among others, on the assessment of an independent external assessor. In the valuation, part of the goodwill and value of insurance portfolios for life assurance and general insurance activity were attributed to cash-producing units. The goodwill that cannot be attributed specifically was examined on the level of the entire sector.

The recoverable amount of the life assurance unit is calculated on the basis of the embedded value, using the discount rate reflecting the level of risk in the relevant cash flows. Calculating the embedded value is based on discounting the future cash flows arising from the life assurance portfolio less the cost of capital required and with the Company’s equity after a number of adjustments. In addition, the valuation took into account the value of new businesses (VNB).

The recoverable amount of general insurance is based on the value of use calculated by discounting the expected future cash flows using the discount rates that reflect the risk level of the operation.

Following the examination, the Company concluded that in 2010, there was not impairment of goodwill and insurance portfolios.

Goodwill amounting to NIS 680 million was attributed to acquisition of Excellence, after provision for impairment of NIS 50 million, which was attributed to the provident unit. See Note 14H(1).

Goodwill amounting to NIS 138 million was attributed to operations of insurance agencies and financial consultation with a recoverable amount based on discounted cash flows and the “profit factor” method. In 2010, impairment of goodwill of NIS 2 million was included for these operations.

A total of NIS 208 million is attributed to goodwill for acquisition of Prisma Investment House Ltd. In 2009. According to the assessment of an external valuator, a provision for impairment of goodwill is not required.

C-127 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 20 – GOODWILL AND OTHER INTANGIBLE ASSETS (CONTD.)

(2) The balance attributable to fuel storage and distribution in Israel amounts to NIS 318 million at December 31, 2010 (at December 31, 2009 – NIS 318 million). The recoverable amount of the fuel storage and distribution unit was based on discounting the future cash flows expected to be received from it. To determine the recoverable amount, the pre-tax discount rate used was 8.8% and the cash flow forecasts took into account annual growth of 2% in 2011-2013 and 1.5% through the remainder of the discount term.

(3) In 2010, the Group examined the recoverable amount of goodwill of Republic based on the discounted expected future cash flow method and comparison with benchmark companies in the sector, taking discount rates that reflect the level of risk of the operations (13%). Following the examination, in the reporting year, the Group recognized impairment of USD 15.5 million (approximately NIS 57 million).

(4) The balance attributable to gas stations and convenience stores in the USA amounts to NIS 214 million at December 31, 2010 (at December 31, 2009 – NIS 227 million). The recoverable amount was based on various valuation techniques, including multiples and discounted future cash flows, using the weighted average cost of capital method (WACC). When preparing these estimates, the growth rates and various estimates were taken into account, based on the Group’s experience. In 2010, impairment was not recognized for goodwill.

(5) At December 31, 2010, goodwill attributable to gas stations and convenience stores in Europe amounts to NIS 722 million (at December 31, 2009, NIS 633 million). For the balance of NIS 551 million, impairment was based on the value of use, using the following parameters: discount rate of 8.26%, inflation rate of 1.5%, and representative predicted cash flows for five years including annual growth of 1- 3%. In 2010, impairment was not recognized for goodwill.

The balance of NIS 176 million is due to business combinations in the fourth quarter of 2010. See Note 14.

C-128 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 21 – SHORT-TERM CREDIT FROM BANKS, NET

A. Composition:

Annual December 31 Interest (1) 2010 2009 % NIS millions From banks

Foreign currency

US dollar or dollar linked 2.7 558 429 Euro 2.8 247 432 Other 5.4 47 145

852 1,006

NIS

CPI linked 4 320 241 Unlinked 3.1 943 789

1,263 1,030

From others

Convertible securities Unlinked - 77 CPI linked - 6 Linked to the euro - 1

- 84 Current maturities of other debentures 1,245 831 Current maturities of long-term debt 698 790

1,943 1,621

4,058 3,741

(1) Most of the loans bear interest at a variable rate. The rate presented is a weighted average as of December 31, 2010.

B. See Note 25(C) for compliance with financial covenants.

C. See Note 33 for collateral.

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Notes to the Consolidated Financial Statements

NOTE 22 – TRADE PAYABLES

December 31 2010 2009 NIS millions Mainly open accounts

Foreign currency or linked thereto 2,158 2,733 NIS 185 146

2,343 2,879

Trade payables are non-interest bearing and are normally settled in less than 30 days.

NOTE 23 – OTHER PAYABLES

December 31 2010 2009 NIS millions

Institutions 1,276 1,118 Prepaid income and expenses payable 298 194 Advance payments from customers 10 139 Salaries and incidentals 197 218 Dividend and earnings payable to non-controlling interest shareholders in subsidiaries and partnerships - 51 Transactions in oil and gas exploration 220 75 Interest to be paid 265 182 Deferred purchase costs for reinsurance 32 31 Insurance companies and insurance agents 336 274 Liabilities to insurance agents 179 136 Liability for acquisition of subsidiary shares from owners of non-controlling interests 177 103 Payables for structured bonds - 174 Deposits from residents 422 240 TASE clearing house - 85 Others and accrued expenses 415 526

9,827 3,549

NOTE 24 – EXCHANGE-TRADED FUNDS AND DEPOSIT

December 31 2010 2009 NIS millions

Exchange-traded funds and deposit (1) 17,256 15,181 Current maturities of structured debentures 359 258 Liability for short sale of securities 312 200

17,927 15,639

C-130 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 24 – EXCHANGE-TRADED FUNDS AND DEPOSIT (CONTD.)

(1) Details of exchange-traded funds

A. Excellence owns special purpose companies (“SPCs”) that issue exchange traded funds and deposits listed on the TASE. Excellence issues exchange-traded funds (“ETFs”) that track share, commodity and sector indexes, reverse certificates for share indexes and covered warrants for indexes and commodities (“the certificates”). The issuing companies are SPCs that were set up to issue ETFs, commodity certificates and reverse certificates, and other securities approved by the board of directors of the TASE. ETFs were issued by companies that exclusively issue ETFs and handle assets pledged in favor of the debenture holders. The certificates accurately track an index and are convertible into shares or at a financial value according to the reference index determined for that certificate. The certificates are backed by underlying assets that produce the yields of various share and goods indexes. Of the proceeds of the issuance, the companies deposit sums in accounts (banks or financial institutes) and underlying assets and/or financial instruments and derivatives that will be acquired to fulfill their obligations towards the debenture holders. The rights of the debenture holders will be exercised out of the net proceeds received from the companies from the pledged assets. Up to December 31, 2010, 134 certificates were issued.

B. Deposit certificates were issued by companies that engage exclusively in issuing deposit certificates and handling assets that are pledged in favor of the deposit holders. Deposit certificates are linked (principal and interest) to the rate of exchange for a variety of currencies against the Israeli shekel and they bear interest. Each of the deposit certificate companies is an SPC which was set up for the sole purpose of issuing deposit certificates and these companies may not engage in any other commercial activity. The companies make bank deposits from the proceeds of the issuance to secure their liabilities towards the holders of the deposit certificates. The rights of the companies in the backup deposits are the sole source of repayment for obligations to the holders of the certificates of deposit. The certificates of deposit are rated at different ratings from AA-AAA+. The rating is based, among others, on the rating of the banks in which the deposits are placed. Up to December 31, 2010, 9 deposit certificates were issued.

C. Composition of the exchange-traded funds December 31 2010 2009 NIS millions

Host contract *) 14,057 12,803 Embedded derivative **) 3,199 2,378

17,256 15,181

*) Measured at reduced cost **) Measured at fair value through profit or loss

D. Additional details about the composition of assets and liabilities of SPCs as of December 31, 2010

Sector Foreign Israel share share share Commodity Exchange Debenture indexes indexes indexes indexes rates indexes Other NIS millions

Backed up assets, net *) 8,038 160 4,089 499 283 4,541 28 Certificates 7,988 158 4,067 496 273 4,522 27

50 2 22 3 10 19 1

*) Less credit and credit balances and less liabilities for options for short sale of securities

C-131 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 25 – LOANS FROM BANKS AND OTHERS

A. Composition and terms:

Annual December 31 interest (1) 2010 2009 % NIS millions

Loans from banks: US dollar or dollar linked 4.5 2,434 3,141 Euro or euro-linked 4 1,702 1,631 Linked to the CPI 5.2 565 511 Unlinked 4.1 128 249 Other currencies 6.1 182 102

5,011 5,634 Loans from others – foreign currency 6 36 317

5,047 5,951 Less - current maturities (698) (790)

4,349 5,161

(1) Most of the loans bear interest at a variable rate. The rate presented is a weighted average at December 31, 2010

B. Settlement dates:

December 31 2010 NIS millions

First year – current maturities 698 Second year 430 Third year 989 Fourth year 191 Fifth year 668 Sixth year and onwards 2,070

5,046

C. Additional details

1. In December 2009, the Company and Delek Investments entered into an agreement with a bank for a loan, the balance of which amounts to NIS 230 million at December 31, 2010. Pursuant to the agreement, the financial covenants determined in prior agreements were annulled and new covenants were established, as follows:

− The Company and Delek Investments have undertaken that the total guarantees that they will provide, as defined in the loan agreement will not exceed NIS 1.5 billion.

− The Group and Delek Investments are required to maintain certain financial ratios derived from the value of their assets in relation to the total liabilities of the companies.

The Company undertook that the total dividends to be declared will not exceed a certain percentage of the net profit attributable to the Company’s shareholders.

At December 31, 2010, the Company is in compliance with these financial covenants.

C-132 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 25 – LOANS FROM BANKS AND OTHERS (CONTD.)

2. In respect of loans from banks and others, the balance of which as of December 31, 2010 is NIS 8 billion, certain subsidiaries have undertaken to meet certain financial covenants, mainly in respect of the amount of their equity, the ratio of credit to balance sheet total, the ratio of equity to balance sheet total, the financial debt and debt coverage. As the balance sheet date, the subsidiaries are in compliance with the financial covenants. In addition, some of the companies undertook towards the banks that as long as the loans are not repaid in full, they will refrain from distributing a dividend exceeding a specific percentage of their net earnings.

3. See Note 13(1) for financing of acquisition of Noble shares.

D. See Note 33 for collateral.

NOTE 26 – DEBENTURES CONVERTIBLE INTO COMPANY SHARES

On April 26, 2010, the Company issued 255,378,000 par value Debentures (Series DD) (“the Debentures”). The debentures are payable in one payment on October 31, 2012 and bear annual interest of 4.1%, payable twice a year on April 30 and October 31. The debentures are unlinked (principal and interest). The debentures are convertible into ordinary shares of NIS 1 par value each of the Company, such that as from their listing on the TASE through to October 15, 2012, each NIS 1,225 par value debenture will be convertible into one ordinary share of NIS 1 par value of the Company, subject to adjustments for distribution of a dividend and so on. According to IFRS 32, Financial Instruments: Presentation, the consideration for the convertible debentures was split such that in the first stage, the value of the liability was defined, based on the value of similar liabilities without a conversion right and the consideration attributed to the equity component was set as a residual value. The proceeds of the issuance amounted to NIS 253 million (after offsetting issuance expenses of NIS 2 million). Of this amount, NIS 247 million (net of issuance expenses) was attributed to the liability component of the debentures and the other NIS 7 million (net of issuance expenses) was attributed to the conversion options and recognized directly in the Company's equity. The effective interest for the debt component is 5.8% per year.

NOTE 27 – OTHER DEBENTURES

A. Composition:

% Interest % effective Interest December 31 weighted weighted 2010 2009 % NIS millions CPI-linked debentures Debentures issued by the Company 4.1 4 5,547 4,511 Debentures issued by subsidiaries 5.3 5.1 4,681 4,345 Unlinked debentures Issued by the Company 7.3 7.3 1,808 1,482 Issued by subsidiaries 7.6 7.4 810 439 Debentures linked to the US dollar, issued by subsidiaries 4.3 4.2 516 756

13,362 11,533 Less - current maturities (1,245 ) (831)

12,117 10,702

C-133 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 27 – OTHER DEBENTURES (CONTD.)

B. Additional details about issuances in 2010

1. In January 2010, Delek Energy issued two debenture series in a scope of NIS 190 million and NIS 210 million (Series E and D, respectively). The first series is linked to the CPI and bears annual interest of 5.15% and the second series is in NIS and bears annual interest of 7.19%. The debentures are repayable in 2013-2019. As collateral for the redemption of the debentures, Delek Energy pledged in favor of the trustee of the debentures participation units of Delek Drilling and Avner in a ratio defined in the deed of trust of the debentures.

2. In June 2010, the Company issued the following:

A. An additional 500,000,000 par value Debentures (Series R) by way of expansion of the debentures, listed for trading. The consideration of the issuance amounted to NIS 519 million (after offsetting issuance expenses of NIS 5 million). The terms of the additional debentures are the same as the terms of the existing debentures. The effective annual interest is 5.88%.

B. An additional 300,000,000 par value Debentures (Series N) by way of expansion of the debentures, listed for trading. The consideration of the issuance amounted to NIS 317 million (after offsetting issuance expenses of NIS 3 million). The terms of the additional debentures are the same as the terms of the existing debentures. The effective annual interest is 8.02%.

On June 8, 2010, Midroog announced a rating of A1 with stable outlook for these debentures.

3. Subsequent to the balance sheet date, in July 2010, Delek Energy issued NIS 171.5 par value debentures registered in the name of their holder (with a discount of 0.1%) in a public offering through an expansion of an existing Debentures (Series D), and NIS 241.8 par value debentures, registered in the name of their holder (with a discount of 1%) through an expansion of an existing Debentures (Series E).

Further to the aforesaid, in July 2010, the Group acquired NIS 20,712,000 par value Debentures (Series D) and NIS 22,318,000 par value Debentures (Series E). This acquisition did not have a material effect on the results of the Group’s operations.

4. In September 2010, a wholly-owned subsidiary of The Phoenix issued, in a public offering, NIS 200,000,000 par value Debentures (Series B) and NIS 175,420,000 par value Debentures (Series C). The Debentures (Series B) are repayable after twelve years (with an option for early repayment after nine years), are linked to the CPI and bear interest at a rate of 3.6%. The Debentures (Series C) are repayable after ten years (with an option for early repayment after seven years) and bear interest at a rate of 6%. Debentures (Series C) are not linked to the CPI or any currency.

In addition, in October 2010, NIS 24,580,000 par value Debentures (Series C) of the subsidiary were issued in a private offering to a classified investor.

The consideration for the issuance was deposited at The Phoenix Insurance, which undertook to comply with the payment terms of the debentures, and will be recognized as hybrid tier 2 capital of The Phoenix Insurance, subject to restrictions on the maximum rate of tier 2 capital, as set out in the draft circular regarding the composition of an insurer’s equity. These debentures have special features in accordance with the directives of the Commissioner of Insurance, among others, in respect of deferral of payments, early repayment and added interest.

C-134 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 27 – OTHER DEBENTURES (CONTD.)

5. In November 2010, the Company issued NIS 559,910,000 par value Debentures (Series S), listed for trading. The debentures are linked to the CPI and are repayable in four equal payments, on November 10th of each of the years from 2019 to 2022. The debentures bear annual interest of 4.65% paid twice a year on May 10th and November 10th of each year as from May 10, 2011. The consideration of the issuance amounted to NIS 554 million (after offsetting issuance expenses of NIS 5 million). The effective annual interest of the debentures is 4.8%.

C. Repayment dates after the balance sheet date

December 31 2010 NIS millions

First year – current maturities *) 1,245 Second year 1,400

Third year 1,544 Fourth year 1,336 Fifth year 1,234 Sixth year and onwards 6,603

13,362

NOTE 28 – FINANCIAL INSTRUMENTS

A. Financial risk factors

The Group's activities expose it to various financial risks, such as market risk (including currency risk, CPI risk, interest risk, and price risk), credit risk and liquidity risk. The Group's comprehensive risk management plan focuses on measures to minimize possible negative effects on the financial performance of the Group. The Group uses derivative financial instruments to hedge against exposure to certain risks. See section F below for financial risks of insurance companies.

1. Exchange rate risk

The Group is exposed to exchange rate risk due to exposure to various currencies, such as the dollar and euro. The exchange rate risk is due to future commercial transactions (including purchase of goods in foreign currency), assets and liabilities denominated in foreign currency other than the functional currency of the companies and net investments in foreign operations.

The Group companies enter into transactions involving derivative financial instruments, from time to time, such as forward transactions and options to hedge their exposure to exchange rate fluctuations.

C-135 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

As of the balance sheet date, subsidiaries were involved in the following open transactions: Scope of transactions NIS millions Agreements for forward transactions

Purchase of dollar for shekel 661

Foreign currency options purchased

Purchase of dollar for euro 175

Foreign currency options written

Purchase of shekel for dollar 94 Purchase of euro for dollar 24

954

The fair value of the transactions and their carrying amount at December 31, 2010 reflect a net liability of NIS 10 million.

Most of the transactions are for a period of up to one year, and are not recognized as hedging transactions for accounting purposes.

Profit (loss) from the change 2010 2009 Increase of Decrease Increase of Decrease 5% of 5% 5% of 5% Risk factor NIS millions

NIS/USD exchange rate 63 (63) (20) 19 NIS/EUR exchange rate - - (16) 15 NIS/JPY exchange rate - - (49) 48 NIS/GBP exchange rate - - 1 (1) NIS/other currency exchange rate 2 (2) 1 (1) Foreign currency/foreign currency exchange rates (27 ) 27 2 (1)

2. CPI risk

The Group has bank loans and debentures linked to changes in the CPI. In addition, the Group has provided loans that are linked to changes in the CPI.

A subsidiary entered into a transaction for the acquisition of 650 million index units for NIS 689 million. The fair value at the balance sheet date reflects a liability of NIS 1 million.

An increase of 2% in the CPI will result in a loss of NIS 121 million (in 2009, NIS 148 million) and a decrease of 2% in the CPI will lead to a similar profit.

C-136 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

3. Credit risk

The Group holds cash and cash equivalents, short- and long-term investments and other financial instruments in various financial institutions in Israel and abroad on the highest level.

Group revenues are composed of large number of customers. Trade receivables include a small number of customers that usually have a significant debt balance. the Group did not receive collateral for most of the trade receivables and loans

For credit risks in the insurance sector, see section F below.

The revenues of the Group companies are derived from a large number of customers. The subsidiaries assess trade receivables regularly and the financial statements include provisions for doubtful accounts which properly reflect, in the estimate of the subsidiaries, the loss in debts for which collection is uncertain.

4. Liquidity risk

The table below presents the repayment dates of the Group’s financial liabilities in accordance with the contractual terms, undiscounted.

As of December 31, 2010

Up to 1 Over 5 year 1-2 years 2-3 years 3-4 years 4-5 years years Total NIS millions

Short-term credit 1,710 - - - - - 1,710 Long-term loans from banks 847 658 772 301 744 2,015 5,337 Trade payables 2,277 - - - - - 2,277 Tax and other payables 3,890 - - - - - 3,890 Other debentures 1,491 1,893 1,782 1,648 1,530 6,217 14,561 Debentures convertible into Company shares 10 266 - - - - 276 Derivative instruments 36 27 47 13 - - 123

10,261 2,844 2,601 1,962 2,274 8,232 28,174

December 31, 2009

Up to 1 Over 5 year 1-2 years 2-3 years 3-4 years 4-5 years years Total NIS millions

Short-term credit 1,678 - - - - - 1,678 Long-term loans from banks 982 1,458 692 166 489 2,155 5,942 Trade payables 2,896 - - - - - 2,896 Tax and other payables 1,545 - - - - - 1,545 Other debentures 983 1,365 1,439 1,708 1,307 4,983 11,785 Derivative instruments 33 16 30 - - 87 166

8,117 2,839 2,161 1,874 1,796 7,225 24,012

C-137 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

5. Interest rate risk

The Company and its investees have shekel loans at variable interest, therefore the Group is exposed to changes in interest rates in Israeli banks. Some of the Group companies took loans at variable interest at foreign interest rates, therefore they are exposed to changes in interest rates in those countries. Changes in interest rates in Israel and the USA could have an adverse effect on the yields of the convertible securities portfolios of insurance companies held by subsidiaries, which provide collateral for insurance liabilities.

The table below describes the impact on pre-tax profit and on equity (if there is no effect on pre- tax profit), following possible changes in market interest rates in respect of financial instruments bearing interest at a variable rate.

Effect on earnings (loss) Effect on capital 2010 2010 Increase of Decrease Increase of Decrease 0.5% of 0.5% 0.5% of 0.5% Risk factor NIS millions

USD interest (15) 15 (29) 27 EUR interest (9) 9 12 (12)

Most of the loans are at variable interest. The Group companies carry out interest rate swap transactions to reduce exposure. The open transactions at the date of the balance sheet are as follows:

Delek Benelux entered into a number of interest rate swap transactions. At December 31, 2010, the transactions amount to EUR 142 million, for which Delek Benelux pays average effective interest of 2.72% (in 2009, 2.31%). These swap transactions are partially accounted for as accounting hedge transactions. The fair value of the transactions at December 31, 2010 reflect a liability of EUR 20.4 million.

6. Price risk

The Group has investments in marketable financial instruments on the TASE, shares and debentures, classified as available-for-sale and financial assets measured at fair value through profit or loss, and other financial instruments, for which the Group is exposed to changes in fair value based on the market price on the TASE.

For the impact of the price risk on insurance subsidiaries in Israel, see section E below.

C-138 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

The table below presents the impact of possible changes on market prices of securities on pre- tax profit and on capital (with the exception of insurance subsidiaries).

Effect on earnings (loss) Effect on capital 2010 2009 2010 2009 Price Price Price Price Price Price Price Price increase decrease increase decrease increase decreas increase decrease of 20% of 20% of 20% of 20% of 20% e of 20% of 20% of 20% Risk factor NIS millions

Share price 66 (66) 63 (63) 398 (398) 122 (122)

*) Assuming there is no impairment of available-for-sale securities

Effect on earnings (loss) Effect on capital 2010 2009 2010 2009 Price Price Price Price Price Price Price Price increase decrease increase decreas increase decreas increase decrease of 20% of 20% of 20% e of 20% of 20% e of 20% of 20% of 20% Risk factor NIS millions

Price of corporate debentures 17 (17) 24 (24) - - - -

7. Transactions of oil and gas prices

(1) DES has financial assets in respect of hedge transactions on the price of oil and gas, which include put and call options. At the reporting date, the balance of these assets is NIS 2 million (in 2009, NIS 9 million).

(2) DES has financial liabilities in respect of hedge transactions on the price of oil and gas. At the reporting date, the balance of these liabilities is NIS 15 million (in 2009, NIS 44 million).

(3) In 2004, the subsidiary partners and a foreign investment bank signed agreements to fix gas prices to the dollar set between the partnership for the period between January 1, 2005 and March 31, 2013. At December 31, 2010, scope of the transaction is USD 76 million (at December 31, 2009, USD 108 million).

The table below presents the impact of possible changes in the prices of oil and fuel on pre-tax profit:

Profit (loss) from the change 2010 2009 Price Price Price Price increase of decrease increase of decrease of 20% of 20% 20% 20% Risk factor NIS millions

Oil price 1 (1) (10) 15 Fuel price 166 (166) 23 (23)

C-139 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

8. Main assumptions used in calculation of sensitivity tests

The changes selected in the relevant risk variables were based on management assessments of the reasonable changes that are likely in these risk variables.

The Company performed sensitivity tests for the main market risk factors that could affect the operating outcome or reported financial situation. The sensitivity analyses present the profit or loss and/or change in equity (before tax) for each financial instrument in respect of the relevant risk variable for each reporting date.The risk factors are tested on the basis of the significance of the exposure of the operating outcomes or the financial situation for each risk factor in relation to the functional currency and assuming that all the other variables are fixed.

The risk is not exposed to interest risk in loans at fixed interest. For loans at fixed interest, the sensitivity test for interest risk will only be performed on the variable component in the interest.

Sensitivity tests for marketable investments with a quoted market price (TASE price) were based on possible changes in these market prices. Tests of sensitivity to changes in the CPI and changes in Japanese yen interest amounted to sums that are not material. For an investment in a non-marketable available-for-sale financial asset, the sensitivity test is based on the anticipated price when raising future capital.

Sensitivity tests for options were generally based on the Black and Scholes model.

B. Fair value

The table below describes the balance in the financial statements and the fair value of groups of financial instruments, presented in the financial statements, not on the basis of fair value.

Carrying amount Fair value December 31 December 31 2010 2009 2010 2009 NIS millions

Financial liabilities

Long-term loans 3,108 (3,411) 2,899 (3,160) Convertible debentures 248 - 265 - Debentures 10,669 (8,877 ) 11,043 (8,556 )

Total 14,025(12,288 ) 14,207(11,716 )

The carrying amount of financial instruments such as cash and cash equivalents, short-term investments, trade receivables, other receivables, loans to associates, long-term loans extended, borrowings from banks and others, liabilities to trade payables and other payables is equal to or approximates their fair value.

C-140 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

C. Classification of financial instruments according to fair value level The financial instruments presented in the statements at fair value are classified into groups with similar characteristics. The fair value level set out below is determined according to the inputs used to determine fair value:

Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly Level 3: inputs that are not based on observable market data (unobservable inputs)

Financial assets measured at fair value Level 1 Level 2 Level 3 NIS millions December 31, 2010

Financial assets at fair value through profit or loss Shares 103 - - Debentures 470 - - Non-hedging financial derivatives - 2 - Available-for-sale financial assets : Shares 2,220 - 328 Debentures 46 - -

Financial liabilities measured at fair value

Level 1 Level 2 Level 3 NIS millions December 31, 2010

Financial liabilities at fair value through profit or loss Non-hedging financial derivatives 1 15 18

Financial liabilities at fair value through other comprehensive income: Hedging financial derivatives - 97 -

Level 3 financial assets Available- for-sale financial assets NIS millions

Balance as ofJanuary 1, 2010 536

Total profit recognized in other comprehensive income 7 Transfers to level 3 20 Acquisitions in the year 8 Impairment (213) Exchange differences for translation of foreign operations (30)

Balance as ofDecember 31, 2010 328

C-141 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

D. Linkage of monetary balances

December 31, 2010 Monetary items of Israeli currency Foreign currency foreign operations Performa CPI- Other nce- ETFs linked to Non- Unlinked linked USD GBP Euro currency Fair value based USD Euro different indexes monetary Total NIS millions

Cash and cash equivalents 1,817 - 202 - 22 15 - - 718 669 - - 3,443 Performance-based cash and cash equivalents in insurance companies ------607 - - - - 607 Short-term investments in the finance sector ------18,246 - 18,246 Short-term investments in insurance companies ------299 - - - - 299 Other short-term investments - 6 102 - - - 743 - 112 - - - 963 Financial derivatives ------2 - - - - - 2 Trade receivables 1,422 3 138 1 11 - - - 481 980 - - 3,036 Insurance premium receivable 158 327 18 - - - - 71 358 - - - 932 Other receivables 209 219 82 - 2 23 - 30 131 100 - 47 843 Taxes receivable ------81 81 Reinsurance assets ------1,443 - - - 1,443 Inventories ------1,273 1,273 Deferred acquisition costs in insurance companies ------393 393 Assets held for sale 40 1 4 ------14 59 Financial investments of insurance companies 14 8,023 30 - 52 28 6,701 20,081 - - - - 34,929 Long-term loans, deposits and receivables 141 101 221 - - 3 - - 85 15 - 24 590 Investments in other financial assets ------2,572 - - - - - 2,572 Investments in associates and partnerships 76 458 327 41 - - - - - 8 - 2,880 3,790 Investment property ------212 - - - 267 479 Investments in oil and gas exploration and production ------1,522 1,522 Reinsurance assets 144 1,184 51 - - - - 63 702 - - - 2,144 Property, plant and equipment, net ------7,474 7,474 Deferred acquisition costs in insurance companies ------7 - - - 714 721 Structured bonds ------775 - 775 Goodwill ------3,218 3,218 Other intangible assets, net ------1,775 1,775 Deferred taxes ------272 272

Total assets 4,021 10,322 1,175 42 87 69 10,018 21,370 4,030 1,772 19,021 19,954 91,881

C-142 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

December 31, 2010 Monetary items of Israeli currency Foreign currency foreign operations Performa CPI- Other nce- ETFs linked to Non- Unlinked linked USD GBP Euro currency Fair value based USD Euro different indexes monetary Total NIS millions

Interest bearing loans and borrowings 942 336 224 - - 30 - - 333 249 - - 2,114 Trade payables 184 - 504 - 4 17 - - 830 804 - - 2,343 Other payables 766 757 436 - 9 23 6 142 713 925 - 33 3,810 Exchange-traded funds and deposit ------17,926 - 17,926 Current tax liabilities 6 ------12 - 32 50 Financial derivatives ------16 - - - - - 16 Assets held for sale 15 - 10 ------25 Loans from banks and others 264 442 874 - 98 92 - - 1,573 1,703 - - 5,046 Other debentures 2,830 10,017 74 - - - - - 442 - - - 13,363 Convertible debentures 248 ------248 Structured bonds ------755 - 755 Financial derivatives ------11 - - 97 - - 108 Liabilities for employee benefits, net ------54 - 116 39 209 Liabilities for insurance contracts 951 13,345 78 - - - - 21,051 3,422 - - 5 38,852 Provisions and other liabilities 229 358 7 - - - 10 - 114 190 - 2 910 Deferred taxes ------277 967 1,244 - Total liabilities 6,435 25,255 2,207 - 111 162 43 21,193 7,481 3,980 19,074 1,078 87,019

Equity balance, net (2,414) (14,933) (1,032) 42 (24) (93) 9,975 177 (3,451) (2,208) (53) 18,876 4,862

C-143 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

E. Market risks in insurance companies

Revenue from investments arising from performance-based portfolios and nostro portfolios has a material impact on the Company’s profits. The extent of the impact on profits depends on the characteristics of the insurance liabilities (nostro and profit participating) and the conditions of the management fees in products for which the relevant reserve is held.

1. Performance-based contracts

In profit participating policies issued from 2004 onwards, all yields from investments are allocated to the policyholders and the insurer is eligible to fixed management fees at the rate of 1%-2%, depending on the track. For these products, the impact of the yields on the profits of the insurance company is reduced to exposure derived from the total scope of the reserve from which the insurer’s management fees are derived.

In profit participating policies issued up until December 31, 2003, the yield from the investment is allocated to the policyholders and the insurer is eligible to fixed management fees at the rate of 0.6% of the accruals and variable management fees of 15% of the real profit achieved after deducting the fixed management fees. In these products, in addition to the exposure derived from the amount of the accumulation, there is an impact on the Company’s profits as a result of the rate of the variable management fees derived in accordance with the real yields allocated to the policyholders.

In pension and provident funds business, all yields from investments (net of fixed management fees) are allocated to the members. Therefore, the impact of the results of the investment on the profits of the company managing the pension or provident funds is based on the total scope of the accrued amount from which the management fees for the management company is derived.

Regarding the assets and liabilities for these products, the insurance company does not have direct exposure for changes in interest, fair value of investments or the CPI. The effect of the financial results on the insurance company’s profits is reduced to exposure derived from variable management fees based on yields recognized for policyholders, which applies only to policies issued before 2004, and from all the liabilities on which the insurer’s fixed management fees are based for all the performance-based products.

In view of the aforesaid, the sensitivity tests and maturity dates of the liabilities set forth below do not include performance-based contracts.

Below is a sensitivity test for performance-based contracts and the effect of any change in yield on profit (loss).

Any change of 1% in the real yield on the investments according to performance-based contracts for policies issued up to 2004, with liabilities of NIS 17.2 billion in their respect as of December 31, 2010, affects management fees in the amount of NIS 26 million and fixed management fees in the amount of NIS 1 million. The effect of the change on policies issued from 2004 onwards is not material.

When the yield of these contracts is negative, the Company does not collect management fees and is not able to collect them until a positive yield is achieved that will cover the accrued negative yield. Therefore, the change of 1% in the real yield will not be reflected in the statements of income, except to the extent of the amount of the remaining debt to be covered.

C-144 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

2. Sensitivity tests relating to market risks for non-performance based contracts

The tables below describe the sensitivity tests presenting the change in profit (loss) and equity for the financial assets, the financial liabilities and the liabilities for insurance and investment contracts for the relevant risk variable as of each reporting date, assuming that all the other variables are fixed. These sensitivity tests do not include, as mentioned, the impact of performance-based contracts as described above. The changes in the variables are in relation to the carrying amount of the assets and liabilities. In addition, it was assumed that the changes do not reflect permanent impairment of assets stated at reduced cost or available-for-sale assets, therefore, in the sensitivity tests, impairment losses were not included for these assets.

The sensitivity tests reflect direct impacts only, without secondary impacts.

It is noted that the sensitivities are not linear, hence larger or smaller changes in relation to the changes described below are not necessarily simple extrapolation of the impact of the changes.

As of December 31, 2010 (The Phoenix)

Investment in Change in exchange Interest rates equity instruments Change in CPI rate 1%+ 1%- 10%+ 10%- 1%+ 1%- 10%+ 10%- NIS millions

Profit (loss) 32 (25) 6 (6) (26) 26 (37) 37 Equity (comprehensiv e income) (68) 75 54 (54) (26) 26 (8) 8

As of December 31, 2009 (The Phoenix)

Investment in equity Change in Interest rates instruments Change in CPI exchange rate 1%+ 1%- 10%+ 10%- 1%+ 1%- 10%+ 10%- NIS millions

Profit (loss) 37 (39) 4 (4) (30) 30 (36) 36 Equity (comprehensive income) (46) 44 28 (28) (30) 30 (12) 12

*) The comparative information includes an amendment regarding the financial statements of 2009 – implementation of interest rate scenarios for elementary insurance liabilities

(1) The sensitivity analysis to change in interest refers to fixed interest instruments and variable interest instruments. For instruments at fixed interest, the exposure is for the carrying amount of the instrument and for variable interest instruments the exposure is for cash flows from the instrument. The Company performed adequacy tests for yield-guaranteed life assurance reserves against the value of the portfolio. The sensitivity to a decrease in the interest rate of 1% from the value of the reduction in the value of the portfolio against this reserves in the amount of NIS 113 million, net of tax. (2) In the sensitivity test to the CPI and to currency, non-monetary items were also taken into account, according to the directives of the Commissioner.

C-145 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

3. Liquidity risk

Liquidity risk is the risk that the Company will be required to dispose of its assets at an inferior price in order to meet its liabilities.

A. The Phoenix is exposed to risks arising from uncertainty regarding the date the Company will be required to pay claims and other benefits to policyholders in respect of the scope of finances that will be available at that date. However, a significant part of its insurance liabilities in the life assurance sector are not exposed to liquidity risk due to the nature of the insurance contracts as described below.

B. It is noted, however, that a possible unexpected requirement to raise funds in a short time could require significant disposal of assets within a short time, at prices that do not necessarily reflect their market value.

C. Performance-based contracts in life assurance: In accordance with the conditions of the contracts, the policyholders are entitled to receive the value of the investments, and no more. Therefore, if the value of the investments falls for any reason, there will be a corresponding decrease in the level of the Company’s liabilities.

D. Non-performance based contracts in life assurance: 33% of the life assurance portfolio is for non-performance based contracts, however they guarantee an agreed yield. These contracts are mainly hedged by designated bonds (Hetz CPI-linked life agreements) issued by the Bank of Israel. The Company may exercise these bonds when these policies are called for redemption.

E. The Phoenix’s liquidity risk is mainly due to the assets balance that are not designated bonds and are not against performance-based contracts. These assets represent 58% only (NIS 36 billion) out of all the assets of The Phoenix. Out of the aforementioned balance of assets, about NIS 5 billion are marketable assets that can be sold immediately. NIS 19 billion are held against holders of benchmark certificates, exchange traded funds, reverse certificates, complex certificates and certificates of deposit. In accordance with the investment directives, the Company is required to hold liquid assets (government bonds or cash and cash equivalents) amounting to at least 15% of the required capital.

4. Management of assets and liabilities

The tables below summarize the estimated maturity dates of the Company’s non-discounted insurance and financial liabilities. As the amounts are not discounted, there is no correlation between them and the balance of the insurance and financial liabilities in the balance sheet.

The estimated maturity dates of the life assurance and health insurance liabilities are included in the tables as follows: Savings: contractual maturity dates, in other words, retirement age, without assumed cancellations, and assuming the savings will be withdrawn as a lump-sum and not as an annuity. Annuity for payment, disability income insurance for payment, and long term care for payment – based on an actuarial estimate. Other – reported under “Without a defined maturity date”. The maturity dates of financial liabilities and liabilities for investment contracts were included on the basis of the contractual maturity dates. In contracts in which the other party has the right to choose the date for payment of the amount, the liability is included on the basis of the earliest date that the Company can be asked to pay the liability.

C-146 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

Liabilities for life assurance and health insurance contracts *) (The Phoenix)

Over one Over 5 Over 10 Without year 1 years years a and up and up and up More defined Up to 1 to 5 to 10 to 15 than 15 maturity year years years years years date Total NIS millions

As of December 31, 2010 1,606 3,222 3,250 1,390 1,709 588 11,765

December 31, 2009 1,393 2,846 3,325 1,391 1,933 529 11,417

*) Not including performance-based contracts

Liabilities for general insurance contracts **) (The Phoenix)

Over 3 Without a years and defined Up to 3 up to 5 More than maturity years years 5 years date Total NIS millions

As of December 31, 2010 2,628 770 894 254 4,546

December 31, 2009 2,516 788 912 186 4,402

C-147 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

Financial liabilities and liabilities for investment contracts

Over one Over 5 Over 10 year 1 years years and up and up and up More Up to 1 to 5 to 10 to 15 than 15 year *) years years years years Total NIS millions As of December 31, 2010:

Financial liabilities 1,580 1,176 1,486 216 - 4,458

Liabilities for investment contracts 4 8 4 - - 16

Liability for performance-based investment contracts 390 - - - - 390

Liability for contingent consideration and provision for payment for the option to acquire an investee 130 328 130 - - 588

As of December 31, 2009:

Financial liabilities 1,319 1,354 1,339 - - 4,012

Liabilities for investment contracts 26 8 7 - 1 42

Liability for performance-based investment contracts 386 - - - - 386

Liability for contingent consideration and provision for payment for the option to acquire an investee 133 456 107 - - 696

*) Liabilities up to one year include NIS 390 million (December 31, 2009, NIS 386 million) repayable on demand. These liabilities were classified as repayable up to one year, even though the actual repayment dates could be later.

C-148 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

5. Credit risks - Debt assets by rating

Debt assets of insurance companies in Israel Local rating *) December 31, 2010 AA or BBB Lower higher to A than BBB Unrated Total NIS millions Marketable debt assets

Government bonds 3,164 - - - 3,164 Corporate bonds 894 654 12 16 1,576

Total marketable debt assets in Israel 4,058 654 12 16 4,740

Non-marketable debt assets

Government bonds 5,155 - - - 5,155 Corporate bonds 446 605 36 - 1,087 Deposits in banks and institutions 917 22 - - 939 Other debt assets according to securities: Mortgages - - - 80 80 Loans on policies - - - 119 119 Loan pledged to real estate - 19 - - 19 Other securities 277 200 3 34 514 Unsecured - - 127 57 184

Total non-marketable debt assets in Israel 6,795 846 166 290 8,097

Total debt assets in Israel 10,853 1,500 178 306 12,837

Of which – debt assets with internal rating 359 308 27 - 694

*) Each rating includes all the ranges, for example: A includes A- to A+.

C-149 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

Debt assets abroad International rating *) December 31, 2010 AA or BBB Lower higher to A than BBB Unrated Total NIS millions Debt assets abroad

Corporate bonds 6 14 8 1 28

Total marketable debt assets abroad 6 14 8 1 28

Non-marketable debt assets

Mortgages - 6 - - 6 Loans pledged to real estate - 22 16 - 38 Loans in other securities - 3 - - 3

Total non-marketable debt assets abroad - 32 16 - 48

Total debt assets abroad 6 45 24 1 77

Of which – debt assets with internal rating - 32 16 - 48

*) Each rating includes all the ranges, for example: A includes A- to A+.

C-150 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

Debt assets of insurance companies in Israel

Local rating *) December 31, 2009 AA or BBB Lower higher to A than BBB Unrated Total NIS millions Marketable debt assets

Government bonds 3,383 - - - 3,383 Corporate debentures 894 382 6 15 1,297

Total marketable debt assets in Israel 4,277 382 6 15 4,680

Non-marketable debt assets

Government bonds 4,888 - - - 4,888 Corporate debentures 404 533 59 13 1,009 Deposits in banks and institutions 1,000 24 - - 1,024 Other debt assets according to securities: Mortgages - - - 98 98 Loans on policies 114 - - - 114 Loans pledged to real estate - 19 - - 19 Other securities 178 272 - 102 552 Unsecured - 150 - 4 154

Total non-marketable debt assets in Israel 6,584 998 59 217 7,858

Total debt assets in Israel 10,861 1,380 65 232 12,539

Of which – debt assets with internal rating 254 558 46 - 858

*) Each rating includes all the ranges, for example: A includes A- to A+.

C-151 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

Debt assets abroad

International rating *) December 31, 2009 AA or BBB Lower higher to A than BBB Unrated Total NIS millions

Corporate bonds - - - 2 2

Total marketable bonds abroad - - - 2 2

Non-marketable debt assets Mortgages - 16 - - 16 Loans pledged to real estate - 24 16 - 40

Total non-marketable debt assets abroad - 40 16 - 56

Total debt assets abroad - 40 16 2 58

Of which – debt assets with internal rating - 40 16 - 56

*) Each rating includes all the ranges, for example: A includes A- to A+.

Credit risks for other assets (in Israel)

Local rating *) December 31, 2010 AA or BBB Lower higher to A than BBB Unrated Total NIS millions

Loans to associates - - - 187 187

Debtors and receivables, other than balances from reinsurers - - - 308 308

Deferred tax assets - - - 25 25

Other financial investments 115 12 2 51 180

Cash and cash equivalents 1,095 - - - 1,095

*) Each rating includes all the ranges, for example: A includes A- to A+.

C-152 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

Local rating *) December 31, 2009 AA or BBB Lower higher to A than BBB Unrated Total NIS millions

Loans to associates - - - 194 194

Debtors and receivables, other than balances from reinsurers - - - 404 404

Deferred tax assets - - - 20 20

Other financial investments 47 - - 41 88

Cash and cash equivalents 671 - - - 671

*) Each rating includes all the ranges, for example: A includes A- to A+.

Credit risks for non-equity instruments (in Israel)

Local rating *) December 31, 2010 BBB Lower AA or higher to A than BBB Unrated Total NIS millions

Unused credit facilities - - - - -

Local rating *) December 31, 2009 Lower עדA A or higher BBB than BBB Unrated Total NIS millions

Unused credit facilities - - - 20 20

*) Each rating includes all the ranges, for example: A includes A- to A+.

C-153 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

Credit risks for other assets (abroad)

International rating *) December 31, 2010 AA or BBB Lower higher to A than BBB Unrated Total NIS millions

Other financial investments 222 5 - 81 308

International rating *) December 31, 2009 AA or BBB Lower higher to A than BBB Unrated Total NIS millions

Other financial investments 68 4 3 125 200

*) Each rating includes all the ranges, for example: A includes A- to A+.

Debt assets of insurance companies abroad

International rating December 31, 2010 AA or BBB Lower higher to A than BBB Unrated Total NIS millions

Marketable debt assets 106 - - - 106 Government bonds 1,054 82 156 21 1,313 Corporate bonds

Total marketable debt assets abroad 1,160 82 156 21 1,419

Non-marketable debt assets Government bonds - - - - -

Total debt assets abroad 1,160 82 156 21 1,419

International rating December 31, 2009 AA or BBB Lower higher to A than BBB Unrated Total NIS millions

Marketable debt assets Government bonds 109 - - - 109 Corporate bonds 793 64 162 11 1,030

Total marketable debt assets abroad 902 64 162 11 1,139

Non-marketable debt assets Government bonds - - - - -

Total debt assets abroad 902 64 162 11 1,139

C-154 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

6. Exposure to credit risks of reinsurers

The insurance companies insure some of their business affairs with reinsurance, mainly through reinsurers abroad. However, reinsurance does not exempt the direct insurers of their liability towards the policyholders according to the insurance policies.

The insurance companies are exposed to risks due to uncertainty regarding the ability of the reinsurers to pay their share of the liabilities for insurance contracts (reinsurance assets) and their liabilities for claims paid. This exposure is managed by ongoing monitoring of the situation of the reinsurer in the global market and compliance with its financial obligations.

The Phoenix is exposed to credit risk to a single reinsurer, due to the structure of the reinsurance market and the limited number of reinsurers with an adequate rating.

According to the directives of the Commissioner, the board of directors of The Phoenix determines, once a year, the maximum exposure for reinsurers, based on international rating. The Phoenix manages these exposures by individual evaluation of each of the reinsurers. In addition, the exposures of The Phoenix are dispersed amount different reinsurers, generally reinsurers with high international rating.

C-155 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

As of December 31, 2010:

In the financial statements of insurance companies in Israel

Reinsurance assets Debts in arrears Total premiums Debit for (credit) Total in life reinsurers balance, assurance In health In property In liability Reinsurer Total 6-12 More than in 2010 net *) insurance insurance insurance deposits exposure months one year Name of reinsurer NIS millions

AA or higher GEN RE 82 (3) 28 161 - - 25 160 - -

Munich Reinsurance Co AG 108 (11) 19 142 20 148 92 226 - -

Other 50 1 2 - 46 70 13 107 - -

Total 240 (13) 49 303 66 218 130 493 - -

A Swiss Reinsurance Co 94 (1) 95 29 52 120 77 217 - -

Other 290 6 8 - 217 216 71 376 1 -

Total 384 5 103 29 269 336 148 593 1 -

BBB - - 1 - - - - 1 - -

Lower than BBB or unrated 12 (2) - - 13 54 3 62 - -

Total 636 (10) 153 332 348 608 281 1,149 1 -

C-156 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

As of December 31, 2010:

In the financial statements of insurance companies abroad

Reserves Current debts in Total reinsurance for Outstanding claims arrears included premiums Current credit unexpired Reinsurer Total in open balances In 2010 net balances risks Assets Liabilities deposits exposure (a) 6-12 months NIS millions

A- (minus) and higher

Hartford Fire Insurance Co. 657 - 319 25 330 - 678 - Others 838 (39) 245138 784 - 1,129 -

1,495 (39) 564163 1,114 - 1,807 -

B and above 185 (53) 89 2 117 - 156 -

Unrated 4 4 21 2 - 7 -

Total 1,684 (88) 655166 1,233 - 1,970 -

(a) The total exposure to reinsurers is the share of reinsurers in insurance reserves and outstanding claims, net of deposits and net of the amount of the credit notes received from the reinsurer to secure their liabilities, plus (less) the net current debit (credit) balance.

(b) The rating was determined by the rating company AM Best.

(c) Republic received credit notes in the amount of NIS 653 million from reinsurers to secure their liabilities

C-157 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

As of December 31, 2009

In the financial statements of insurance companies in Israel

Total premiums Reinsurance assets Debts in arrears for reinsurers in Debit (credit) Total in life In health In property In liability Reinsurer Total More than 2009 balance, net assurance insurance insurance insurance deposits exposure 6-12 months one year Name of reinsurer NIS millions

AA or higher GEN RE 91 (3) 26 142 - - 23 142 - -

Munich Reinsurance Co AG 138 25 16 105 24 156 66 260 1 -

Other 36 5 3 - 35 66 9 100 1 -

Total 265 27 45 247 59 222 98 502 2 -

A Swiss Reinsurance Co 101 4 92 28 48 107 75 204 - -

Other 295 (5) - - 198 198 61 330 - -

Total 396 (1) 92 28 246 305 136 534 - -

BBB - - - - - 6 - 7 - -

Lower than BBB or unrated 10 (2) 8 - 14 63 6 77 1 2

Total 671 24 145 275 319 596 240 1,120 3 2

C-158 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 28 – FINANCIAL INSTRUMENTS (CONTD.)

As of December 31, 2009

In the financial statements of insurance companies abroad

Current debts Total Reserves Outstanding claims Reinsurer in arrears reinsurance for included in premiums Current credit unexpire Total open balances In 2009 net balances d risks Assets Liabilities deposits exposure (a) 6-12 months NIS millions

A- (minus) and higher

Hartford Fire Insurance Co. 664 - 336 23 276 - 635 - Others 1,299 (87) 555 117627 - 1,212 -

1,963 (87) 891 140903 - 1,847 -

B and above 109 (19) 26 - 102 - 109 -

Unrated 136 (34) 79 857 - 110 -

Total 2,208 (140) 996 1481,062 - 2,066 -

(a) The total exposure to reinsurers is the share of reinsurers in insurance reserves and outstanding claims, net of deposits and net of the amount of the credit notes received from the reinsurer to secure their liabilities, plus (less) the net current debit (credit) balance.

(b) The rating was determined by the rating company AM Best.

(c) Republic received credit notes in the amount of NIS 580 million from reinsurers to secure their liabilities

C-159 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 29 – EMPLOYEE BENEFIT ASSETS AND LIABILITIES

Post-employment benefits

Labor laws and the Severance Pay Law in Israel requires the Group companies to pay compensation to employees if they are dismissed or when they retire or to make routine deposits in defined deposit plans under section 14 of the Severance Pay Law, as described below. The liability of the Group companies for this is recognized as a post-employment benefit. The liability of the Group companies for employee benefits is based on the valid labor agreement and the employee's salary, which generate the right for compensation.

Post-employment benefits are usually financed by deposits classified as a defined benefit plan or as a specific deposit plan as described below.

Defined deposit plan

The provisions of section 14 of the Severance Pay Law, 1963 (“the Severance Law) apply to part of the compensation payments, according to which the Group's routine deposits in the pension fund and/or insurance policies exempt it from any other liability towards the employees.

Defined benefit plan

The Group has a defined benefit plan for severance pay under the Severance Pay Law. By law, employees are entitled to compensation if they are dismissed or on demand. The liability for severance is based on the actuarial method.

NOTE 30 – LIABILITIES FOR INSURANCE CONTRACTS

A. Liabilities for insurance contracts and investment contracts

Non-performance based insurance contracts and investment contracts

December 31 2010 2009 2010 2009 2010 2009 Gross Reinsurance Residual NIS millions Life assurance and long-term savings:

Insurance contracts 8,668 8,256 101 104 8,567 8,152 Investment contracts 12 37 - - 12 37 Net of amounts deposited in the Company as part of a defined benefit plan for Group employees (22) (42) - - (22) (42)

Total life assurance and long-term savings 8,658 8,251 101 104 8,557 8,147 Insurance contracts in health insurance 1,135 989 321 265 814 724 Insurance contracts in general insurance 8,009 8,003 3,107 3,114 4,902 4,889

Total liabilities for insurance contracts and non-performance based investment contracts 17,802 17,243 3,529 3,483 14,273 13,760

C-160 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 30 – LIABILITIES FOR INSURANCE CONTRACTS (CONTD.)

Performance-based insurance contracts and investment contracts

December 31 2010 2009 2010 2009 2010 2009 Gross Reinsurance Residual NIS millions

Life assurance and long-term savings Insurance contracts 20,546 17,054 52 41 20,494 17,013 Investment contracts 390 386 - - 390 386 Net of amounts deposited in the Company as part of a defined benefit plan for Group employees (67) (46) - - (67) (46)

Total life assurance and long- term savings 20,869 17,394 52 41 20,817 17,353 Insurance contracts in general Insurance 181 146 11 10 170 136

Total liabilities for insurance contracts and non- performance based investment contracts 21,050 17,540 63 51 20,987 17,489

B. Liabilities for insurance contracts included in the general insurance sector, by category:

December 31 2010 2009 2010 2009 2010 2009 Gross Reinsurance Residual NIS millions In Israel

Compulsory motor insurance 3,661 3,495 609 596 3,052 2,899 Property and other branches 926 894 348 320 578 575

Total liabilities for insurance contracts in general insurance 4,587 4,389 957 916 3,630 3,474 Deferred acquisition costs: Compulsory motor insurance 39 40 6 7 33 33 Property and other branches 114 106 26 24 88 82

Total 153 146 32 31 121 115 Liabilities for general insurance contracts net of deferred acquisition costs: Compulsory motor insurance and liabilities (C1) 3,622 3,455 603 589 3,018 2,866 Property and other branches 812 789 322 295 490 493

Total liabilities for general insurance contracts net of deferred acquisition costs: 4,434 4,244 925 884 3,508 3,359

C-161 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 30 – LIABILITIES FOR INSURANCE CONTRACTS (CONTD.)

December 31 2010 2009 2010 2009 2010 2009 Gross Reinsurance Residual NIS millions Abroad

Total liabilities for insurance contracts in general insurance 1,434 1,685 646 992 788 693

Provisions for outstanding claims

Motor 807 880 659 676 148 204 Property 193 216 122 106 71 110 Liability 1,047 833 622 425 425 408

Total provisions for outstanding claims 2,047 1,929 1,403 1,207 644 722

Total 3,481 3,614 2,049 2,199 1,432 1,415

C. Change in liabilities for insurance contracts included in the general insurance sector, net of deferred acquisition costs:

In Israel

1. Compulsory motor insurance

December 31 2010 2009 2010 2009 2010 2009 Gross Reinsurance Residual NIS millions

Balance at beginning of year 3,455 3,312 589 614 2,866 2,698

Cumulative cost of claims for the current underwriting year 543 510 40 41 503 469 Change in balances at the beginning of the year due to CPI linkage and investment gains according to discounted liabilities 69 207 10 35 59 172 Change in estimated cost of claims for prior underwriting years (61) (120) (46) (62) (15) (58)

Total cumulative change in cost of claims 552 597 4 14 547 583 Payments to settle claims during the year: For the current underwriting year (8) (11) - - (8) (11) For prior underwriting years (445) (489) (49) (67) (396) (422) Total payments for the year (453) (500) (49) (67) (404) (433) Other 68 47 59 28 9 19

Balance at end of year 3,622 3,455 603 589 3,018 2,866

C-162 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 30 – LIABILITIES FOR INSURANCE CONTRACTS (CONTD.)

1. Opening and closing balance: outstanding claims, provision for short premium, unearned premium reserve, net of deferred acquisition costs.

2. Cost of cumulative claims (ultimate) is: The balance of the outstanding claims (non-cumulative) provision to short premium, unearned premium reserve net of deferred acquisition costs with the addition of the total claims payments including direct and indirect expenses to settle claims.

3. The payments include indirect expenses to settle claims (administrative and general recorded in the claims) in relation to the underwriting years.

4. The cumulative cost of claims is adjusted according to the model in view of actual development of the claims.

5. The change in the estimated cumulative cost of the claim for prior underwriting years in 2009 and 2010 is derived from most of the liability branches.

6. The decrease in gross payments and reinsurance in 2010 is due to compulsory motor insurance.

2. Property and other branches

December 31 2010 2009 2010 2009 2010 2009 Gross Reinsurance Residual NIS millions

Balance at beginning of year 788 765 295 288 493 477

Cumulative cost of claims for events in the reporting period 752 695 204 182 548 513 Change in the aggregate cost of claims for events prior to the reporting year (48) (16) (14) 1 (34) (17) Payments to settle claims during the year (501) (474) (88) (93) (413) (381) For events prior to the reporting year (195) (205) (74) (82) (121) (123)

Total payments (696) (679) (162) (175) (534) (504) Changes in provisions for net unearned premiums from deferred acquisition costs 16 23 - (1) 16 24

Balance at end of year 812 788 323 295 489 493

1. Opening and closing balance: outstanding claims, provision for short premium, unearned premium reserve, net of deferred acquisition costs.

2. Cost of cumulative claims (ultimate) is: The balance of the outstanding claims (non-cumulative) provision to short premium, unearned premium reserve net of deferred acquisition costs with the addition of the total claims payments including direct and indirect expenses to settle claims.

3. The payments include indirect expenses to settle claims (administrative and general recorded in the claims) in relation to the underwriting years.

4. The change in the estimated cumulative cost of the claim for prior underwriting years in 2009 and 2010 is due to most of the liability branches.

5. The decrease in gross payments and reinsurance in 2010 is due to compulsory motor insurance.

C-163 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 30 – LIABILITIES FOR INSURANCE CONTRACTS (CONTD.)

Abroad

December 31 2010 2009 2010 2009 2010 2009 Gross Reinsurance Residual NIS millions

Total liabilities for insurance contracts in general insurance at end of year 1,434 1,685 646 992 788 693

Change in provisions for claims

Balance at beginning of year 1,929 1,743 1,207 1,055 722 688 Cumulative cost of claims for the current underwriting year 1,909 2,330 1,251 1,302 658 1,028 Change in estimated cost of claims for prior underwriting years 134 107 102 80 32 27 Total change in cumulative cost of claims 2,043 2,437 1,353 1,382 690 1,055 Payments to settle claims during the years For the current underwriting year (916) (1,200) (546) (572) (370) (628) For prior underwriting years (893) (1,027) (537) (642) (356) (385) Total payments for the period (1,809) (2,227) (1,083) (1,214) (726) (1,013) Effect of changes in the exchange rate for foreign operations (116) (24) (74) (16) (42) (8)

Balance at end of year 2,047 1,929 1,403 1,207 644 722

Balance at end of year 3,481 3,614 2,049 2,199 1,432 1,415

D. Liabilities for insurance contracts are presented in the balance sheet as follows:

December 31 2010 2009 NIS millions

Current liabilities 5,478 5,430 Long-term liabilities 33,375 29,352

38,853 34,782

C-164 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 30 – LIABILITIES FOR INSURANCE CONTRACTS (CONTD.)

E. Insurance risks

Insurance risk, including:

Underwriting risk: the risk of using incorrect prices due to deficiencies in the underwriting process and due to the gap between the risk when pricing and establishing the premium and the actual occurrence so that the collected premiums are insufficient for covering future claims and expenses. The gaps may arise from accidental changes in business results and from changes in the cost of the average claim and/or the incidence of the claims as a result of various factors.

Reserve risks: The risk of an incorrect assessment of the insurance liabilities which might cause the actuarial reserves to be inadequate for covering all the liabilities and claims. The actuarial models according to which the Company assesses its insurance liabilities are based on the fact that the pattern of the behavior of past claims represents forward looking information. The Company's exposure is comprised of the following risks:

1. Model risk – the risk of choosing an incorrect model for pricing and/or assessing the insurance liabilities

2. Parameter risk – the risk of using incorrect parameters, including the risk that the amount paid for settling the Company's insurance liabilities or that the date of settlement of the insurance liabilities is different than expected

Catastrophe risk: exposure to a single catastrophic event, such as natural disaster, war, terror, natural damages or earthquake that results in significant damage. The material catastrophe to which the Company is exposed in Israel is earthquake and in the United States, hurricanes and storms.

The amount of the expected maximum loss in general insurance business in Israel, due to exposure to a single catastrophic event or cumulative damage for a particularly large event with maximum possible loss (MPL) of 2.1% is NIS 4.556 billion gross and NIS 11 million on retention and NIS 11 million plus the cost of reinstatement of the coverage.

The gross probable maximum loss (PML) for Republic from natural disasters for 50 years is USD 173.4 million, for 100 years is USD 254 million and for 200 years is USD 362 million (net amounts, after reinsurance, are USD 25.6 million, USD 30.5 million and USD 95.3, respectively).

In life assurance business there is a capital requirement against damage for a particularly large event (catastrophe) at a rate of 0.17% and the amount of the risk for death, in an amount of NIS 205 million (in 2009, NIS 192 million).

Collapse of reinsurers, change in capacity and tariffs of reinsurers: Insurance companies use reinsurers to hedge against insurance risks or to share them with reinsurers. The collapse of reinsurers, change in reinsurance contracts and tariffs might impair the Company's ability to pay insurers or limit their ability to provide insurance. In the insurance sector abroad, the Republic Group issues policies on behalf of insurance companies and takes out reinsurance cover of those insurance companies. These companies bear the risk in this sector, however should they fail to meet their undertakings towards Republic Group, Republic could be liable, without it receiving indemnification.

C-165 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 30 – LIABILITIES FOR INSURANCE CONTRACTS (CONTD.)

1. Insurance risk in life assurance and heath insurance contracts

General

Following is a description of the various insurance products and the assumptions used to calculate their respective liabilities based on product type. According to the Commissioner's directives, the insurance liabilities are calculated by an actuary pursuant to standard actuarial methods and consistently with the previous year. The liabilities are calculated according to the relevant coverage data, such as age and gender of policyholder, term of insurance, date of commencement of insurance, type of insurance, periodic premium and amount of insurance.

Actuarial methods used to calculate the insurance liabilities

(1) Adif and investment track insurance programs

Adif and investment track insurance programs consist of an identified savings component. The basic and main reserve is in the amount of the accumulated savings plus the yield according to the policy’s terms as follows:

− Principal linked to an the investment portfolio (performance-based contracts)

− Principal linked to the CPI plus a fixed guaranteed interest or credited by a guaranteed yield against adjusted assets (performance-based contracts)

In respect of insurance components that are attached to these policies (such as occupational disability, death and long term care) the insurance liability is calculated separately as set out below.

(2) Insurance programs such as endowment (traditional)

Endowment and similar insurance programs include a savings component in the event that the policyholder is still alive at the end of the term of a program with an insurance component of death risk during the period of the program. In respect of these products, the insurance liability is calculated for each covered aspect as a discounting of the cash flows in respect of the anticipated claims, including payment at the end of the period, net of future anticipated premiums. This calculation is based on assumptions according to which the products were priced and/or on assumption based on the claims experience, including the interest rates ("tariff interest"), mortality or morbidity tables. The calculation is according to the net premium reserve method, which does not include the component that was loaded on the premium tariff for covering the commissions and expenses, in the anticipated flow of receipts and on the other hand it does not deduct the anticipated expenses and commissions. The reserve in respect of performance-based traditional products based on the actual yield achieved less management fees.

(3) Liabilities for pensions are calculated according to anticipated life expectancy on the basis of the updated mortality tables that are constructed in accordance with information published by the Ministry of Finance in the Commissioner’s circular.

(4) Liabilities in respect of annuities paid for life in respect of valid policies (paid and settled) which have not yet reached the stage of realization of annuity or the policyholder has reached retirement age and the actual payment did not yet begin, are calculated according to the probability of annuity withdrawal and in accordance with the anticipated life expectancy on the basis of the updated mortality tables, taking into consideration the anticipated profits from the policies until the policyholders reach retirement age in accordance with the Commissioner’s circulars. If the guaranteed annuity coefficients of the policies are higher, the required increase is also higher.

C-166 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 30 – LIABILITIES FOR INSURANCE CONTRACTS (CONTD.)

(5) Other life assurance programs include pure risk products (such as diseases and hospitalization, long term care, dread diseases, and disability) sold as independent policies or attached to policies with a basic program such as Adif, investment track or traditional. An actuarial liability is calculated in respect of some of these programs. The calculation is according to the gross premium reserve method which includes all the premium components in the anticipated flow of receipts and deducts the liability cost and the anticipated expenses and commissions. Negative provisions were not offset by positive provisions. Some of the plans used the net reserve premium method, described above. For the other plans, the insurance liability is calculated at IBNR (claims incurred but not yet reported).

(6) In respect of continuous claims in payment, in long term care and occupational disability insurance, the insurance liability is calculated according to the duration of the anticipated payment, and it is discounted according to the tariff interest rate of the product.

(7) Liabilities for outstanding claims in life assurance and health insurance are calculated on the basis of the experience of the Company.

(8) Liabilities for claims incurred but not yet reported (IBNR) in life assurance and health insurance are calculated on the basis of the experience of the Company.

(9) Insurance liabilities in respect of collective insurance consist of a liability in respect of unearned premium, provision for participation in profits, IBNR reserve (claims incurred but not yet reported), reserve for continuity and provision for future losses, if necessary.

(10) For collective life, health and long-term care insurance, including dental and sick leave insurance, the actuarial liability is calculated on the basis of the experience of the individual collective. This liability includes reference to the insurance companies.

Major assumptions used in the calculation of insurance liabilities

(1) Discount rate

For endowment and similar insurance programs (traditional) see section 1(E)(1)(2) above). For pure risk products with fixed premium, the interest used for discounting is as follows:

− In insurance policies that are mainly backed by designated debentures, tariff interest is at a rate of 3% to 5%; − For performance-based products issued in 1991 onwards, tariff interest is at a rate of 2.5%, linked. In accordance with the terms of the policy, changes in interest are carried to policyholders. − The discounting rate could change as a result of material changes in the long-term interest rate in the market.

(2) Morbidity and mortality rates

A. The mortality rates used in the calculation of insurance liabilities for death of policyholders prior to attaining the age of retirement (namely excluding the mortality of policyholders who receive retirement pensions and those receiving monthly compensation for disability or long term care) are generally the same as the rates used to determine the tariff.

B. The liability for life annuity payments is based on updated mortality tables Increase in the mortality rate assumption, due to increase in actual mortality rate to a level exceeding the existing assumption, will result in an increase of insurance liabilities for mortality of policyholders prior to attaining the age of retirement and decrease in liability for annuities payable for life.

C-167 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 30 – LIABILITIES FOR INSURANCE CONTRACTS (CONTD.)

It is noted that there has been a reverse trend of increase in the life expectancy and decrease in mortality rate in the last decades. The mortality assumption used in the calculation of the liability for annuity takes into account assumptions for future increase in life expectancy.

C. The morbidity rates relate to the prevalence of claims for mortality from serious diseases, occupational disability, long term care, operations and hospitalization and disability from accident. These rates are based on the company’s experience or researches of reinsures. In areas of long term care and disability, the period for paying annuities is determined according to the company’s experience or researches of reinsurers. As long as the morbidity rate assumption increases, the insurance liability will grow in respect of morbidity rate from serious diseases, disability, long term care, operations and hospitalization.

(3) Pension rates

Life assurance policies, including savings component, were maintained for funds deposited until 2008 in two tracks: capital track and annuity track. In certain policies, the policyholder may select the track upon retirement. Since the insurance liability is different in each of these tracks, the company is required to determine the rate of policies in which the policyholder selects the pension track. This rate is based on the supervision guidelines with adjustment to the Company’s experience. As from 2008, all plans are for pension.

(4) Cancellation rates

The cancelation rates affect the insurance liabilities in respect of part of the health insurances and the annuities paid for life during the period before beginning the payments. The cancellation of insurance contracts can be due to the cancellation of policies initiated by the company due to discontinuation of the premium payments or surrenders of policies at the policyholders' request. The assumptions regarding the cancellation rates are based on the company's experience and they are based on the type of product, the life span of the product and sales trends.

(5) Continuity rates

There are health insurances and collective long-term care insurances in which the policyholders are entitled to continue to be insured under the same conditions, even if the collective contract is not renewed. In respect of this option of the policyholders, the company has a liability that is based on assumptions regarding the continuity rates of the collective insurances and the continuity rates of the contracts with the policyholders after the collective contract expires. If there is a higher probability that the collective contract will not be renewed (a higher continuity rate) the insurance liability will also increase, since the insurance will continue under the previous conditions, without adjusting the underwriting to the change in the policyholders' state of health.

C-168 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 30 – LIABILITIES FOR INSURANCE CONTRACTS (CONTD.)

(6) Sensitivity analysis in life assurance

December 31, 2010 Cancellations (repayments, settlements and deductions) Morbidity rate Mortality rate 10%+ 10%- 10%+ 10%- 10%+ 10%- NIS millions

Profit or loss and comprehensive income (equity) 10 (11) (68) 55 50 (59)

December 31, 2009 Cancellations (repayments, settlements and deductions) Morbidity rate Mortality rate 10%+ 10%- 10%+ 10%- 10%+ 10%- NIS millions

Profit or loss and comprehensive income (equity) 12 (8) (60) 49 44 (43)

2. Insurance risk in general insurance contracts

Summary of the main insurance branches

The Company in Israel underwrites general insurance contracts, mainly compulsory motor insurance, liability, motor casco and property. The Company abroad underwrites mainly property, motor and liability insurance, both private and commercial.

Compulsory motor insurance in Israel covers the policyholder and driver for any liability that they might incur due to bodily injury to the driver, passengers or pedestrians injured by the vehicle. Compulsory motor insurance claims are long tail, in other words, it could be several years before the claim is settled. In foreign consolidated insurance companies, compensation for bodily injury policies in motor insurance is limited to the amount set out in the policy,

Liability insurance is designed to cover the policyholders' liability for damage that he may cause to a third party. The main types of insurance are third party liability insurance, employer liability insurance and other liability insurances such as professional liability, product liability and director and officeholder liability. The time of filing the claims and settlement is affected by a number of factors such as the type of coverage, the policy terms and legislation and legal precedents. Compulsory motor insurance claims are generally long tail, in other words, it could be several years before the claim is settled.

Policies that insure against motor vehicle damage and third party motor property damage grant the policyholder coverage for property damage. The coverage is generally limited to the value of the vehicle that was damaged. The premium for motor vehicle property insurance requires approval of the general policy by the Commissioner of Insurance and is an actuarial rate and partially differential (which is not uniform for all insured parties and is adjusted for risk). The premium is based on a number of parameters, those related to the vehicle of the policyholder (such as type of vehicle and year of manufacture), and those related to the nature of the policyholder (such as the age of the driver and claims history).

C-169 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 30 – LIABILITIES FOR INSURANCE CONTRACTS (CONTD.)

Underwriting is partly through the actual tariff, and partly through a system of procedures which are intended to check the claims history of the policyholder including presentation of proof of "no-claims" from the previous insurer for the last three years, proof of updated protection, which are integrated automatically when issuing the policies.

In most cases, motor vehicle property insurance policies are issued for one year. In most cases, claims for these policies are made close to the time that the insurance incident occurs.

Property insurance provides policyholders with coverage for physical damage to their property. The main risks covered by property insurance are risks of fire, explosion, break-in, earthquake and damage by natural forces. Property insurance sometimes includes coverage for loss of profits following physical damage to the property. Property insurance is an important part of residential, merchant, engineering, and cargo (maritime, land, air) insurance policies. In most cases, claims against these policies are settled close to the date of the insurance event.

The insurance company abroad, taking into account the geographic area in which it operates, is exposed to risk due to disasters, including hurricanes, hail storms, tornadoes and fire, such as hurricane Ike and Gustav in September 2008, and Katarina and Rita in August and September 2005. In addition, in 2008, wind, hail and tornadoes caused record damages. It is difficult to foresee the occurrences of these events with statistical accuracy or to estimate the extent of the damage that may be caused. The scope of losses from the disasters depends on various factors, including the exposure of the policyholders in the area of the event, scope of reinsurance and increase in premiums, and unexpected changes in insurance coverage due to regulatory or legal procedures following catastrophe.

Principles for calculating actuarial valuations in general insurance

General

A. Liabilities in respect of general insurance contracts include the following main components:

ƒ Provision for unearned premium ƒ Premium deficiency ƒ Outstanding claims ƒ Less - Deferred acquisition costs:

The provision for unearned premium and excess of income over expenses is calculated independently of any assumptions and accordingly, is not exposed to the reserve risk. For the manner in which these provisions are calculated, see the note on accounting principles.

B. According to the Commissioner's directives, the outstanding claims are calculated by an actuary, according to standard actuarial methods and consistently with the previous year. The selection of the appropriate actuarial method for each branch of insurance and for each year of occurrence/underwriting is based on the compatibility of the method to the branch and sometimes there is a combination of methods. The valuations are primarily based on past experience of the development of claim payments and/or development of the amount of the payments and specific estimates. The valuations include assumptions regarding the average cost of claim, cost of handling the claims and frequency of the claims. Additional assumptions may address changes in interest rates, exchange rates and timing of payments. Payment of claims includes direct and indirect expenses of settlement less claims recoveries and deductible.

C-170 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 30 – LIABILITIES FOR INSURANCE CONTRACTS (CONTD.)

C. The use of actuarial methods that are based on the development of the claims is mainly adequate when there is stable and sufficient information regarding the payment of the claims and/or the specific valuations in order to estimate the total expected cost of claims. When the available information in handling the claims is insufficient, sometimes the actuary uses a computation which weighs between the known estimate (in the company and/or the branch) such as LR and the actual development of the claims. Greater weight is given to the valuation based on experience as time passes and additional information is accumulated for the claims.

D. Quality valuations and judgments are also taken into account as to the degree that past trends will not continue in the future. For example: due to a one time event, internal changes such as change in the portfolio mix, underwriting policy and handling procedures of claims and in respect of external factors such as legal ruling and legislation. If the above changes were not fully reflected in past experience, the actuary updates the models and/or makes specific provisions on the basis of statistical and/or legal estimates, as appropriate.

E. In several large claims with non-statistical profile, the reserve (in gross and on retention) is determined on the basis of the opinion of the company's experts and in accordance with the recommendations of their legal advisors.

F. The reinsurer’s share of the outstanding claims is calculated according to the type of agreement (proportionate or non-proportionate), actual claims experience and the premium that was transferred to the reinsurers

G. The evaluation of the outstanding claims for the Company's share of the pool in incoming transactions and joint insurance received from other insurance companies (leading insurers) was based on a calculation made by the pool or by the leading insurers or by the Company.

Actuarial methods in main insurance branches:

A. Motor property

In the motor property branch, the liabilities are calculated on the basis of the development of payments and/or development of outstanding claims model (link ratio / chain ladder), with reference to the types of coverage, such as comprehensive, third party, types of vehicles, such as 4-ton and over 4-ton and types of damage, such as accident, theft and natural disasters. For recent months of damage, which are not mature, use was also made in the averages method in determining the cost of claim per policy.

There are separate estimates of the claims department in the following cases: ƒ Old claims ƒ Claims for car theft and natural damages

The individual estimates take into account the deductibles.

Subrogation and remnants are taken into consideration and the actuarial model takes into account the development of all the payments (positive and negative). In addition, there is a model for estimating the amount of the expected subrogation.

A provision was calculated for indirect expenses for settling claims.

C-171 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 30 – LIABILITIES FOR INSURANCE CONTRACTS (CONTD.)

B. Compulsory motor insurance

In the compulsory motor insurance branch, liabilities are calculated on the basis of the payments development model and outstanding claims development model (link ratio / chain ladder). For later underwriting years, the cost of claims is based on the LR rate and the payments development model and/or outstanding claims development model (Bornhuetter-Ferguson). The tail of the development is calculated on the basis of the Sherman model.

There are separate estimates of the claims department in the following cases: ƒ Old claims ƒ Particularly large claims

The outstanding claims are estimated separately on the gross level and on the reinsurance level.

Estimating the share of the reinsurer in claims for excess for the last three underwriting years is calculated according to a percent of the reinsurance premium, taking into account known claims for these years. For claims that occurred in a prior period, the estimate is according to the actual claim.

Estimates for facultative reinsurance are made in a separate model (gross and retention).

The individual estimates take into account the deductibles. Subrogation and remnants are taken into consideration and the actuarial model takes into account the development of all the payments (positive and negative).

A provision was calculated for indirect expenses for settling claims.

The valuation of the outstanding claims for the Company's share of the pool in based on the calculation made by the Association of Insurance Companies in Israel (“the pool”).

C. Property and other branches

In the property and other branches, liabilities are calculated on the basis of the payments development model and outstanding claims development model (link ratio / chain ladder). For periods that are not mature, use was also made in the averages method in determining the cost of claim per policy.

There are separate estimates of the claims department in the following cases:

ƒ Old claims ƒ Claims for car theft and natural damages

The outstanding claims are estimated separately on the gross level and on the reinsurance level. The share of the reinsurer for excess is based on estimation of the actual claim. Estimates for facultative reinsurance are made in a separate model to claims in branches in which the share of the reinsurer is material.

The individual estimates take into account the deductibles. Subrogation and remnants are taken into consideration and the actuarial model takes into account the development of all the payments (positive and negative). A provision was calculated for indirect expenses for settling claims.

C-172 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 30 – LIABILITIES FOR INSURANCE CONTRACTS (CONTD.)

D. Branches in which actuarial assessment is not made

Engineering insurance, insurance of freight, marine hull and aircraft, and incoming business include outstanding claims on the basis of a separate evaluation of each claim according to an opinion received from Company lawyers and experts who handle the claims and ceding companies for incoming business, with the addition of IBNR if necessary.

Assumptions and essential models for determining insurance liabilities in general insurance:

Chain ladder/link ratio

These methods are based on the development of historical claims (such as development of payments and/or development of amount of payments, and valuations of the individual claims and development of the number of claims), in order to valuate the anticipated development of existing and future claims. The use of these methods are mainly suitable after a sufficient period since the event occurred or the policy is underwritten, when there is enough information from the existing claims in order to evaluate the total anticipated claims. The difference between the methods is due to the method for calculation of the average development (simple or weighted average). In branches with highly diverse claims, as well as the average development coefficient, the standard deviation of the development coefficients is calculated.

Bornhuetter-Ferguson (BF)

This method combines early estimates known in the company or branch, and an additional estimate based on the claims themselves. The early estimates utilize premiums and loss ratio for evaluating the total claims. The second estimate utilizes actual claims experience based on other methods (such as chain ladder). The combined claims valuation weighs the two estimates, while greater weight is given to the valuation based on the claims experience as time passes and additional information is accumulated for the claims. This method is mainly used when there is insufficient information.

The averages

At times, as in the Bornhuetter-Ferguson method, when the claims history in the last periods is insufficient, the historical average method is utilized. In this model, the claims cost is determined based on the average cost of the claim per policy for earlier years and the number of policies in the later years. Another method for calculation is the multiplication of the cost of the historical claim for the policy and the number of policies in the relevant period.

Sherman model

This is a mathematic model used to adjust non-linear distribution with development coefficients calculated using chain latter/link ratio models. Through the distribution, it is possible to calculate the development coefficients for prior periods for which information is not available (development tail).

C-173 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 30 – LIABILITIES FOR INSURANCE CONTRACTS (CONTD.)

The main assumptions taken into consideration in the actuarial valuation:

(A) Outstanding claims in the compulsory motor insurance and liability branches were discounted at the lower of annual interest at a rate of 3% or a risk-free interest rate.

An increment was included for the risk margin (standard deviation) in the base of the reserve in the compulsory motor insurance and liability branches.

(B) In foreign insurance companies, outstanding claims were not discounted and no increment was included for risk margin (standard deviation).

(C) The basic assumption for each calculation method is that the historical behavior of the claims reflects the future behavior.

(D) When analyzing development of payments, insurance companies in Israel add a claims tail according to the Sherman model.

NOTE 31 – PROVISIONS AND OTHER LIABILITIES

December 31 2010 2009 NIS millions

Liability for remediation of environmental hazards 108 76 Costs for divesture of assets 66 63 Prepaid revenue 50 - Liability for the issuance of restricted shares in a subsidiary - 66 Liability for acquisition of subsidiary shares from owners of non-controlling interests (1) 350 431 Deposits from renters of insurance companies 181 147 Other (2) 153 84

908 867

(1) See Note 14(H).

C-174 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 32 – CONTINGENT LIABILITIES, GUARANTEES AND COMMITMENTS

A. Contingent liabilities

There are contingent claims, including application for certification of class action suits, against certain investees for significant sums that might reach billions of shekels. In some cases, it is not possible to assess their outcome at this stage, and therefore no provision was recorded in the financial statements.

Details of the material claims filed against the Group companies are provided below (claims against Group companies that were closed up to the approval date of the financial statements, without material effect on the statements, were not included in this disclosure):

1. Several law suits amounting to several hundred million shekels have been filed against Gadot and others, for bodily injury and damage to property with regard to Gadot’s activity in the Kishon River area (for details, see Gadot’s financial statements, which are available to the public).

In some of these cases there are serious factual disputes and there are many facts that need to be decided and are unknown to Gadot. Moreover, the aforementioned proceedings are very complex and problematic since, among other reasons, most of the suits pertain to ongoing events that occurred over decades, in which a very large number of entities are involved, including the State and local authorities, therefore it is not possible to assess the responsibility and the share of any one entity involved in the suits. It is also scientifically difficult to determine the degree of causal connection between the discharge of industrial wastewater and the damages alleged by the plaintiffs.

2. Contingent liabilities against Delek Israel

A) On December 23, 2010 a motion for certification of a class action suit was filed against Delek Israel and other Delek companies. According to the motion for certification, the fuel companies are in violation of the provisions of sections 2-4 of the Consumer Protection Law, 1981, by misleading the public regarding the nature, amount and quality of fuels that they sell, among other things. Additionally, by not informing consumers that they sell the fuels at the temperature of the environment, while when purchased, calculation is according to a temperature of 15 degrees Celsius and therefore the consumers are sold an inferior product. The plaintiffs contend that by doing so, the fuel companies received, in contravention of the law, moneys for a product that was sold by misleading the consumers and unjustly enriched themselves contrary to the provisions in section 1 of the Unjust Enrichment Law, 1979. The plaintiffs are asking the court to place the amount of the claim against Delek Israel at NIS 106 million. The management of Delek Israel estimates, based, inter alia, on the opinion of its legal counsel, that in view of the preliminary stage of the proceeding, the outcome of the motion cannot be assessed at this stage.

B) On November 24, 2010 a motion for certification of a class action suit was filed against Delek Israel and other Delek companies. According to the motion for certification, the fuel companies are in violation of section 6 of the Beverage Container Deposit Law, 1999 (“the Deposit Law”) by refusing to refund the amount of the deposit stated on the container to consumers who purchase beverage containers at convenience stores under their management. It was further claimed that the fuel companies charge consumers who purchase beverage containers marked with the VAT component for the deposit, with deliberate and willful obfuscation of the tax invoice. The plaintiffs are asking the court to place the amount of the claim against all the fuel companies at a minimum of NIS 482,400 (taking into account the cost of the deposit only) and NIS 2,905 million (including exemplary compensation), with the addition of NIS 64,500 for the VAT component that was overcharged.

After receiving the motion for certification, an application was made to the advocate of the applicants for permission for representation, clarifying that there is no real substance in the motion for certification. Following this application, the advocate of the applications for permission for representation announced that it intended to ask the court to approve the dismissal of the applicants for approval from the request for approval. This request has yet to be filed at the court.

C-175 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

The management of Delek Israel estimates, based, among other things, on the opinion of its legal counsel, that it is unlikely that the motion will be accepted.

C-176 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 32 – CONTINGENT LIABILITIES, GUARANTEES AND COMMITMENTS (CONTD.)

C) On October 3, 2010, a motion for certification of a class action suit was filed against Delek Israel and other fuel companies. The applicants claim that the series of agreements between each respondent and some of its station owners, including retail and property agreements, constitute a restrictive arrangement that prevents station owners from entering into agreements with other entities, preventing price competition. The amount of the claim against all the respondents is NIS 1.2 billion.

The management of Delek Israel estimates, based, inter alia, on the opinion of its legal counsel, that in view of the preliminary stage of the proceeding, the outcome of the motion cannot be assessed at this stage.

D) In November 2006, three motions for certification of class action suits were filed against Delek Israel, third parties and also against the former deputy CEO of Delek Israel. The applicants claim that Delek Israel, together with the other defendants, acted in a fraudulent, misleading and negligent manner and violated their statutory duty. The motions and claims were filed following an investigation by the Israel Police concerning the dilution of fuels at several gas stations marketing Delek Israel fuels and in view of possible damages that may have incurred as a result of this. The motions amount to NIS 1.4 billion.

In all of these proceedings, Delek Israel filed motions for summary dismissal, motions to try all three proceedings before the same judge and motions to extend the deadline for the submission of a response to the motion for approval until after the hearing on the summary dismissal. The court granted the motion to try the proceedings before the same judge.

In the third quarter of 2007, one motion, in the amount of NIS 90 million, was stricken off by consent and the court ordered the combination of the two remaining motions into one. Following combination of the two motions, the amount of the motion for certification of a class action suit was reduced from NIS 1.4 billion to NIS 554 million. Similarly the former deputy CEO of Delek Israel was removed from the petition. The applicants filed a motion for a continuance in the proceedings in the motion for certification of a class action until receipt of a peremptory decision against the other defendants (but not against Delek Israel) in a criminal proceeding instituted against them. The court allowed a continuance in the proceedings until a decision is made in a criminal proceeding. Delek Israel filed a motion for leave to appeal the decision for a continuance in the proceedings and in August 2009, the court denied the motion for leave to appeal and upheld the stay of proceedings.

The management of Delek Israel estimates, based on the opinion of its legal counsel, that until the applicants submit a response to Delek Israel’s response to the motion for certification of a class action suit, and until the decision that the proceedings will be delayed until a decision is given in the criminal proceeding and the criminal proceeding is still in progress, the chances of the motion cannot be assessed and therefore no provision was made for them in the financial statements.

E) In December 2007, a motion for certification of a class action suit was filed against Delek Israel and other Delek companies (“the defendants”). The plaintiffs contend that extra payment was collected at gas stations for service at night and on days of rest, from July 14, 1993 through to May 30, 2002, in contravention of the Control of Product and Service Prices Law (Temporary Order), 1985. The plaintiffs estimate that Delek collected NIS 22 million in the relevant period. Pursuant to the court order, the legal counsel submitted his position, according to which the plaintiffs’ position that the fuel companies were not allowed to collect an extra payment for service in the relevant period is incorrect.

In addition, the court ordered summary arguments by the parties.

The management of Delek Israel estimates, based on the opinion of its legal counsel that the change of the motion is unlikely, therefore a provision was not included in the financial statements.

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F) In July 2007, a motion for certification of a class action suit was filed against Delek Israel. The plaintiffs claim that at some of the stations operated by Delek Israel and stations to which Delek Israel supplies fuels, there are fewer self-service pumps than the number required under the Supervision of Prices of Commodities and Services Ordinance (Maximum Prices at Gas Stations), 2002, therefore that station is not permitted to charge an additional price for full service, under section 3(C) of the Ordinance. The total amount of the claim is NIS 8 million.

In the pre-trial hearing held in June 2008, the judge ordered the submission of the motion and response to the Attorney General and the Fuel Administration for their position.

On July 20, 2009, the Attorney General submitted his position, which opposes the position of Delek Israel. In August 2010, the claim was certified as a class action and the court ordered the submission of a statement of defense. The pre-trial date was set for February 27, 2011, and the parties agreed to the court’s proposal to appoint an accountant to examine the amount of the consideration received at the stations in the claim. The management of Delek Israel estimates, based on the opinion of its legal counsel and other factors, that the proceeding is not expected to have a material effect on the financial statements.

G) In 2002, Solel Boneh Ltd. and other companies filed a monetary claim against the Fuel Administration, Oil Refineries Ltd. (“ORL”), Delek Israel and other companies, in an amount of NIS 27 million, and a claim for declarative relief. The plaintiffs claim they had been charged for an additional price for the supply of products, in contravention of the law.

The plaintiffs are claiming an amount of NIS 4 million from Delek Israel, and another NIS 14 million together with ORL and three other defendants. In November 2009, the court dismissed the claim in full. In December 2009, an appeal on the court ruling was filed and the management of Delek Israel estimates, based on the opinion of its legal counsel, that the chances of the appeal are unlikely and therefore a provision for this claim was not included in the financial statements.

H) In November 2002, Delek Israel and two other oil companies filed a general claim in the amount of NIS 25 million against the Fuel Administration, Oil Refineries Ltd. (“ORL”) and Petroleum and Energy Infrastructures Ltd. ("PEI”), in respect of an inventory of crude oil that the plaintiffs entrusted in the past to ORL and PEI in accordance with the Fuel Administration's directives, and that ORL refuses to return to the plaintiffs, claiming that it is sludge (unusable sediment of crude oil). The plaintiffs are asking that the crude oil inventory be returned, along with finance expenses for the period commencing in September 2000 or, alternatively, that they be compensated for the financial value of the inventory and the finance expenses.

The management of Delek Israel estimates, based also on the opinion of its legal counsel, that it is likely that the claim will be approved, hence no provision was recorded in respect of the outstanding debt of NIS 11.6 million to the Fuel Administration. In 2004, the Fuel Administration filed a general claim for NIS 120 million against Delek Israel, three other fuel companies, ORL and PEI. The share of Delek in this claim is NIS 50 million. The Administration contends that the companies against which the claim was filed were allegedly negligent in treating the reserve inventory of crude oil, which ORL claims has turned into sludge, and that the Fuel Administration is entitled to reimbursement of amounts paid to the defendants for the storage, financing and insurance of the inventory since 1989 and for the difference in storage fees for delay of transfer of inventory to closed storage. The management of Delek Israel estimates, based also on the opinion of its legal counsel, that Delek Israel’s defense against this claim are strong and that insofar as the claim is granted, most of the amount will be claimed from ORL and PEI and not from the fuel companies, hence a provision for the claim was not recorded in the financial statements.

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In this context, in December 2005, ORL filed a petition for declarative relief that the crude oil appearing in the lists of PEI as unowned oil belongs in full to ORL and not to the Company and the fuel companies.

These three claims were joined into one case, and the case will commence in March 2010. In September 2008, PEI filed a claim against Delek Israel and other fuel companies in the amount of NIS 33 million. Delek Israel's share is NIS 13.2 million. In the claim, PEI alleges that the companies deposited crude oil at PEI and did not pay storage fees. The management of Delek Israel estimates, based on the opinion of its legal counsel that the chance of the motion is unlikely, therefore a provision was not included in the financial statements.

I) In August, 2007, the Fuel Administration filed a claim in the amount of NIS 23 million against Delek Israel and other fuel companies, alleging that it is entitled to value differences for emergency inventory, which was dismissed. In August 2000, notices were submitted to third parties against ORL and PEI. On July 18, 2010, the court announced that the claim would not be heard in the meanwhile, among other things, since it is an alternative claim to the claim set out in section H above. The management of Delek Israel believes, based on the opinion of its legal counsel, that if the claim set out in section H is heard, it is unlikely that Delek Israel and the other fuel companies will be required to pay this amount, therefore a provision was not included in the financial statements.

J) In October 2009, an application for certification of a class action suit was filed against Delek Israel. According to the claim, fuel vapor penetrated into packages of mineral water that were sold by Delek Israel and other companies after they were allegedly stored near the fuel pumps at the fuel stations. The application amounts to tens of millions of shekels. On November 4, 2010, a settlement agreement was submitted for the approval of the court. The court gave its position on the settlement agreement, with insignificant modifications.

On February 10, 2011, the settlement was published in two daily newspapers, as ordered by the court. A pre-trial hearing regarding the publication and response of the Attorney General is set for May 24, 2011. The management of Delek Israel believes, based also on the opinions of its legal advisors, that there is more than a 50% chance that the settlement will be approved by the court, and if approved, this is not expected to have a material effect on the financial statements.

K. In October 2009, a claim and application for its certification of a class action suit was filed against Delek Israel and against other fuel companies (“the defendants”). According to the claim and application for certification, when refueling at automatic pumps, the pumps start working immediately after the entering the payment method before fuel starts to flow from the pump and before the pump and payment meters start to run. The applicant alleges that in this way, tens of agurot are charged for fuel that has not been supplied and consumed whenever refueling at an automatic fuel pump at Delek Israel stations.

The applicant is claiming declaratory relief, ordering the Company to stop collecting these amounts and to refund any overpayment that was allegedly charged by Delek Israel. The total claim amounts to NIS 124.3 million. The proportionate share of Delek Israel in this amount is NIS 42.4 million.

The management of Delek Israel believes, based, among other things, on the opinion of its legal counsel, that there is more than a 50% chance that the class action will be certified, however the amount payable by Delek Israel if the claim or class action is approved is not material and its results are not expected to have a material affect on the financial statements.

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L. Soil and groundwater pollution was discovered in a number of Delek Israel gas stations. In these stations, Delek Israel conducts soil analyses and drillings to the ground water to characterize the nature of the pollution. Delek Israel also received requirements from the Ministry of Environmental Protection and the Water Commission to conduct tests to locate soil and water damage in a number of other stations. Delek Israel, based on past experience, included a provision of NIS 6 million in its financial statements for expected costs required to correct the aforesaid pollution.

In addition, a statement of claim was filed against Delek Israel and its officers, in respect of environmental matters. The statement of claim was filed in respect of alleged pollution of soil and groundwater, and it was filed against the CEO of Delek Israel, VP sales and a number of marketing personnel in the Company. At this stage, negotiations are underway with the Ministry of Environmental Protection. The outcome of the negotiations is not expected to have a material effect on the financial statements.

M. In December 2010, the Ministry of Environmental Protection filed an indictment against Delek and former managers and officers. The indictment refers to several alleged omissions in contravention of the Water Regulations (Prevention of Water Pollution (Fuel Stations), 1997, including failure to carry out sealing tests, failure to submit sealing test results to the Petroleum Commissioner, failure to report a fuel leak and failure to treat an unsealed facility.

A list of 72 prosecution witnesses was attached to the indictment.

The management of Delek Israel estimates, based, inter alia, on the opinion of its legal counsel, that in view of the preliminary stage of the proceeding, the outcome of the motion cannot be assessed at this stage.

N. Subsequent to the balance sheet date, on January 10, 2011 a motion for certification of a class action suit was filed against Delek Israel and other fuel companies. According to the motion for certification, the fuel companies violated statutory duty according to the Torts Ordinance (New Version), 1968 and the provisions of the Water Law, 1959 and its subsequent regulations, for failure to prevent leakage from containers and pipelines. The damage claimed is non-monetary, infringement on the autonomy of the individual by involuntary exposure to polluted water with a health risk and the amount claimed from each company is NIS 200 million.

The management of Delek Israel estimates, based, inter alia, on the opinion of its legal counsel, that in view of the preliminary stage of the proceeding, the outcome of the motion cannot be assessed at this stage.

O. The Ministry of the Environment has notified Delek Israel that in the event that it is discovered that damage has been caused the environment during the 40 years of operation of Delek Israel in the Ashdod facility, it will be required to remediate the environmental hazards prior to leaving the facility. The management of Delek Israel estimates, based, inter alia, on the assessment of the subsidiary's management, on drillings that surveyed the possibility of soil and underground water contamination in the area of the facility, and on the opinions of its legal counsel, that the risk of considerable investment in soil purification expenses is low, therefore no provision was made in the financial statements.

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P. Subsequent to the balance sheet date, on March 8, 2011, a motion for certification of a class action suit was filed against a wholly-owned subsidiary partnership of Delek Israel (“the partnership”).

The plaintiffs contend that the acts of partnership were negligent, in breach of statutory duty, caused private and public nuisance according to the Civil Wrongs Ordinance (New Version), 1968, and were in breach of the provisions of the Prevention of Nuisances Law, 1961, on the grounds that between September 2008 and October 28, 2009, Delek Pi Glilot stored 850 cubic meters of heating liquid at the Jerusalem terminal, which emitted odor fumes containing substances that are suspected of endangering public health, and exposed the group members (civilians who were in the Har Nof neighborhood in Jerusalem at this time), to polluted air and a pungent odor that impaired their quality of life, convenience, welfare and health. Monetary damages are being claimed for impairment of property in the area and non- monetary damages are being claimed for the alleged exposure to air pollution and the pungent odor. The amount being claimed from Delek Pi Glilot is NIS 700 million.

Q. A number of claims were filed against Delek Israel, in the course of regular business, totaling together NIS 100 million. The management of Delek Israel estimates, based on the opinion of its legal counsel, that the majority of cases are unlikely to succeed, and adequate provisions have been made for them in the financial statements.

3. Contingent claims against Delek Europe

A number of legal claims were filed against Delek Benelux in the course of regular business, in a cumulative amount of EUR 16.8 million. The management of Delek Benelux estimates that it is unlikely that the claim will be approved, therefore a provision was not included in the financial statements.

4. Contingent claims against Delek US

A. Further to the contents of Note 14 regarding the fire at the refinery, the circumstances of the event are being investigated by a number of entities, including an internal investigation by Delek US, the department for occupational safety and health, the US Chemical Safety and Hazard Investigation Board and the US Environmental Protection Agency. In May 2009, the department of occupational safety and health completed the investigation and issued a notice estimating a fine of USD 0.2 million. Delek US is appealing this notice and does not believe that the result will have a material effect on its business. Delek US is unable to accurately assess the results of the other examinations, including possible fines or other enforcement activities, however it estimates that the existing procedures will not have a material adverse effect on its operations.

B. A subsidiary in the USA, Delek Refining Inc. (”Delek Refining”), is subject to the provisions of the law, regulations, licenses and environmental supervision set by the competent authorities in its field of business at the federal, state and local levels. These provisions pertain to Delek Refining's entire activity, both in the field of refining and of the fuel products that it produces, and in the field of transportation (the oil pipe). The environmental legislation is complex, and is constantly changed and updated.

The main legislation for environmental control relevant to operations of Delek Refining refers to the quality of air, liquid, solid and toxic waste and to the prevention of ground and groundwater contamination.

The environmental authorities in the United States conducted two investigations against the former owners of the refinery and the pipeline, following the discovery of contaminants in the soil and in the underground water in the area of the refinery and the pipeline. The remediation and purification processes of the contaminants have yet to be completed.

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As part of the acquisition of the refinery and the oil pipe, Delek Refining assumed the liability for the existing contaminants, in respect of which the investigation and the remediation and purification processes are still ongoing, as well as the liabilities imposed on the previous owners in respect of the contaminants, the provision included in the financial statements of Delek US as of December 31, 2010 amounts to USD 4.3 million (NIS 15 million) in an amount that is estimated by Delek Refining at USD 8 million. Delek Refining is not entitled to indemnification by the former owners in respect of environmental damages known to it at the acquisition date, however it is entitled to a limited (in amount and time) indemnification in respect of costs that it may incur in the future due to the discovery of environmental damages that were caused prior to its of the refinery, but were unknown at the time.

It is further noted that Delek Refining acquired an environmental insurance policy, which covers certain environmental damages that may be discovered in the future.

5. Motions for certification of class action suits against The Phoenix and Excellence

The Phoenix has general exposure, which cannot be estimated or quantified, due, among other things, to the complexity of the services provided by The Phoenix to its policyholders and members. The complexity of these arrangements includes potential for claims of interpretations and other due to differences in information between The Phoenix and the other parties to the insurance contracts referring to a range of commercial and regulatory terms. It is impossible to predict the types of claims that will arise in this area and the exposure arising from these and other claims in respect of the insurance contracts, through the hearings mechanism set out in the Class Actions Law.

There is also general exposure arising from complaints against the institutional entities in The Phoenix, including complaints to the Commissioner of the Capital Markets, Insurance and Savings in the Ministry of Finance in respect of the rights of the policyholders in accordance with insurance policies and/or the law. These complaints are handled routinely by the ombudsman in institutional entities.

Any ruling of the Commissioner in respect of these complaints could be made as lateral rulings, which apply to lateral groups of policyholders. Sometimes, the complaining entities threaten to instigate class actions suits in respect of their claim Due to the preliminary state of the proceedings, it is impossible to estimate whether the Commissioner will hand down a lateral ruling for these complaints and whether a class action suit will be filed as a result of these proceedings, and it is also impossible to estimate the potential exposure for these complaints. Therefore, a provision was not made for the exposure.

In respect of the motions for certification of a class action suit set out in sections A-Q below, the management of The Phoenix estimates, based also on the opinion of its legal counsel, that it is more likely than not that the statements of defense of The Phoenix and/or subsidiaries of The Phoenix will be accepted and the motion for certification of a class action suit is more likely than not to be rejected, and are not covered by a provision in the financial statements. Provisions were included in the financial statements to cover the exposure estimated by the Company or the subsidiary for motions for certification of class action suits in which it is more likely that the Company's statement of defense will be dismissed.

The likelihood of a motion for certification of a class action, which was recently filed see section M below), cannot be assessed at this preliminary stage, hence no provision was included in the financial statements in respect of this claim.

Following is a summary of the motions for certification of class action suits and the amounts of the claims included in the motions as at the balance sheet date. For details see the statements of The Phoenix that are available to the public.

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A. On June 19, 2000, a lawsuit was filed in the Tel Aviv district court against Discount Mortgage Bank Ltd. (“the Bank”) and the Israel Phoenix Insurance Company Ltd. (“Phoenix Insurance”) by two couples. The lawsuit argues that the plaintiffs have obtained from the Bank loans for the purpose of purchasing residential apartments secured by a mortgage, and in frame of this loan the Bank required them to purchase homeowners insurance policies for their apartments from Phoenix Insurance. According to the plaintiffs, the initial insurance amount set for their apartments was higher than the proper reinstatement value of the apartments, and in December 1993 and December 1994, the insurance amounts for their apartments were increased, with no justification and on no reasonable ground. . Therefore, the plaintiffs claim they have paid excessive insurance premiums over the years, and have accordingly petitioned for reimbursement of the excess insurance premiums that they allegedly paid. The plaintiffs filed a motion to approve their lawsuit as a class action. The plaintiffs estimate the amount of the class action suit at NIS 105 million. The proceedings in this claim have continued over several years and there have recently been significant delays in the proceedings of the claim. The stay of proceedings in the claim may continue for a long period, and there is a real chance that the proceeding will not be renewed in the future. At the date of the report, the proceedings have not yet been renewed.

B. In April 2003, a claim was filed against Phoenix Insurance Company Ltd. and other insurance companies, together with a motion for certification of a class action suit (Civil Case 1498/03 Miscellaneous Civil Motions 8673/03). The cause of the claim is the unlawful collection for several years of stamp duty payable for insurance agreements under the Stamp Duty on Documents Law, 1961. The plaintiff contends that by collecting stamp duty from the policyholders, The Phoenix Insurance has enriched itself unjustly at his expense, since the tax is payable by it, and is therefore liable to refund the amounts it collected and transferred to the Ministry of Finance. The plaintiff contends that by collecting stamp duty from the policyholders, Phoenix Insurance has enriched itself unjustly at his expense, since the tax is payable by it, and is therefore liable to refund the amounts it collected and transferred to the Ministry of Finance. The total amount of the claim is approximately NIS 95 million. In a ruling on June 7, 2009, the motion for certification of a class action suit was approved (including the claim against The Phoenix) in respect of half of the amount of tax duty collected from the policyholders. At this stage, litigation of the class action has been postponed until after the Supreme Court hands down its ruling on the motion for appeal against the decision to certify the motion as a class action.

C. On October 19, 2004 a claim was filed against Hadar Insurance Company Ltd. ("Phoenix Insurance”), accompanied by a motion to approve the claim of a class action suit. The claim involves the payment of motor insurance benefits in "total loss" cases. The plaintiffs claim that in total loss cases, Phoenix Insurance does not pay the full insurance benefits that allegedly correspond to the car’s full list price, but rather deducts from the value of the vehicle various amounts in respect of special variables associated with the vehicle price- list, that may affect its value. The plaintiffs argue that in so doing without notifying the policyholders when quoting the price of the insurance policy or when entering into the insurance contract, Phoenix Insurance allegedly misleads all policy holders and is in breach of statutory duty in view of the relevant guidelines of the Commissioner of Insurance. The plaintiffs set the claim amount at approximately NIS 41 million. On January 14, 2010, the district court accepted the application for certification of a class action suit.

In October 2010, the parties filed a petition with the district court to approve the settlement. The Attorney General submitted his position on the settlement. On March 17, 2011, the court ruled that it is unable to approve the settlement in its current format and gave the parties 45 days to negotiate for a revised settlement.

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D. On April 25, 2006, a motion for certification of a class action suit was filed by Zevulun Valley Metal Coatings Company Ltd. and others against Migdal Insurance Company Ltd. and other insurance companies, including The Phoenix Insurance, involving disability insurance policies (Civil Case 1519/06, at the Tel Aviv district court).

In brief, the plaintiffs argue that the defendants charge in frame of these policies monthly premiums for a “waiting period”, namely the period commencing on the date of the event due to which the policyholder is disabled, and ending after a period of time set in the policies that are the subject matter of the claim – three months. Only after the waiting period is over, and provided that the policyholder is still disabled, the insurance company commences paying the insurance fees, commencing on the said date. The plaintiffs argue that the policies that are the subject matter of the claim, that are issued as aforesaid by various insurance companies including The Phoenix Insurance, include another precondition for payment of the insurance benefits, that pertains to the date on which the insurance company will cease payment of the insurance fees, namely the end of the period specified in the policy. In all policies that are the subject matter of the claim, the end of the period is the date set as the end of the policy term, the end of the insurance year in which the policyholder turns 65, cancellation of the life assurance policy to which the disability policy was attached, or the death of the policyholder. The plaintiffs argue that if the insurance event occurs in the period commencing three months prior to the end of the term of the disability policy, in no case will the policyholder be eligible for insurance benefits. The plaintiffs claim that in such a case, the policy term will have already ended on the date on which the eligibility for insurance benefits is created, following the waiting period, and from this date on the insurer would no longer be required to pay insurance benefits.

The damage claimed by the plaintiffs is the insurance fees paid in the period when no coverage was provided. According to an expert opinion obtained by the plaintiffs, the preliminary estimate of the damage for the years 1998-2004 for the five insurance companies being sued is approximately NIS 47.6 million, and the estimated damage attributed to Phoenix Insurance is approximately NIS 8.12 million. On February 3, 2009, the court accepted the motion of the plaintiffs and certified their claim against all the defendant insurance companies of a class action suit.

E. On December 19, 2006 a claim was filed with the Tel Aviv district court against Phoenix Insurance, accompanied by a motion for certification of a class action suit, which Phoenix Insurance received on December 25, 2006. The lawsuit and the motion to approve it of a class action suit involves a matter that falls in frame of the “disability by accident” annex that is added, at the policyholder’s request, to the life assurance policy (the appendix).

This appendix contains a table listing the financial compensation rates to be paid out of the full insurance amount in respect of various bodily injuries, such as the loss of a leg or an arm. The Phoenix pays compensation based on the disability grade determined in respect of the organ injured, thus limiting its liability under the policy.

The cause of the claim on which the claim relies includes breach of the duty of disclosure prescribed in insurance laws, including in the Control of Financial Services (Insurance) Law, 1981 and the regulations enacted in virtue thereof, misleading representation, breach of contract, imposing an obligation in bad faith, breach of fiduciary duty and unjust enrichment. The plaintiff claims, on his behalf and on behalf of the class, that he is entitled to receive appropriate compensation out of the full insurance amount denominated in the policy, according to the disability grade set or to be set, as opposed to the amount paid by the lower relative disability rating as calculated by Phoenix.

The remedy requested by the plaintiff is that Phoenix be required to pay the difference between the compensation due under the policy, according to the plaintiff, and the actual compensation paid, for the entire class.

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The plaintiff’s own damages were set at approximately NIS 77 thousand, whereas for the entire class the plaintiff does not have at his disposal data allowing calculation of the total damage. On December 5, 2007, the Attorney General announced his decision to hear the case, by virtue of the authority conferred upon him, after seeing that the "right of the State of Israel or public interest could be affected by or are involved in the proceedings”. On May 1, 2008, the Attorney General's position was received, supporting the position of the Commissioner of Insurance, which is the basis for the claim.

On January 11, 2009, subsequent to the hearing and written summations, the court ruled to certify the claim of a class action suit. The Phoenix appealed the ruling. A decision has not yet been received from the court regarding the permission to appeal and a ruling on the matter is pending.

F. On January 3, 2008, a statement of claim and motion for a certification of a class action suit were filed with the Tel Aviv district court against The Phoenix Insurance and other insurance companies, arguing that management fees were collected from the policyholder in profit-sharing life assurance in contravention of the law.

The lawsuit was filed by four plaintiffs and on behalf of every person who is or was insured by one or more of the defendant insurance companies, under a combined profit-sharing life assurance policy type, issued between 1992 and 2003 (inclusive) (“the Group”). The plaintiffs argue that the defendant insurance companies collected management fees in profit-sharing life assurance policies contrary to the instructions of Regulation 6A to the Insurance Businesses Supervision Regulations (Terms in Insurance Contracts), 1981 (“The Supervision Regulations”) and contrary to the instructions of the Commissioner of Insurance. As argued, the defendant insurance companies acted illegally in two aspects (or at least in one of them):

(a) They collected regular monthly management fees exceeding 0.05% until 2004 (inclusive), except for 2002.

(b) They collected the variable fees monthly and not at the end of the year, thus allegedly depriving the policyholders of the proceeds for the variable management fees, collected throughout the year.

The lawsuit against Phoenix Insurance refers to the second argument only.

The personal damage incurred, as argued by one of the plaintiffs who was insured by The Phoenix Insurance in respect of each insurance year, amounts to NIS 13.22, and the total personal damage of all plaintiffs (each one in respect of each insurance year) allegedly amounts to NIS 32.21. The total damage incurred as argued by the entire group was estimated by the plaintiffs at a nominal amount of about NIS 244 million of which the plaintiffs attribute NIS 40 million to The Phoenix Insurance.

The plaintiffs request the court to order the reimbursement of the excess management fees that were allegedly collected unlawfully, or the reimbursement of the monthly proceeds allegedly lost by each member of the group. . The plaintiffs also move for a mandatory injunction that will instruct the plaintiffs to change their mode of operation. The grounds argued in the lawsuit are as follows: (a) misleading and false presentation; (b) breach of the provisions of the Supervision on Financial Services (Insurance) Law, 1981, the supervision regulations and the circulars of the Commissioner of Insurance; (c) lack of good faith; (d) unjust enrichment.

The continuation of the hearing of this case was set for the end of March 2011.

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G. On January 3, 2008, a claim and motion for certification of a class action were filed with the Tel Aviv district court against The Phoenix Insurance and other insurance companies. The lawsuit is about the payment term, “sub-annual”, which is a payment collected in life assurance policies in which the premium is set as an annual amount, but the payment is made in several installments (“sub-annual”). The plaintiff argues that Phoenix Insurance collected sub-annual payment at an amount exceeding the allowed rate, and it does this in several ways, as argued by the plaintiff: collecting sub-annual payments relative to the management fees, collection of sub-annual payment at a rate exceeding the allowed rate in accordance with the insurance control circulars, collection of sub-annual payment relative to the savings element in life assurance policies and collection of sub-annual payment relative to policies that do not refer to life assurance.

Accordingly, the plaintiff argues that in its action Phoenix Insurance breached the Control of Financial Services (Insurance) Law, 1981 and its regulations, breached the provisions of insurance control circulars, misled its policyholders, abused its position as a monopoly in the insurance market, unjustly enriched itself, acted in bad faith, breached the policy instructions and entered depriving terms in a policy that constitutes a uniform contract. The requested remedies are refunding of all amounts that the defendant insurance companies illegally collected, as well as a mandatory injunction that instructs the defendant insurance companies to change their mode of operation in respect of the matters specified in the lawsuit. Should the lawsuit be approved of a class action, the plaintiffs estimate that the amount claimed from all the defendants is approximately NIS 2.3 billion; of which about NIS 284 million is claimed from The Phoenix Insurance.

The continuation of the hearings on the matter was set for June 2011.

H. On July 30, 2008, a claim was filed against The Phoenix Insurance. On July 30, 2008, a claim and motion for certification of a class action suit was filed against The Phoenix Insurance at the Tel Aviv-Jaffa district court, under the Class Actions Law, 2006 (“the claim”). The claim refers to the allegation that The Phoenix Insurance does not compensate its policyholders for protective measures installed in cars in cases of total loss. The plaintiff estimates the specific damage at NIS 500 and the damage for the group at NIS 27.8 million. A pre-trial date has not yet been set.

I. On February 24, 2010, a claim and motion for certification of a class action suit was filed against The Phoenix Insurance (“the Phoenix Insurance” or “the plaintiff”) at the central district court in Petach Tikva, under the Class Actions Law, 2006 (“the claim”). The plaintiff contends that The Phoenix Insurance was not permitted to collect from its life assurance policyholders any amount for the premium component called the policy factor or other management fees without the explicit consent of the policyholder, according to the insurance agreement (the policy) between the policyholder and The Phoenix Insurance, even although collection of the policy factor was explicitly permitted by the circulars of the Commissioner of Insurance and the policyholder also knew that he is charged for the policy factor from the annual reports sent to him (as from 2003). The plaintiff also claims that collecting the policy factor without his explicit consent caused him further harm in the amount of the returns that he did not receive, as The Phoenix Insurance should have invested the amount collected for the policy factor in the capital market. The plaintiff claims that collection of the policy factor without anchoring it in the insurance agreement is grounds for a claim of breach of contract, breach of fiduciary duty of the insurer towards the policyholders, misleading of customers in the contractual and pre- contractual stage, breach of duty of good faith, unjust enrichment and breach of statutory duty (according to the Control of Financial Services Law (Insurance), 1981.

The remedies sought by the plaintiff are return of the amounts collected by The Phoenix Insurance for the policy factor and a mandatory injunction ordering The Phoenix Insurance to cease collecting the policy factor.

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The personal damaged claimed by the plaintiff is NIS 428.45 (for 2006 and 2007 only, even though the alleged grounds for the claim refer to 2003 to 2009). The plaintiff estimates that the general damage caused to the entire group is NIS 445 million. The Phoenix Insurance has responded to the motion. In a pre-trial hearing on September 6, 2010, the plaintiff was asked to inform the court whether he intends to continue with the claim, and if so, whether he intends to delete some of the grounds in the claim. The parties reached a settlement according to which they intend to waive questioning and the court approved this settlement on October 6, 2010. In addition, the plaintiff informed the court that he intends to continue litigation. The case was set for written summations. The parties filed their summations and are waiting for the court ruling.

J. On April 11, 2010, the Israel Consumer Council (“the plaintiff”), filed a claim and motion for certification of a class action under the Class Actions Law, 2006 against The Phoenix Insurance and three other insurance companies (together: “the defendants”) in the central district court (“the claim”). The plaintiff contends that the defendants breach their duties by failing to take steps to locate persons who have rights to moneys that were deposited in insurance policies, including life assurance and managers insurance, do not inform them of this and do not take steps to return the unclaimed funds that they hold. Moreover, the defendants do not apply to the Population Registry, do not submit reports to the Administrator General, do not manage these moneys separately from other moneys and do not transfer the moneys to the Administrator General when their transfer is required. Due to these omissions, the holders of the rights do not receive their moneys and the defendants collect excessive management fees from their moneys. Moreover, the plaintiff contends that the defendants are unjustly enriching themselves from the revenues generated by the unclaimed moneys. The plaintiff filed the claim on behalf of all the holders of rights in assets held by the defendants, or are under their responsibility or control, who the defendants allegedly did not notify that they have rights to moneys held by the defendants, as their duties require them to do (“the Group”). The plaintiff did not estimate the number of members in the group or the amount of the claim. The alleged grounds for the claim include breach of the Administrator General Law, 1978, Protection of Deposited Property Law, 1964, statutory duty, directives of the Commissioner of Insurance, fiduciary duty including the Trust Law, 1979, Control of Financial Services (Insurance) Law, 1981, duty of good faith, and for breach of agreement, deception and unjust enrichment. The remedies sought by the plaintiff include ordering the defendants to take the steps as prescribed in the directives of the Commissioner of Insurance, ordering the defendants to transfer the unclaimed funds to the Administrator General, ordering the defendants to compensate the members of the group and to return the moneys plus linkage differentials and interest by law and to return the commissions and management fees collected for these moneys and to appoint a receiver or another functionary to enforce the court’s orders, as the court deems fit. The Phoenix submitted a response to the motion for certification of a class action on October 19, 2010. The pre-trial was set for March 31, 2011.

K. On April 6, 2010, a statement of claim and a motion for certification of a class action suit were filed at the Tel Aviv district court. The plaintiffs contend that members of the Israel Defense Forces Veterans Association (“Tzevet”) were enrolled in health insurance policies, without their knowledge or consent, in contravention of the law. The plaintiffs contend that in 2000, Tzevet entered into an agreement with Migdal Insurance Company Ltd. (“Migdal”), with the mediation of Medi Gap Ltd. – the health division of the Medanes Group (“Medanes”). According to the agreement, the members of the group will be enrolled in the health insurance policy, with Migdal as the insurer, in return for a monthly premium for the policy. The plaintiffs contend that the members of Tzevet were enrolled without their knowledge and without their consent. The claim was filed against Migdal for its agreement with Tzevet and against The Phoenix Insurance, which entered into an agreement with Tzevet in 2004 to insure the members of Tzevet, after Migdal stopped insuring the members of Tzevet. The claim was also filed against Tzevet and Medanes.

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NOTE 32 – CONTINGENT LIABILITIES, GUARANTEES AND COMMITMENTS (CONTD.)

Another defendant, the Israel Defense Force (“the IDF”), was added to the claim. The plaintiffs contend that the IDF paid the premiums through deductions or payments from the pension paid to the members of Tzevet. The statement of claim includes an allegation that The Phoenix Insurance and Migdal collected the insurance premiums for the policy in contravention of the law and that the collective insurance policies do not comply with the provisions of the law, as the members of Tzevet did not sign or give written agreement to their enrollment in the insurance policy.

The plaintiffs base their claim on the Control of Insurance Business Regulations (Collective Life assurance), 2009 and contend that these regulations have retroactive application, as they do not change the legal status or create a new legal status but adopt an existing legislative arrangement in collective group insurance and apply it to collective health insurance as well.

The alleged grounds for the claim are breach of the duty of trust; breach of statutory duty; including the directives of the Commissioner of Insurance, the Control Law and the Insurance Business Supervision Regulations; breach of the duty of disclosure, the duty of emphasis and the duty of clarification; violation of the Consumer Protection Law; exploitation of the policyholders’ ignorance; misleading of the policyholders; unjust enrichment; breach of the pre- contractual and contractual duty of good faith; and infringement of an individual’s property rights and autonomy. The plaintiffs further claimed that the fact that the team members received notice by mail in later stages that they were policyholders does not absolve the respondents from responsibility and duty to act according to law. The plaintiff is asking the court to declare the cancellation of the policy, order the respondents to return the amounts collected over the years, together with interest, linkage and attorney’s fees, and to order the respondents to pay compensation for distress allegedly caused to the plaintiff, as well as the profits generated from the moneys that were unlawfully collected. The plaintiff contends that the claim should be certified as a class action on behalf of all the group members that were enrolled in the insurance policy. Continuation of the hearing was set for November 2011.

L. On April 19, 2010, a statement of claim was filed against The Phoenix Insurance and other insurance companies (“the insurance companies” or “the defendants”) at the central district court, together with a motion for certification of a class action (“the motion for certification”). The motion for certification is about the conduct of the insurance companies when collecting the final premium or premiums from a policyholder at the end of the insurance term, whether the policy is cancelled by the policyholder or due to an insurance event (“the termination of the insurance”). According to the applicants, insurance is usually terminated after the insurance premium has been collected for the month in which the insurance was terminated, as this premium is collected in advance at the beginning of the month. Although the policyholder is entitled to a refund for the proportionate part of the month, the defendants do not return the proportionate part of the premium to the policyholders. Moreover, the applicants contend that when the premium is returned, whether by refunding money or by offsetting future premiums, it is returned in nominal values. The applicants claim that the defendants acted in bad faith and in breach of the agreement with the policyholders, while enriching themselves unjustly at their expense, and thus violate the provisions of the Unjust Enrichment Law, 1979. Moreover, these acts are in breach of provisions of the Insurance Contract Law, 1981, the Control of Financial Services Law (Insurance), 1981 and the directives of the Commissioner of Insurance. The applicants contend that this is a violation of statutory duty. The applicants claim that the amount of personal damage, in nominal values, is NIS 3,047.04. The total damage to the members of the group amounts to NIS 225.2, in nominal values. This calculation relates to a period of ten years only. The remedy requested in this claim is a refund of the excess premiums collected in contravention of the law and/or returned in contravention of the law and/or the unpaid revaluation differences for each group member. Phoenix Insurance has yet to respond to the motion for certification. The pre-trial hearing was set for September 25, 2011.

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NOTE 32 – CONTINGENT LIABILITIES, GUARANTEES AND COMMITMENTS (CONTD.)

M. On March 3, 2011, a claim and motion for certification of a class action was filed against The Phoenix Insurance and The Phoenix Pension and Provident (together: “the plaintiffs”) at the district labor court in Tel Aviv-Jaffa, pursuant to the Class Actions Law, 2006

The plaintiffs contend that the defendants breached their duty as an institutional body to act to deposit the funds of the employee’s pension arrangement, by their employers, at the dates set out in the law and in their omission to place the funds due to the employees by law to their benefit. The group that the plaintiffs seek to represent is defined as a group of members of pension funds, study funds and provident funds managed by the defendants and/or by any person on behalf of the defendants whose employers made late deposits exceeding 15 days late from the end of the month for which the employee is entitled to a salary and who does not receive interest in arrears and/or did not receive the yield for the interest in arrears and for the amounts of the principal (“the Group”). The plaintiffs estimate that the number of group members could reach 10,000.

The personal damage claimed by the plaintiffs is NIS 301.56. The plaintiffs estimate that the general damage caused to the entire group is NIS 31,664,033, over seven years. The causes of the claim include alleged violation of the Income Tax Regulations (Rules for Approval and Management of Provident Funds), 1964 and the Wage Protection Law, 1958, decision in principle by the Capital Market, Insurance and Savings Division at the Ministry of Finance together with the Control of Financial Services (Insurance) Law, 1981, breach of agreement and negligence. The remedies sought by the plaintiffs include to declare and order the defendants to credit each of the group members for the amount of the interest in arrears for late deposit by the employer and in addition, to return the fund yields for the interest in arrears as well as for the amounts of the principal in the period in arrears and to provide details, as required by the law, to the group members.

N. On December 16, 2008, a claim and motion for certification of a class action suit were filed against Excellence and its subsidiary. The amount of the class action suit is estimated at tens of millions of shekels. In brief, the plaintiff contends that complex certificates (Series 17) did not track the Yeter 50 index, contrary to the investment strategy of the certificate and did not maintain fair value during trading on the TASE, and that the subsidiary of Excellence performed forced conversion of the certificates, in contravention of the provisions of the prospectus. In the hearing, the court asked the parties to negotiate for a settlement. After the parties failed to reach an agreement, In April 2010, the parties reached a settlement on the nature of the disclosure for the documents in the case and in May 2010, a declaration of document disclosure was sent. On July 11, 2010, the applicant asked to revise the motion and added new grounds, based on documents that he discovered and an economic opinion regarding the operations of the subsidiary in the secondary market. On December 19, 2010, the court ordered the subsidiary to disclose the documents required for this matter and ordered the plaintiff to submit a revised opinion, within 30 days after receiving the documents. The documents were disclosed according to the decision of the court. The date for submitting the revised opinion by the plaintiff was set for March 13, 2011 and the pre-trial hearing was set for April 5, 2011.

O. On April 25, 2009, a motion for certification of a class action suit was filed against Standard and Poor's Maalot Ltd. (“Maalot”), World Currencies Ltd. (a subsidiary, hereinafter “World Currencies”) and officers in the Excellence Group, Bank Leumi Le Israel Trust Company Ltd. and against Excellence, in respect of the prospectus filed by World Currencies for the public placement of debentures backed by notes issued by Lehman Brothers Bankhaus AG (“Lehman Germany”).

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NOTE 32 – CONTINGENT LIABILITIES, GUARANTEES AND COMMITMENTS (CONTD.)

The plaintiff claims that Excellence, World Currencies and officers in the Excellence Group breached various obligations towards the debenture holders, including by not informing them of Lehman’s link to the debentures and Excellence’s dependence and ability to repay from the notes issued by Lehman, in a way that investors relied only on the rating of the debentures by Maalot. It is further claimed that Excellence did not report that the collapse of Lehman Germany could possibly affect the repayment of the debentures and reduce the value of the debentures, that the Excellence failed to inform the investors in real time of the implications of the economic crisis on the full and timely repayment of the debentures and that Excellence was negligent when including the opinion of Maalot in the prospectus.

The plaintiff is one of the debenture holders and he asks to file the claim in his name and on behalf of all the debenture holders at the date Leman collapsed. The plaintiff estimates that the class action suit amounts to NIS 84.5. The pre-trial hearing was set for May 2011.

P. On May 27, 2009, a motion for certification of a class action suit was filed against Keshet Debentures Ltd. (a special purpose company of Excellence, hereinafter “Keshet”) and its directors, Expert Finances Ltd. (which to the best of Excellence’s knowledge holds 50% of the issued share capital of Keshet), Excellence Nessuah Underwriting (1993) Ltd. (a subsidiary of Excellence, hereinafter “Excellence Underwriting”), which holds the other 50% of the issued share capital of Keshet and against Excellence (hereinafter jointly: "the defendants"), in respect of the prospectus filed by Keshet for the public placement of debentures backed by notes issued by Lehman Brothers Bankhaus AG (“Lehman Germany”). The liability of Lehman Germany was guaranteed by Lehman Brothers Holdings Inc. (Lehman USA). Lehman Germany and Leman USA will be referred to hereunder as “the Lehman Group”.

On July 23, 2009, a motion for certification of a class action suit was filed against Maalot, Bank Leumi Le Israel Trust Company Ltd. and against Keshet, Excellence Underwriting and officers in Excellence and Expert Finances Ltd. (“the defendants”), in respect of the prospectus filed by Keshet for the public placement of debentures backed by notes issued by Lehman Germany.

The plaintiffs of the two motions set out above claim that the defendants breached various obligations towards the debenture holders, including by allegedly disregarding several material events relating to the main risk for repayment of the notes, and which indicated the financial deterioration of the Lehman Group. The plaintiff claims that the defendants should have informed the investors of the negative developments in the Lehman Group, and that the numerous dramatic events allegedly issued about the Lehman Group was not met by any response or disclosure by the defendants. The alleged failure to disclose and the false representations misled the investors in the debentures and was the cause of the damage to the members of the group in the claim. The plaintiff contends that the behavior of the defendants was faulty and that the defendants could have prevented the damage or substantially reduced it and did not do so. The plaintiff further contends that in March 2008, the defendants who are the controlling shareholders in Excellence, changed the service agreement with Keshet, such that the defendants were able to withdraw all the funds from Keshet, that the funds that were withdrawn from Keshet could have been used to purchase deposits insurance, that the defendants did not take steps to insure deposits in respect of the funds invested in Lehman Germany, even though, allegedly, the fiduciary duty and duty of care towards the investors requires insuring such deposits, and that the defendants did not take steps to replace the backing bank. The plaintiffs are debenture holders and they are asking to file the claim in their name and on behalf of all the debenture holders at the date Lehman Bank collapsed. The first plaintiff of May 27, 2009 estimates that the class action suit amounts to NIS 286 million and the second plaintiff of July 23, 2009 estimates that the class action suit amounts to NIS 220 million. Following the request of the defendants, these claims were combined and the amount of the claim was adjusted to NIS 286 million.

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NOTE 32 – CONTINGENT LIABILITIES, GUARANTEES AND COMMITMENTS (CONTD.)

Q. On August 31, 2009, a motion for certification of a class action suit in the amount of NIS 82 million was filed in the Tel Aviv district court against Excellence Nessuah Provident Fund Ltd. (Excellence Provident”)

The plaintiff (a member of a provident fund managed by Excellence Provident contends that Excellence Provident was negligent and/or acted in bad faith when setting the investment in shares at more than 50% in five share-based provident funds that it manages. The plaintiff further contends that Excellence Provident was negligent in its selection of the shares for investing the provident funds. The plaintiff further claims that management fees should not have been collected from members of the funds that year. A ruling on the motion has not yet been handed down.

R. On July 15, 2009, a motion for certification of a class action suit was filed in the Tel Aviv district court against Excellence Nessuah Investments Management Ltd. (“Excellence Investment Management”) and against Epsilon Investment House Ltd. (“the claim”). The claim was filed by several plaintiffs who claim, among other things, to be the heirs of a customer whose investment portfolio was managed by Excellence Investment Management until November 2007 and/or who had power of attorney for her account during the portfolio management period.

The main allegations against Excellence Investment Management are that during the management period of the customer’s portfolio, Excellence Investment Management collected fees from the customer that exceeded those due to the bank for transactions in her account, while receiving some of these fees from the banks as “commission refunds”. The plaintiffs claim that these commission refunds were made through improper disclosure to the customer and were in violation of the provisions of various laws. The plaintiffs estimate that the amount of the claim is NIS 27 million. On November 1, 2009, Excellence filed its response to the motion at the court and on January 26, 2010, the plaintiffs filed their response to Excellence’s response. In the pre-trial hearing on March 8, 2010, the plaintiffs and Epsilon filed a settlement agreement at the court. In the pre-trial hearing on November 4, 2010, the settlement agreement between Epsilon and the plaintiffs was approved and it was given the validity of a judgment. On January 23, 2010, the parties filed a joint notice and motion to prevent the subpoena of witnesses and cross-examination of their statements. The court was asked to rule on the motion based on the statements of claims, and to allow the parties to negotiate for thirty days before that. On December 24, 2010, the court approved the notice and motion and on January 25, 2011, an additional extension was approved for the parties to continue negotiations.

The total profit for the class actions, proceedings, litigation and other suits filed against The Phoenix, as described above, in NIS 44 million.

6. In September 2007, a claim was filed against Yam Tethys Ltd. (a company owned by the partners in the Yam Tethys project) and others defendants (the State of Israel, Natural Gas Authority, Israel Natural Gas Lines Ltd. and Israel Electric Corporation Ltd.) at the Tel Aviv district court by trawling fishermen for damages allegedly incurred as a result of a reduction in the areas in which they can trawl following the construction of the gas rig and pipeline. The claim amount is NIS 35 million. On May 11, 2010, the first pre-trial hearing was held, after arbitration of the case failed. Two days of evidentiary hearings are set for June 14 and June 15, 2011. The plaintiff is required to submit evidence no later than 60 days prior to the date set for the evidentiary hearing and the defendants are required to submit their evidence no later than 30 days prior to the date set for the evidentiary hearing. Considering the precedential questions entailed in the efficiency of the claim and the complexity of the case, in that there are several factual and legal disputes between the parties and in view of the evidence available at this stage, including that an opinion is yet to be prepared in respect of the damage allegedly caused by the defendants, the legal counsel of Yam Tethys estimates that at this stage, the chances of the claim cannot be assessed.

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NOTE 32 – CONTINGENT LIABILITIES, GUARANTEES AND COMMITMENTS (CONTD.)

7. Republic is a party to the claims submitted against it in the regular course of business. The management of Republic estimates that the outcome of the claims will not have a material negative effect on its financial position and operating results.

In 2006-2008, motions for certification of class action suits were filed against subsidiaries of Republic, following Hurricane Katarina that hit Louisiana in 2005. The plaintiffs contend that the subsidiaries are in breach of their insurance policies because they did not pay insurance claims as appropriate and did not comply with the law on various matters. Most of the claims were removed. In addition, a motion for certification of a class action was filed against Republic and other companies unrelated to Republic for the damage to property for defective construction (known as the Chinese Drywall claim).

The management of Republic is unable to accurately assess the results of the claims, however it estimates that the existing procedures will not have a material adverse effect on its operations and that any payment made to settle any of the claims is within the limits of the insurance cover.

8. A number of claims have been filed against the companies in the Group, deriving from the course of regular business. The Group’s management estimates that, based on the assessment of the management of the companies, the provisions that were made for these claims, beyond the existing insurance coverage, are sufficient.

B. Guarantees

At of December 31, 2010, the following guarantees are in place:

NIS millions

Guarantees for associates (1) (2) (3) (5) 225 Guarantees for others (4) (5) 80

305

(1) Including guarantees of NIS 59 million in favor of Delek Real Estate. See also Note 14(G)(1).

(2) Including guarantees of NIS 72 million in favor of IDE for construction and operation of desalination plants.

(3) Including guarantees of NIS 28 million provided by Delek Energy in favor of an associate. In respect of such guarantees, Delek Energy included a provision of NIS 28 million (after offsetting collateral) for this guarantee.

(4) Including guarantees of NIS 24 million, provided in respect of a hedging transaction on gas prices.

(5) The Company provided a guarantee of USD 18 million (NIS 56 million) in favor of Israel Electric Corporation Ltd. (“IEC”), according to the share of Delek Investments, Delek Drilling and Avner, guaranteed by IEC, according to its commitment pursuant to the natural gas supply agreement of 2002. The guarantee is valid until July 1, 2012. Of this amount, the share of Avner is NIS 24 million, which is included under guarantees of the associates. The other NIS 32 million is included under other guarantees.

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Notes to the Consolidated Financial Statements

(6) The Company is the guarantor for the liabilities of subsidiaries towards banks and third parties. The liabilities for the guarantees amounted to NIS 683 billion at December 31, 2010 (including NIS 230 million for wholly-owned companies).

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NOTE 32 – CONTINGENT LIABILITIES, GUARANTEES AND COMMITMENTS (CONTD.)

C. Agreements

1. At December 31, 2010, Delek Petroleum has the following agreements with third parties, for the rent and lease of stations, facilities and buildings:

NIS millions

First year 459 Second year through the fifth year 1,334 More than five years 1,578

3,371

In addition, Delek Petroleum and its subsidiaries have entered into agreements for the purchase of fuel products (delivery in January-December 2011) amounting to NIS 3.627 billion. A subsidiary in the United States has agreements with suppliers for purchasing fuels for defined periods that include commitments to purchase minimum amounts and a fine is incurred for non- compliance with these amounts.

2. See Note 16 for agreements in respect of investments in oil and gas exploration.

3. The Phoenix Insurance has agreements for the acquisition of investment property at December 31, 2010 amounting to NIS 152 million, of which NIS 105 million is for performance-based contracts (at December 31, 2009, NIS 135 million, of which NIS 90 million is for performance- based contracts).

4. The Phoenix Insurance, a subsidiary, has obligations for future investments in venture capital and investment funds amounting to NIS 775 million at December 31, 2010, of which NIS 705 million is for performance-based contracts (at December 31, 2009, NIS 1.074 billion, of which NIS 979 million is for performance-based contracts).

5. A subsidiary that is a member of the TASE clearing house (“the clearing house”) is responsible, together with the other clearing house members for any less caused due to non-payment of any amount that the clearing house member owes and has not paid, or securities that a clearing house member should have transferred and did not transfer. The responsibility of each clearing house member is at the rate of the financial turnover of that TASE member compared to the financial turnover of the operations of all clearing house members on the TASE in the twelve months preceding the month in which the event occurred. In 2002, the board of directors of the TASE resolved to establish a clearing house risk fund to secure the Company’s liabilities to the clearing house. The share of each fund member will be determined according to its proportionate share on the TASE based on the average daily clearing house turnover. Accordingly, Excellence deposited its share, amounting to NIS 26 million at December 31, 2010 (NIS 41 million at December 31, 2009) in the TASE risk account. Excellence holds this amount through marketable securities.

6. On June 1, 2005, United Mizrahi Bank Ltd. and The Phoenix Provident signed an agreement according to which the bank will provide Provident with management services member accounts in the provident fund for monthly management fees at a rate of 0.125% per year at a value of the total assets f NIS 0.5 billion. For the balance of the assets above NIS 0.5 billion, Provident will pay monthly management fees at a rate of 0.1% per year. On April 22, 2009, United Mizrahi Bank Ltd. and The Phoenix Provident signed an agreement according to which the bank will provide Provident with management services member accounts in the provident fund for monthly management fees at a rate of 0.1% per year at a value of the assets of the funds managed by The Phoenix Provident. The operating fees will be calculated on the basis of an assets report as of the end of the charging month for a period from January 2009. The agreement was assigned to The Phoenix Management in 2010.

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NOTE 32 – CONTINGENT LIABILITIES, GUARANTEES AND COMMITMENTS (CONTD.)

7. A subsidiary of Excellence signed a number of agreements to manage member accounts in provident funds with a number of banks. The agreements were signed for different periods and for different management fees at a rate of 1% of the total assets of the provident funds. The amount of management fees paid to the subsidiary in 2010 amounted to NIS 14 million.

8. The Phoenix Insurance Agency Ltd. (“The Phoenix Agency”), a subsidiary of The Phoenix, owns 70% of the capital and voting rights (directly and indirectly) in Agam Leaderim (Israel) Insurance Agency (2003) Ltd., which is a one of Israel’s largest leading agencies for life assurance and long-term savings products and financial products. According to the shareholders agreement of September 2005 between The Phoenix Agency and two individuals who are shareholders in The Phoenix Agency and who serve as CEOs in The Phoenix Agency (“the founders”), each founder was given a put option up to November 8, 2014 and The Phoenix Agency was given a call option to acquire from the founders the shares of The Phoenix Agency up to November 8, 2014, according to the provisions in the agreement. Transfer of the shares in The Phoenix Agency is subject to the right of first refusal to other parties to acquire the shares.

Leases

A. Leases for which the Company is a lessee in an operating leases

The Phoenix has lease agreements for vehicles. The leases are for an average of three years, without an option to extend the contract. Minimum lease fees that are payable for operating lease contracts that cannot be cancelled at December 31, 2010 are as follows:

Year ended December 31 2010 NIS millions

Up to 1 year 86 1-5 years 65

151

B. Leases in which the Company is the lessor The Phoenix leases a number of commercial buildings (investment property) to external institutions. The lease agreements are for variable periods that cannot be cancelled, with rental fees linked to the CPI. Renewal of the leases at the end of their term is subject to the consent of the Company and the lessors. Minimum lease fees that are payable for lease contracts that cannot be cancelled:

Year ended December 31 2010 NIS millions

Up to 1 year 52 1-5 years 128 More than five years 191

371

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NOTE 32 – CONTINGENT LIABILITIES, GUARANTEES AND COMMITMENTS (CONTD.)

D. Indemnification and insurance of officers

1. The Group has undertaken to indemnify all entitled officers of the Group for any action taken in virtue of their service as officers in the Group in the past, present and future. The Group has undertaken to indemnify all entitled officers of the Group for any action taken in virtue of their service as officers in the Group in the past, present and future.

2. The Group has decided to exempt officers of the Group from their liability under the duty of care toward the Group pursuant to chapter three, part six of the Companies Law, 1999.

3. The Company has insured the liability of officers for a total liability limit of USD 100 million.

NOTE 33 – LIENS

A. To secure loans from banks and other institutes, amounting to NIS 7.2 billion at December 31, 2010, collateral was provided as follows:

− The Company and its subsidiaries recorded fixed and floating liens on their non-current and current assets, including on inventories, specific deposits, the right to trade receivables, certain oil and gas assets, the right to receive overriding royalties, specific liens on certain shares of investees and participating units and mortgages on all the companies’ rights in properties in respect of which credit was granted.

− Subsidiaries have undertaken to meet certain conditions, including to refrain from recording a lien in favor of others without the prior agreement of the lending corporations

− See Note 23(C) for undertakings to meet financial covenants.

B. See Note 16 for liens in respect of investments in oil and gas assets.

NOTE 34 – CAPITAL

A. Composition: December 31, 2010 December 31, 2009 Issued and Issued and Registered paid up Registered paid up Number of shares

Ordinary shares of par value NIS 1 each 15,000,000 11,723,669 15,000,000 11,690,253

The shares are listed on the TASE.

B. In January 2009 the Company acquired 5,504 of its shares on the TASE for NIS 0.75 million. In addition, in July 2009, the Company acquired an additional 5,459 shares for NIS 2 million. Subsequent to the acquisition, the number of dormant shares amounted to 346,407 ordinary shares. In addition, Delek Investments acquired 22,462 Company shares for NIS 10 million.

At December 31, 2010, the Company holds 346,407 dormant shares and Delek Investments holds 22,462 Company shares.

C. In May 2009, NIS 1,120,169 par value debentures of the Group were converted into 3,890 Group shares.

C-196 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

D. In 2010, special purpose companies issuing ETFs acquired Group shares in a net amount of NIS 11 million. At December 31, 2010, SPCs own 69,555 ordinary shares of the Company.

C-197 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 34 – CAPITAL (CONTD.)

E. In April 2010, the Company issued 255,378,000 par value debentures (Series DD) exercisable into ordinary shares of NIS 1 par value each. See Note 26.

F. Unexercised option warrants at the balance sheet date:

Balance of option Exercise warrants at supplement December 31, December 31 Option warrants 2010 2010 Exercisable NIS

Series 6 260,000 *) Up to September 2013 Convertible options – Debentures (Series DD) **) 226,140 1,129.2911 Up to October 2012

486,140

*) The exercise addition is unlinked and subject to adjustments. Up to September 9, 2011, the exercise addition is NIS 795.5599 per share and from that date up to September 9, 2013, NIS 849.1931 per share. **) The exercise addition is unlinked and subject to adjustments.

G. In February-March 2010, 33,416 Series 5 option warrants were exercised into 33,416 ordinary shares of the Company for NIS 16.3 million. Following the exercise, the Company’s equity increased by NIS 29 million, reflecting the additional exercise and recognition of the value of the liability shortly before the exercise into capital. Subsequent to the exercise, the issued and paid up share capital amounted to 11,723,669 ordinary shares of the Company of NIS 1 par value each. The balance of Series 5 options expired in March 2010.

H. Dividends

1. March 24, 2010, the Group declared the distribution of a dividend to its shareholders totaling NIS 100 million (NIS 8.79 per share). The dividend was paid in April 2010.

2. On May 31, 2010, the Group declared the distribution of a dividend to its shareholders totaling NIS 150 million (NIS 13.18 per share). The dividend was paid in June 2010.

3. On July 26, 2010, the Group declared the distribution of a dividend to its shareholders totaling NIS 120 million (NIS 10.54 per share). The dividend was paid in August 2010.

4. On September 21, 2010, the Group declared the distribution of a dividend to its shareholders totaling NIS 90 million (NIS 7.9 per share). The dividend was paid in October 2010.

5. On November 30, 2010, the Group declared the distribution of a dividend to its shareholders totaling NIS 500 million (NIS 43.94 per share). The dividend was paid in December 2010.

6. Subsequent to the balance sheet date, on March 31, 2011, the Group declared the distribution of a dividend to its shareholders in the amount of NIS 200 million (approximately NIS 17.58 per share).

C-198 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 35 – MINIMUM CAPITAL REQUIRED OF AN INSURER

A. The information below regarding the required and existing capital of The Phoenix Insurance is in accordance with Control of Financial Services Regulations (Insurance) (Minimum Capital Required of an Insurer) 1998 (Amended) and 2004 (“the capital regulations”) and the directives of the Commissioner.

December 31 2010 2009 NIS millions Minimum capital

Amount required under the capital regulations and Commissioner’s directives (a) 2,293 2,171 Amount calculated according to the capital regulations immediately before publication of the amendment 1,516 1,430

777 741

Amount required at the balance sheet date under the capital regulations and Commissioner’s directives (b) 1,982 1,652

Actual amount calculated in accordance with the capital regulations Tier 1 capital 1,847 1,489 Hybrid tier 2 capital 397 - Subordinated tier 2 capital 710 788

Total actual amount calculated in accordance with the capital regulations 2,954 2,277

Excess 972 625

Apart from the general requirements in the Companies Law, distribution of a dividend from excess capital in insurance companies is also subject to liquidity requirements and compliance with the investment regulations. In this matter, the amount of the investment in investees, against which it is mandatory to place excess capital under the Commissioner’s guidelines, therefore constituting non-distributable excess 299 271

C-199 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 35 –- MINIMUM CAPITAL REQUIRED OF AN INSURER (CONTD.)

December 31 2010 2009 NIS millions

(A) The required amount includes capital requirements for: General insurance/initial capital 414 393 Long-term care insurance 42 43 Exceptional risks in life assurance 205 192 Deferred acquisition costs in life assurance and health insurance 700 659 Requirements for guaranteed yield plans - 2 Unrecognized assets as defined in the capital regulations 87 95 Investments in consolidated insurance companies and management companies 68 46 Investment and other assets 552 513 Catastrophe risks in general insurance 55 72 Operating risks 170 156

Total amount required under the amended capital regulations 2,293 2,171

(B) In September 2009, an amendment was published for the Control of Financial Services Regulations (Minimum Capital Required from an Insurer) (Amendment), 2009 (“the amendment”).

According to the amendment, by the publication date of the financial statements, an insurer is required to increase its equity for the difference between the capital required pursuant to the regulations, before and after the amendment (“the difference”). The difference will be calculated at each reporting date. The equity will be increased at the dates and rates set out below:

Up to the publication date of the annual financial statements as of December 31, 2009, at least 30% of the difference Up to the publication date of the financial statements as of December 31, 2010, at least 60% of the difference Up to December 31, 2011, the entire difference will be paid.

These rates will be increased by 15% at the publication dates of the six-month financial statements subsequent to the abovementioned dates of the financial statements.

B. In June 2008, the Commissioner published a circular relating to application of IFRS presentation guidelines and criteria for calculating the required and recognized capital of insurance companies, commencing from the financial statements of the second quarter of 2008. The objective of the circular is to set out guidelines for application of the capital regulations regarding investments in investees (including insurance companies and management companies controlled by insurance companies). According to the circular, the capital requirements in accordance with the capital regulations will continue to be based on separate financial statements. To calculate the recognized capital in accordance with the capital regulations, the investment by an insurance company in an insurance company or a controlled management company and in other investees shall be calculated on the on the basis of the rate of the holdings linked to them.

C-200 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 35 – MINIMUM CAPITAL REQUIRED OF AN INSURER (CONTD.)

C. The amendment includes, in addition to the existing capital requirements, capital requirements for the following categories:

1. Operational risks 2. Market and credit risks, as a percentage of the assets, based on the extent of the risk typical of the various assets. 3. Catastrophe risks in general insurance 4. Capital requirements for guarantees

In addition, capital requirements were expanded for the following categories:

1. Plans guaranteeing life assurance yields against which or against some of which there are no earmarked debentures. 2. Capital requirements for the insurer’s holding in management companies of provident funds and pension funds.

In addition, exemptions were granted for the following instances:

− Calculation of capital for information system development expenses, subject to the Commissioner’s approval

− Deduction of the reserve for tax created for unrecognized assets held contrary to the investment regulations or contrary to the Commissioner’s instructions

− It was determined that the Commissioner may allow, subject to terms that he defines, a reduction of the capital requirements of 35% of the original difference, for acquisition of provident fund operations or a provident fund management company, for an insurer whose equity deficit is due to a capital requirement in this amount only

In the amendment, the definition of basic capital was deleted, definitions of Tier 1 and Tier 2 capital were changed and a definition for Tier 3 capital was added. The definitions of Tier 2 and Tier 3 are subject to the conditions and rates determined by the Commissioner. Furthermore, and according to the Commissioner’s intention to implement Solvency II, the EU directive for regulating the solvency of insurers, in January 2011, a third draft circular was published for the composition of an insurer’s equity (“the third draft”).

The third draft prescribes provisions for the structure of an insurer’s recognized equity, and principles for recognizing capital components and classifying them into the different capital levels, as follows:

1. Tier 1 capital: including basic tier 1 capital (in the amount of the capital attributable to the equity holders of the parent) and hybrid tier 1 capital. Hybrid tier 1 capital includes loss-absorbing capital instruments for the insurer by deducting interest payments and deferring principal payments and their payment is deferred over all the insurer’s liabilities. The first repayment date of these instruments will be after repayment of the earlier of the latest insurance liabilities or 49 years, but not before ten years from the issuance date.

2. Tier 2 capital: including loss-absorbing financial instruments for the insurer by deferring principal and interest payments, and whose repayment is deferred over any other debt, except for tier 1 capital. The first repayment date of tier 2 capital instruments is after the end of the period representing a weighted average of the period for repayment of the insurance liabilities plus two years, or 20 years, whichever is earlier, but not before eight years from the issuance date.

C-201 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 35 – MINIMUM CAPITAL REQUIRED OF AN INSURER (CONTD.)

3. Tier 3 capital: including loss-absorbing capital instruments (“bail in”) for the insurer by deferring principal payments only, and whose repayment is deferred over any other debt, except for tier 1 capital. The first repayment date of tier 3 capital instruments is not before five years from the date of its issue.

In this respect, insurance liabilities include liabilities that are non-performance based, less the share of the reinsurers.

The overall rate of tier 1 capital will not be less than 60% of the total equity of the insurer. In addition, the overall rate of basic tier 1 capital will not be less than 80% of the tier 1 capital (according to the temporary order, until the Commissioner directs otherwise, this rate is 85%). The overall rate of tier 3 capital will not more than 15% of the total equity of the insurer.

The third draft includes a temporary order for the structure of an insurer’s equity from December 31, 2010 through to a date announced by the Commissioner according to which the provisions of the third draft gradually come into effect.

4. In January 2011, a draft amendment was published to the Control of Financial Services Regulations (Provident Funds) (Minimum Capital Required from a Management Company), 2009 (“the regulations”).

Pursuant to the regulations, it is recommended to expand the capital requirements for management companies. The new capital requirements will include capital requirements in accordance with the scope of the managed assets and the annual expenses, but no less than the initial equity of NIS 10 million. Additional capital will also be required for controlled managed companies and for the amount of the assets held contrary to the provisions of investment methods for required equity or contrary to the directives of the Commissioner. A managed company may distribute a dividend only if its equity is at least the amount of equity required according to these regulations. The drafts include transitional provisions for completion of capital until December 31, 2013. The Group believes that the capital requirements from the management companies will be increased, due to the provisions, by NIS 66 million. The agreement includes an increase in capital required from a company managed by Excellence amounting to NIS 48 million).

5. In accordance with the Commissioner’s circular of March 29, 2009, as from the 2008 financial statements and through to December 30, 2010, an insurance company and a management company require the Commissioner’s approval before distributing a dividend. According to the circular, in general, the amount of the dividend will not exceed 25% of the distributable profit. Further to the circular, in March 2010 a clarification was issued in respect of the criteria for approving distribution of a dividend by an insurer (“the clarification”).

Pursuant to the clarification, an insurance company may apply to the Commissioner for approval to distribute a dividend, as from the publication date of the periodic reports for 2009, subject to fulfillment of the equity requirements set out in the clarification and the submission of an annual profit forecast for 2010-2011, an updated debt service plan approved by the board of directors of the holdings company that owns the insurance company, an operative plan to raise capital approved by the board of directors of the insurance company and the minutes of the insurance company’s board of directors meeting in which distribution of the dividend was approved.

However, the clarification prescribed that a company whose equity, after distribution of the dividend, is more than 110% of the amount required in the clarification, may distribute a dividend without the Commissioner’s approval, provided the Commissioner was notified of such and the relevant documents were submitted to the Commissioner prior to the distribution.

C-202 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 35 –- MINIMUM CAPITAL REQUIRED OF AN INSURER (CONTD.)

6. On July 10, 2007, the EU adopted a proposed draft to the Solvency II Directive (“the proposed directive”). The proposed directive constitutes fundamental and comprehensive change of the regulations relating to ensuring solvency and capital adequacy of insurance companies in EU countries.

Pursuant to the circular published by the Commissioner, the intention is to implement the provisions of the proposed directive for insurance companies in Israel at the same date of application in EU companies. The proposed directive is based on three levels: quantitative, qualitative and disclosure requirements. The Company has started to prepare for application of the proposed directive within the timetable that was defined.

7. The Phoenix Insurance undertook to complement, at any time, the shareholders’ equity of The Phoenix Pension and Provdent Funds Ltd. (“The Phoenix Pension”) to the amount determined in the Income Tax Regulations (Regulations for Approval and Management of Provident Funds), 1964. The undertaking will be valid as long as The Phoenix Insurance controls the Phoenix Pension, directly or indirectly. On May 9, 2010 and November 11, 2010, The Phoenix Insurance invested NIS 4 million and NIS 10 million, respectively, in the capital of The Phoenix Pension.

8. On January 25, 2009, the Commissioner published a circular regarding relief for the capital required in respect of passive deviation. In accordance with the circular, The Phoenix Insurance applied for supervision and received approval that the asset held contrary to the investment regulations (an unrecognized asset) will not be considered as an unrecognized asset as defined in the capital regulations, provided the deviations from the restrictions and the conditions were created subsequent to October 1, 2008, and were due to the change in the market value of the investment assets, decrease in the total par value of a marketable security, decrease in the rating of the security or a reinsurer, change in the insurer's liabilities or equity or due to a deviation from the investment regulations for which specific approval was received, but in any case, not due to a new investment in an investment asset subject to the prior approval of the Commissioner.

On August 1, 2010 (“the effective date”), The Phoenix received a letter from the Commissioner requiring The Phoenix to amend the passive deviations as follows:

A) Deviation in negotiable debentures: within 50 business days from the effective date

B) Deviation in non-negotiable debentures traded on the TACT–Institutional system and its duration does not exceed three years and the non-negotiable debenture that is not traded on the TACT – Institutional system, up to the redemption date of the debentures and provided the deviation is brought to the attention of the investments committee

C) Deviation in non-negotiable debentures traded on the TACT–Institutional system and its duration exceeds three years – within six months from the effective date

On March 7, 2011, The Phoenix Insurance received an extension from the Commissioner of Insurance to amend part of the passive deviations.

9. In accordance with the US National Association of Commissioner of Insurances (NAIC), Republic requires minimum capital of USD 51 million. At December 31, 2010, the capital of Republic amounted to USD 254 million.

C-203 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 36 – COST OF REVENUES

Year ended December 31 2010 2009 2008 NIS millions

Purchase of oil, fuel and products 28,567 22,242 34,342 Salary and incidentals 169 160 146 Depreciation, depletion and amortization 374 275 335 Other production expenses and costs 774 444 443 Transportation 112 96 97 Increase in residual insurance liabilities and payments for insurance contracts 7,749 9,347 1,209 Cost of electricity supplied 110 101 85 Oil and gas exploration expenses 125 121 160 Other - 28 2

37,980 32,814 36,819

NOTE 37 – SELLING, MARKETING AND GAS STATION OPERATING EXPENSES

Year ended December 31 2010 2009 2008 NIS millions

Salary and incidentals 657 647 600 Maintenance of gas stations 740 734 672 Advertising and sales promotion 80 62 62 Depreciation and amortization 291 269 227 Commissions for agents 97 82 92 Commissions and acquisition costs in insurance companies 1,352 1,338 1,166 Other 285 253 298

3,502 3,385 3,117

NOTE 38 – GENERAL AND ADMINISTRATIVE EXPENSES

Year ended December 31 2010 2009 2008 NIS millions

Salary and incidentals 1,011 900 730 Depreciation and amortization 276 241 237 Office maintenance 130 136 90 Professional services 137 133 107 Other 218 213 197

1,772 1,623 1,361

C-204 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 39 – OTHER REVENUE (EXPENSES), NET

Year ended December 31 2010 2009 2008 NIS millions

Compensation from an insurance company 62 419 - Provision for impairment of assets (118) (125) (84) Profit from sale of property, plant and equipment, net - - 20 Expenses for structural change - (15) (81) Gain from negative goodwill - 15 - Other revenue (expenses), net (32) (25) 45

(88) 269 (100)

NOTE 40 – FINANCE INCOME

A.

Year ended December 31 2010 2009 2008 NIS millions

Net change in fair value of financial assets recognized at fair value through profit or loss 19 102 - Profit from disposal of available-for-sale securities 68 109 - Interest-bearing loans from banks 36 44 90 Dividends from available-for-sale securities 12 17 24 Derivative financial instruments 2 - 76 Finance income from associates 86 66 16 Profit from premature payment and exchange of debentures - 82 30 Other 48 88 94

271 508 330

B. Finance expenses

Finance expenses for credit from banks and others 1,294 1,299 1,220 Impairment of available-for-sale securities 217 3 235 Loss from sale of available-for-sale securites 26 Loss from marketable securities, net - - 79 Derivative financial instruments 6 48 16 Other finance expenses, net 112 82 80

1,655 1,432 1,630

C-205 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 41 – EXPENSES BY TYPE OF POLICY

Year ended December 31, 2010:

Policy with risk factor (including appendixes) According to policy date Risk-free policy Total Risk sold as single From 2004 policy Non- Up to Up to performan Performan 1990 2003 ce based ce-based Individual Collective NIS millions Gross premiums: Traditional/mixed 109 49 - 1 - - 159 Saving factor 64 924 - 1,226 - - 2,214 Other 24 238 - 91 236 102 691

Total (2) 197 1,211 - 1,318 236 102 3,064

Premiums for direct investment contracts for insurance reserves - - - 88 - - 88

Financial margin including management fees (3) 80 108 - 45 - - 233

Profit (loss) from life assurance operations 85 42 - (95) 35 (7) 60

Other comprehensive income from life assurance operations 29 4 - 2 2 1 38

Comprehensive profit (loss) from life assurance operations 114 46 - (93) 37 (6) 98

Profit from pension and annuity 4

Total profit from life assurance and long- term savings 102

Premium for insurance contracts – new business - - - 289 47 - 336 One-time premium for insurance contracts - 6 - 352 - - 358 Premium for insurance contracts – new business - - - 12 - - 12

1. The products issued until 1990 (including the growth in respect thereof) were designed mainly to guarantee yield, and they are hedged mainly by designated debentures. 2. The increase in existing policies is not included in the annualized premium for new business, but in the operational expenses of the original policy. 3. The financial margin does not include the Company's further income collected as a percentage of the premium and it is calculated according to deduction of expenses for investment management. The financial margin in policies with guaranteed yield is based on the actual investment income during the reporting period net of the product of the guaranteed yield rate during the year, multiplied by the average reserve for the year in the various insurance funds. In performance-based contracts, the financial margin is the total fixed and variable management fees calculated on the basis of the average yield and balance of the insurance reserves.

C-206 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 41 – EXPENSES BY TYPE OF POLICY (CONTD.)

Year ended 31 December, 2009:

Policy with risk factor (including appendixes) According to policy date Risk-free policy Total Risk sold as single From 2004 policy Non- Up to Up to performanc Performan 1990 2003 e based ce-based Individual Collective NIS millions Gross premiums: Traditional/mixed 116 56 - 1 - - 173 Saving factor 64 931 - 819 - - 1,814 Other 26 245 - 78 214 98 661

Total (2) 206 1,232 - 898 214 98 2,648

Premiums for direct investment contracts for insurance reserves - - - 81 - - 81

Financial margin including management fees (3) 42 82 - 29 - - 153

Profit (loss) from life assurance operations 64 87 - (83) 20 8 96

Other comprehensive income from life assurance operations 33 5 - 2 3 2 45

Comprehensive profit (loss) from life assurance operations 96 92 - (81) 23 10 140

Profit from pension and annuity 50

Total profit from life assurance and long-term savings 190

Premium for insurance contracts – new business - - - 238 33 - 271

One-time premium for insurance contracts - 8 - 89 - - 97

Premium for insurance contracts – new business - - - 4 - - 4

1. The products issued until 1990 (including the growth in respect thereof) were designed mainly to guarantee yield, and they are hedged mainly by designated debentures. 2. The increase in existing policies is not included in the annualized premium for new business, but in the operational expenses of the original policy. 3. The financial margin does not include the Company's further income collected as a percentage of the premium and it is calculated according to deduction of expenses for investment management. The financial margin in policies with guaranteed yield is based on the actual investment income during the reporting period net of the product of the guaranteed yield rate during the year, multiplied by the average reserve for the year in the various insurance funds. In performance-based contracts, the financial margin is the total fixed and variable management fees calculated on the basis of the average yield and balance of the insurance reserves.

C-207 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 41 – EXPENSES BY TYPE OF POLICY (CONTD.)

Year ended 31 December, 2008:

Policy with risk factor (including appendixes) According to policy date Risk-free policy Total Risk sold as single From 2004 policy Non- Up to Up to performan Performan 1990 2003 ce based ce-based Individual Collective NIS millions Gross premiums:

Traditional/mixed 122 63 - 1 - - 186 Saving factor 62 986 - 750 - - 1,798 Other 27 262 - 73 201 90 653

Total (2) 211 1,311 - 824 201 90 2,637

Premiums for direct investment contracts for insurance reserves - - 2 81 - - 83

Financial margin including management fees (3) (22) 62 1 26 - - 67

Profit (loss) from life assurance operations - (137) 1 (53) 31 10 (148)

Other comprehensive income from life assurance operations (33) (1) - - (1) - (35)

Comprehensive profit (loss) from life assurance operations (33) (138) 1 (54) 30 10 (184)

Profit from pension and annuity 4

Total profit from life assurance and long-term savings (180)

Premium for insurance contracts – new business - - - 284 32 - 316

One-time premium for insurance contracts - 16 - 58 - - 74

Premium for insurance contracts – new business - - - 5 - - 5

1. The products issued until 1990 (including the growth in respect thereof) were designed mainly to guarantee yield, and they are hedged mainly by designated debentures. 2. The increase in existing policies is not included in the annualized premium for new business, but in the operational expenses of the original policy. 3. The financial margin does not include the Company's further income collected as a percentage of the premium and it is calculated according to deduction of expenses for investment management. The financial margin in policies with guaranteed yield is based on the actual investment income during the reporting period net of the product of the guaranteed yield rate during the year, multiplied by the average reserve for the year in the various insurance funds. In performance-based contracts, the financial margin is the total fixed and variable management fees calculated on the basis of the average yield and balance of the insurance reserves.

C-208 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 42 – INCOME TAX

A. Tax laws that apply to the Group companies

1. The Income Tax Law (Inflationary Adjustments), 1985 (“the Law”)

According to the Law, until the end of 2007, for tax purposes, results of the Group companies in Israel are adjusted to changes in the CPI.

In February, 2008, the Knesset enacted an amendment to the Income Tax Law (Adjustments for Inflation), 1985, limiting the applicability of the Adjustments Law from 2008 onwards. As from 2008, the results for income tax purposes are measured at nominal values with the exception of certain adjustments for changes in the CPI until December 31, 2007. The adjustments referring to capital gain, such as for the sale of real estate and securities, continue to apply up to the date of the sale. The amendment to the Law includes cancellation of the additions and deductions for inflation and for devaluation as from 2008.

2. Foreign subsidiaries

Foreign subsidiaries are subject to the provisions of the law in the countries in which they operate.

B. Tax rates applicable to Group companies

1. Companies in Israel

The corporate tax rate in Israel is as follows: 2008 – 27%, 2009 – 26%, 2010 – 25%. Reduced tax rate of 25% applies to capital gains derived as from January 1, 2003, instead of the normal tax rate In July 2009, the Knesset passed the Economic Arrangements (Amendments for the Application of the Economic Plan for 2009 and 2010) Law, 2009. The law includes provisions for an additional gradual decrease of corporate tax, and tax on real capital gain in Israel commencing from 2011, at the following tax rates: 2011 – 24%; 2012 – 23%; 2013 – 22%; 2014 – 21%; 2015 – 20% and 2016 onwards – 18%.

The statutory tax applicable to the consolidated insurance companies in Israel comprises corporate tax, payroll tax and capital gains tax.

Moreover, according to the Value Added Tax Order (Tax Rate on NPOs and Financial Institutions) (Temporary Order), 2009 that the Knesset passed in June and December 2009 and December 2010, the rate of capital gains tax that applies to a financial institution is as follows: 16.5% from July 1, 2009 to December 31, 2009; 16% in 2010-2012; and 15.5% from January 1, 2013.

Following these changes, the total rate of tax that applies to financial institutions is as follows: 2009 – 36.2%; 2010 – 35.34%; 2011 – 34.48%; 2012 – 33.33%; 2013 – 32.47%; 2014 – 31.6%; 2015 – 30.74% and 2016 onwards – 29%.

2. Foreign subsidiaries

− The corporate tax rate applicable to subsidiaries in the USA (federal tax) is 35%. These companies are also subject to state taxes at an average rate of 4%.

− The corporate tax rate applicable in Europe applicable to the subsidiaries operating in Benelux countries and France is between 25.5% and 34%.

C-209 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 42 – INCOME TAX (CONTD.)

C. Tax assessments

The Company has tax assessments that are considered as final up to and including 2006. The majority of the subsidiaries have received tax assessments that are considered final up to and including 2006-2008.

D. Carry forward tax loss

As of December 31, 2010, the Company has carryforward losses for tax purposes of NIS 278 million. The Company does not recognize deferred tax assets to receive for these losses. In addition, the Company’s subsidiaries have losses for tax purposes amounting to NIS 2.030 billion at that date. For part of these losses, the subsidiaries recorded deferred tax assets of NIS 272 million in the financial statements.

E. Income due to change in the tax rates

As a result of the changes in the statutory tax rates in Israel, in 2009, the Group recognized deferred tax revenue of NIS 42 million.

F. Deferred taxes

Composition:

Balance Sheet Income statement Year ended December 31 December 31 2010 2009 2010 2009 2008 NIS millions

Property, plant and equipment ()696 ) ()606 ()37 (143 (38) Financial assets stated at fair value ()127 ) ()3 (7 (54) 159 Intangible assets ()245 ) (1690307 68 Other temporary differences ()431 ) (22)232 (50 8 Carry forward tax loss 474 418 7 40 67 Employee benefits 54 79(6 ) 8 (7)

Deferred tax income (expenses) (5 ) (109) 257

Deferred tax liabilities, net ()971 ) (651

The deferred taxes are presented in the balance sheet as follows:

December 31 2010 2009 NIS millions

Non-current assets 272 219

Non-current liabilities (1,243) (870)

(971) (651)

The deferred taxes are calculated according to the tax rates of 18%-25% based on the expected applicable tax rate at the time of exercise.

C-210 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 42 – INCOME TAX

Deferred taxes for items attributed to equity December 31 2010 2009 NIS millions

Gain (loss) for available-for-sale financial assets (144) 5 Other 17 (36)

(127) (31)

G. Income tax (tax benefit) in the statement of income

Year ended December 31 2010 2009 2008 NIS millions

Current taxes 170 (24) 19 Deferred taxes (also see F above) 5 109 (257) Taxes for prior years 3 (2) (8)

178 83 (246)

H. Adjustment of theoretic tax

Below is a presentation of the tax amount that would be applicable if all the income was taxable at the regular corporate tax rates in Israel and the tax amount charged to the statement of income for the reporting year:

Year ended December 31 2010 2009 2008 NIS millions

Profit (loss) before income tax (7) 835 (1,211)

Statutory tax rate 25% 26% 27%

Tax based on the statutory tax rate (2) 217 (327)

Increase (decrease) in tax liabilities for:

Utilization of losses carried forward from previous years (6) 2 (17) Losses carried forward for which no tax benefit was recorded 114 68 123 Effect of change in tax rate - (42) 12 Share of minority in earnings of subsidiary partnership (18) (15) (17) Company's share in profits of associates, net (12) (8) (15) Taxes for prior years 3 (2) (8) Adjustments for different tax rate in merged companies 47 31 (73) Exempt revenue, unrecognized expenses and other adjustments, net 52 (168) 76

Income tax (tax benefit) 178 83 (246)

I. The Company is registered for value added tax purposes as a joint licensed dealer (consolidation of dealers) together with some of its subsidiaries.

C-211 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 43 – NET EARNINGS (LOSS) PER SHARE

Quantity of shares and the earnings (loss) attributable to the majority shareholders used to calculate the net earnings (loss) per share from continuing operations:

Year ended December 31 2010 2009 2008

Weighted Net Weighted Net Weighted Net quantity earnings quantity earnings quantity earnings of shares (loss) of shares (loss) of shares (loss) NIS NIS NIS Thousands millions Thousands millions Thousands millions

For calculation of basic net earnings (loss) 11,289 (294) 11,235 620 11,597 (973)

Adjustment for the Company’s share in basic loss (earnings) per share of investees - 150 - (720) - 976 Company’s share in diluted earnings (loss) per share of investees - (139 ) - 713 - (1,024) Effect of potential ordinary shares, diluted - - 2 - - -

For calculation of diluted net earnings (loss) 11,289(283 ) 11,237 2,053 11,597 (1,021)

Quantity of shares and the earnings (loss) attributable to the majority shareholders used in the calculation of the net earnings (loss) from discontinued operations

Year ended December 31 2010 2009 2008

Weighted Net Weighted Net Weighted Net quantity of earnings quantity of earnings quantity of earnings shares (loss) shares (loss) shares (loss) NIS NIS NIS Thousands millions Thousands millions Thousands millions

For calculation of basic net earnings (loss) 11,289 1,995 11,235 244 11,597 (836)

Adjustment for the Company’s share in basic loss (earnings) per share of investees - (1,995) - (143) - 930 Company’s share in diluted earnings (loss) per share of investees - 1,995 - 129 - (969) Effect of potential ordinary shares, diluted - - 2 - - -

For calculation of diluted net earnings (loss) 11,289 1,995 11,237 230 11,597 (875)

C-212 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 44 – OPERATING SEGMENTS

A. General

Under IFRS 8, the Group’s operating segments are determined on the basis of management reports, which are mainly based on the investments in each subsidiary.

The operating segments are as follows:

− Fuel operations in Israel: The main operation is marketing and sale of fuels and commodities at gas stations and other outlets, and storage and production of fuels in facilities.

− Fuel operations in the US: The main operation is maintenance and operation of gas stations and convenience stores in the US, operation of a refinery and a crude oil pipeline, and marketing of fuels to various customers.

− Fuel operations in Europe: The main operation is marketing and sale of fuels and commodities at gas stations and other outlets in Europe (Benelux countries and France).

− Automotive: The main operation is importing and marketing of Mazda and Ford vehicles and spare parts. As from the fourth quarter of 2010, the Group presents the investment in Delek Automotive according to the equity method. For further details, see Note 914M. As from the date of loss of control in Delek Automotive, the Group presents is share in the operating profit of Delek Automotive under segment reporting.

− Insurance and finances in Israel: The main operation is carried out by The Phoenix.

− Insurance operations abroad: The main operation is carried out by Republic in the United States.

− Oil and gas exploration and production: The main operations are in the Yam Tethys oil and gas exploration and production joint venture, Tamar joint venture, Ratio Yam joint venture and Leviathan well.

− Other: The main operation is investment in infrastructure, including mainly desalination and establishment of power stations, trading in derivatives through Barak Capital and the biochemical operation that includes mainly production and marketing of fructose, citric acid and ingredients for nutritional additives.

In the past, the Group segments included the real estate segment. Following distribution of Delek Real Estate shares to Group shareholders as a dividend in kind (see Note 14(G) above), details of this segment were presented under discontinued operations and are not included in segment reporting.

The Company's business segments are carried out in several geographic regions worldwide. Israel, the domicile of the Company and of most of the investees, houses the vehicles and spares marketing operations, oil and gas explorations, insurance operations, part of the fuel products production and marketing. Operations in the fuel products segment, the oil refinery segment, the insurance segment and the oil and gas explorations and production segment are performed in the United States. Operations in gas stations and convenience stores operations are performed in Western Europe.

C-213 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 44 – OPERATING SEGMENTS (CONTD.)

B. Segment reporting

1. Revenues

Year ended December 31 2010 2009 2008 NIS millions

Revenues from external entities

Fuel operations in Israel 5,136 4,286 5,813 Fuel operations in the US 14,019 10,413 17,118 Fuel operations in Europe 13,130 10,681 14,660 Automotive **) 3,363 4,743 4,770 Oil and gas exploration and production 556 449 447 Insurance and finance in Israel, see Note 41 *) 9,717 10,699 1,201 Insurance operations abroad *) 1,364 1,668 1,490 Other segments 693 575 741 Adjustments **) (3,411) (4,811) (4,770)

Total in statement of income 44,567 38,703 41,470

*) Represents insurance premiums on retention in life assurance and general insurance

**) The adjustments for the automotive segment refer, among other things, to revenues of Delek Automotive, which were reclassified in the statement of income as a discontinued operation in 2008, 2009 and 2010 through to deconsolidation.

C-214 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 44 – OPERATING SEGMENTS (CONTD.)

2. Segment results and reconciliation to net profit (loss)

Year ended December 31 2010 2009 2008 NIS millions

Fuel operations in Israel 189 230 222 Fuel operations in the US 62 189 188 Fuel operations in Europe 190 97 129 Automotive *) 480 460 872 Oil and gas exploration and production 268 265 240 Insurance and finance in Israel 647 448 (350) Insurance operations abroad 65 77 (139) Other segments 115 286 126 Adjustments **) (791) (902) (1,215)

Operating profit 1,225 1,150 73

Finance expenses, net 1,384 924 1,300 Gain (loss) from disposal of investments in investees, net (4) 518 28 Group share in earnings (losses) of associates and partnerships, net 156 91 (12) Income tax (tax benefit) 178 83 (246) Gain (loss) from discontinued operations, net 2,139 451 (1,348)

Net profit (loss) 1,954 1,203 (2,313)

*) The results of Delek Automotive for 2008 and 2009 were reclassified and recognized under profit from discontinued operations. As from the fourth quarter of 2010, the Group presents the investment in Delek Automotive according to the equity method and accordingly, from this date, the Group includes its share in the results of Delek Automotive according to its proportionate share in the operating profit of Delek Automotive (up to deconsolidation, the entire amount of the operating profit of Delek Automotive was included).

**) Including expenses not attributed to segments and the Company's share in operating profit of associates as included in the segment results.

Year ended December 31 2010 2009 2008 NIS millions

Automotive 480 460 872 Company’s portion of operating profits of associates 240 271 239 Other 71 171 104

791 902 1,215

C-215 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 44 – OPERATING SEGMENTS (CONTD.)

3. Segment assets December 31 2010 2009 NIS millions

Corporate insurance operations abroad 5,334 5,819 Corporate insurance and finance in Israel 62,385 55,175 Fuel operations in Israel 4,560 4,361 Fuel operations in the US 4,052 4,591 Fuel operations in Europe 5,434 4,018 Automotive *) - 2,356 Oil and gas exploration and production 2,409 1,921 Other segments 1,204 1,710

85,378 79,951

Investments in associates

Fuel operations in Israel 58 46 Fuel operations in Europe 95 138 Automotive *) 1,316 - Oil and gas exploration and production 725 520 Other segments 480 403

2,674 1,107 Assets not attributed to segments 3,844 3,298

Total consolidated assets 91,896 84,356

*) At December 31, 2010, the investment in Delek Automotive is accounted for according to the equity method

4. Segment liabilities December 31 2010 2009 NIS millions

Corporate insurance operations abroad 3,726 4,004 Corporate insurance and finance in Israel 56,272 49,823 Fuel operations in Israel 832 833 Fuel operations in the US 1,087 1,029 Fuel operations in Europe 2,202 1,451 Automotive *) - 1,275 Oil and gas exploration and production 363 171 Other segments 142 311

64,624 58,897 Liabilities not attributed to segments 22,395 20,871

Total consolidated liabilities 87,019 79,768

*) At December 31, 2010, the investment in Delek Automotive is accounted for according to the equity method

C-216 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 44 – OPERATING SEGMENTS (CONTD.)

5. Cost of acquisition of assets, long term

Year ended December 31 2010 2009 2008 NIS millions

Corporate insurance operations abroad 5 8 18 Corporate insurance and finance in Israel 272 301 298 Fuel operations in Israel 258 244 85 Fuel operations in the US 213 557 369 Fuel operations in Europe 1,186 118 268 Automotive 4 3 6 Oil and gas exploration and production 307 384 132 Other segments 66 100 1,592

2,311 1,715 2,768

6. Depreciation and amortization

Corporate insurance operations abroad 57 24 27 Corporate insurance and finance in Israel 271 240 169 Fuel operations in Israel 83 67 77 Fuel operations in the US 231 229 150 Fuel operations in Europe 176 196 125 Automotive 8 10 12 Oil and gas exploration and production 204 128 67 Other segments 49 81 284

1,079 975 911

C. Geographic information

1. Income by geographic markets (by location of customers)

Year ended December 31 2010 2009 2008 NIS millions

Israel 18,873 20,072 12,379 USA 15,745 12,457 18,917 Europe 13,285 10,864 14,887 Other 60 54 57 Adjustments *) (3,396) (4,744) (4,770)

44,567 38,703 41,470

*) The adjustments refer, among other things, to revenue of Delek Automotive, classified in the statement of income as discontinued operations in 2008 and 2009 and 2010 through to the date of loss of control.

C-217 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 44 – OPERATING SEGMENTS (CONTD.)

2. Carrying amounts of segment assets and cost of acquisition of assets, long term, by geographic regions (by location of assets)

Cost of acquisition of assets, Segment assets long term Year ended December 31 December 31 2010 2009 2010 2009 2008 NIS millions

Israel*) 71,658 66,474 844 1,040 1,688 USA 11,305 12,136 215 557 812 Europe 5,529 4,166 51 118 268 Other - 2 - - - Not attributed 3,404 1,578 - - -

91,896 84,356 1,110 1,715 2,768

*) At December 31, 2010, the investment in Delek Automotive is accounted for according to the equity method

NOTE 45 – INTERESTED AND RELATED PARTIES

A. CEO of the Company

1. On December 31, 2010, the balance of the loans for the Company’s CEO amounts to NIS 15.5. The loans are linked to the CPI and bear annual interest of 4%. The loan funds are used acquire shares of Delek Group companies (a loan of NIS 3.9 million was used to acquire IDE shares). The acquired shares are used as collateral for the repayment of the loans, and any amount obtained from the sale of the shares will be used first and foremost to repay the loans.

For the balance of the loan of NIS 7.2 million at December 31, 2010, in January 2010 the Company’s board of directors approved (after approval of the audit committee) renewal of the loan instead of repayment that was due on January 29, 2010 (the original amount was NIS 4.4 million). The repayment date of the new loan is April 29, 2013, under the same terms as the original loan.

In respect of the outstanding loan of NIS 3.9 million at December 31, 2010, on November 30, 2010, the Company’s board of directors approved (after approval of the audit committee) the extension of the loan repayment date instead of repayment that was due on November 30, 2010 (the loan was provided in November 2007, for another three years up to November 29, 2013, under the same terms as the original loan. The loan is a non-recourse loan.

The benefit in the extension of these loans amounted to NIS 1.5 million, recognized in the statement of income in the reporting period.

In respect of the outstanding loan of NIS 0.7 million at December 31, 2010, on March 31, 2010, the Company’s board of directors approved (after approval of the audit committee) the extension of the loan repayment date instead of repayment that was due on March 31, 2011. The new repayment date of the loan is April 29, 2013, under the same terms as the original loan. The loan is a recourse loan.

At December 31, 2010, the outstanding loans amounted to NIS 3.7 million, repayable at the end of March 2011.

2. In prior years, the CEO of the Company was granted share options in an investee in which he serves as a director. The benefit recognized in the accounting year is included under section H below.

C-218 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 45 – INTERESTED AND RELATED PARTIES (CONTD.)

B. Chairman of the board of directors

1. The chairman of the Company’s board of directors was granted loans that were repayable in 2010-2011. Under the terms of the loan agreement, the loans are linked to the CPI and bear annual interest of 4%. The loans were used to acquire shares in public companies owned by Delek Group. In September 2010, the chairman of the Company’s board of directors repaid the full amount of the loan that it had received in the past. At the repayment date, the outstanding balance of the loan amounted to NIS 10 million

2. In prior years, the chairman of the board of directors was granted share options in investees in which he serves as a director. The benefit recognized in the accounting year is included under section G below. In view of the change in the position of the chairman of the board of directors of the Group from chairman of the board of Delek Energy to active deputy chairman of the board of DES, in March 2010, the general meeting of Delek Energy approved a number of changes to the options plan granted in the past for Delek Energy shares, such that the fifth lot of options (11,069 options) will be cancelled and the fourth lot will remain valid. The other terms will remain unchanged. In June 2010, the chairman of the Group’s board of directors exercised 11,069 share options (the first lot) for 11,069 Delek Energy shares at an exercise price of NIS 349.96 per option.

3. On October 3, 2010, the general meeting of the Company’s shareholders approved a bonus payment of NIS 0.5 million for the chairman of the Group’s board of directors, after approval by the Company’s board of directors.

C. Intra-group transactions

1. During the reporting period, Delek Israel entered into an agreement with Delek Real Estate and its investees to acquire shares and rights in gas stations and adjacent commercial areas, for a total of NIS 80 million.

Among others, as part of the aforesaid, during the second quarter of 2010, Delek Real Estate completed the acquisition of all the shares held by Delek Real Estate in Delek Retail Lots Ltd. (Delek Retail Lots), representing 50% of the issued share capital of Delek Retail Lots. In consideration for the shares, Delek Israel paid Delek Real Estate NIS 4.7 million. At the same time, Delek Retail Lots will repay a shareholders' loan of NIS 1.6 million.

Subsequent to the acquisition, Delek Israel owns 100% of the share capital of Delek Retail Lots. On completion of the acquisition and as from the acquisition date, Delek Israel consolidates the financial statements of Delek Retail Lots in its financial statements. Under IFRS 3R, the step acquisition in Delek Retail Lots is accounted for according to the notional approach. Therefore, acquisition of the balance of the shares in Delek Retail Lots was accounted for as the disposal of Delek Israel’s investment in Delek Retail Lots and re-acquisition of the full holdings in the share capital of Delek Retail Lots. Following the acquisition, in the second quarter of 2010, Delek Israel recorded a profit of NIS 4 million (less acquisition expenses) for the difference between the value of the investment in Delek Retail Lots in the financial statements of Delek Israel prior to the acquisition and the fair value of the investment in Delek Retail Lots at the date of acquisition of control. This profit was included in the statement of income under other revenues.

Had Delek Retail Lots been fully consolidated from the beginning of the year, the effect on the consolidated financial results of the Group would have amounted to insignificant amounts.

C-219 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 45 – INTERESTED AND RELATED PARTIES (CONTD.)

2. In February 2010, The Phoenix acquired shares of Industrial Buildings Corporation Ltd. for a total of NIS 20 million.

3. In respect of the loans provided by The Phoenix, in August 2010, the general meeting of the shareholders of The Phoenix approved the amendment to the loan agreement with Delek Real Estate, after the approval of the audit committee and the board of directors, including the right of first refusal for The Phoenix to acquire up to 20% of the shares of Vitania, deferral of the payment date of the balance of the unpaid loan from July 2010 to October 3, 2010 and increase of the annual interest rate to 10%. Pursuant to the amended loan terms as set out above, Delek Real Estate was due to repay NIS 50 million by October 2, 2010. Delek Real Estate requested The Phoenix to defer the final payment date to January 2, 2011. The audit committee and board of directors of The Phoenix approved the deferral.

In December 2010, Delek Real Estate completed a transaction for the sale of the entire holdings of Delek Real Estate Income Producing Properties Ltd. (a wholly-owned and -controlled subsidiary of Delek Real Estate) in Vitania shares. In this transaction, an amount of NIS 80 million of the consideration from the sale was used to repay Delek Real Estate’s debt to The Phoenix and The Phoenix Insurance (a wholly-owned company of The Phoenix) and to release the lien on Vitania shares. After repayment, the outstanding principal of The Phoenix’s loan to Delek Real Estate amounts to NIS 64 million. Delek Real Estate provided the following guarantees for these loans: 100% of the shares of its subsidiary, Dankner Investments, 30% of the shares of Delek Real Estate Producing Properties Ltd. (“Delek Properties) and a lien on the owners loans of Delek Properties and a lien for NIS 5 million on a lot.

4. During this period and up to July 2010, the Company and some subsidiaries rented offices from a company owned by the controlling shareholder. Rental costs of NIS 1.602 million were recognized in the period. In July 2010, the officers were sold to a third party.

5. Delek Israel has a number of agreements with Delek Real Estate to lease gas stations or to establish and lease gas stations. According to the agreements, the lease payments include fixed payments and variable payments based on fuel sales. The lease payments are linked to the dollar, CPI (80%) or market price differences between fuel buying and selling prices. Annual lease payment expenses amount to NIS 2 million.

D. In the reporting period, the Company entered into an agreement with Elad Sharon (Tshuva), the son of the controlling shareholder, who serves as the deputy chairman of the Group’s board of directors, in respect of the terms of his service, including director's remuneration and reimbursement of funds in an annual amount of NIS 335,000 (not including reimbursement of expenses). The expense recognized in the reporting period is included under section H below.

E. For details of the guarantees provided to related parties, see Note 32B. For details of loans and guarantees provided to Delek Real Estate, see Note 14G and Note 32B(1).

C-220 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 45 – INTERESTED AND RELATED PARTIES (CONTD.)

F. Balances with interested and related parties

December 31 2010 2009 NIS millions

Trade receivables 61 55 Other receivables 76 33 Long-term loans, deposits and receivables 14 26 Loans and capital notes to associates 939 950 Investments in insurance companies (short term and long term) 36 121 Trade payables 5 2 Other payables 19 3

G. Transactions with interested and related parties

Year ended December 31 2010 2009 2008 NIS millions

Sales 526 716 998 Purchases 104 47 52 Selling, general and administrative expenses 46 21 13 Finance expenses, net - - 1 Finance income, net 62 38 12

C-221 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 45 – INTERESTED AND RELATED PARTIES (CONTD.)

H. Benefits for key managers (including directors) employed in the Company

The directors and key manager in the Company are eligible, in addition to their salary, to non-monetary benefits, such as the use of a company car. In addition, the Company contributes to defined post-employment benefit plans.

Senior managers also participate in the options plan.

Benefits for key managers (including two directors) employed in the Company:

Year ended December 31 2010 2009 2008 Amount Amount Amount No. of NIS No. of NIS No. of NIS people millions people millions people millions

Short-term benefits (2) 7 11.6 5 6.9 5 9.9 Share-based payment (1) (2) (3) 6 12.3 5 6.6 4 7.1

23.9 13.5 17

(1) In 2010, including notional expenditure in 2010 for the benefit in the extension of non-recourse loans of NIS 1.5 million

(2) Including the expenses of a subsidiary for a director in the Group for management services and benefit for options amounting to NIS 1.2 million (in 2009, NIS 2.5 million; in 2008, NIS 4.7 million; these years included a benefit for options).

(3) Including expenditure recognized for a benefit deriving from the grant of options in investees

Benefits for key managers (including directors) who are not employed by the Company:

Year ended December 31 2010 2009 2008 Amount Amount Amount No. of NIS No. of NIS No. of NIS people millions people millions people millions

Benefits for an external director 5 1.3 5 1.4 5 0.6

C-222 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Notes to the Consolidated Financial Statements

NOTE 45 – INTERESTED AND RELATED PARTIES (CONTD.)

(4) Share-based payment

In June 2009, the Company’s board of directors approved a phantom options plan for senior managers and office holders. The options will be granted at no cost and will be exercisable into a cash grant equal to the difference between the increase in the market price of the Company’s shares at the exercise date and the exercise price. The exercise price was set at NIS 503.2 per share, unlinked and will be subject to certain adjustments as stipulated in the allocation agreement.

According to the plan, the options will vest in three equal annual lots. The first lot will vest one year after the approval date of the allotment (June 2009). The options will expire two years after the end of the vesting period. A total of 46,895 options were approved under the plan. According to an appraisal received by the Company, the financial value of the options at the allocation date is NIS 11.2 million.

Out of the total amount of the options, the audit committee and the board of directors resolved to allocate 20,000 phantom options (0.17% of the fully diluted capital did not relate to options for the acquisition of the Company’s shares), under the plan, to the CEO of the Company. According to an appraisal received by the Company, the financial value of the phantom options granted to the CEO under the plan as of the allocation date is NIS 4.78 million.

Calculation of the financial value was based on the binomial model for pricing the options and based on the following assumptions:

Share price (NIS) 500 Exercise price of each option (NIS) 503.2 Volatility (%) 52.1 Capitalization rate (%) 4.7 Expected life (years) 5

In September 2010, some of the employees exercised 2,833 options for NIS 2 million.

At December 31, 2010, the financial value of the balance of the options amounted to NIS 14 million and in 2010, an expense of NIS 10 million was recognized for the plan (in 2009, NIS 5 million).

I. In the ordinary course of business, the Group companies conduct transactions at market prices and at regular credit terms with corporations that are related parties, at insignificant amounts.

C-223 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Appendix to the Consolidated Financial Statements

PRINCIPAL PARTNERSHIPS AND INVESTEES

Rate of Rate of holding and holding of the control of the Group in final investee retention December 31, December 31, Holding company Company 2010 (1) 2010 Presentation %%

Delek Group Ltd. Delek Petroleum Ltd. 100 100 Consolidated Delek Investments and Properties Ltd. 100 100 Consolidated Delek Real Estate Ltd. 5 5 Associate

Delek Petroleum Ltd. Delek- The Israel Fuel Corporation Ltd. 77.2 77.2 Consolidated Delek Hungary Holding Ltd. 96.7 99.3 Consolidated Delek Europe Holdings Ltd. (2) 80 95.4 Consolidated Delek Motorways Services (Jersey) (3) 25 25 Associate

Held by Delek The Israel Fuel Corporation Ltd. Delek Oil Ltd. (formerly Delkol Ltd.) 100 77 Consolidated Bitum Petrochemical Industries Ltd. 60 46 Held for sale Delek Heating Ltd. 51 39 Consolidated Delek Transportation Ltd. (formerly Shall-Dal Fuel Consolidated Transportation Services Ltd. 100 77 Delek Retail Ltd. (formerly Shaarei Delek Consolidated Development and Management Registered Partnership 100 77 Delek Menta Roads Ltd. 100 77 Consolidated United Petroleum Export Co. Ltd. 75 58 Consolidated Tanker Services Ltd. 75 58 Consolidated Delek Direct Marketing 100 77 Consolidated Delek Retail Lots Ltd. 100 77 Consolidated Delek Europe Holdings Ltd. (4) 20 95.4 Consolidated Delek Pi Glilot – Limited Partnership 100 77 Consolidated Delek Hungary Holding Ltd. 3.3 99.3 Consolidated

Held by Delek Hungary Holdings Inc.

Delek US Holdings Inc. 72.4 71.9 Consolidated

Held by Delek US Holdings Inc.

MAPCO Express Inc. 100 71.9 Consolidated MAPCO Family Centers 100 71.9 Consolidated MAPCO Fleet Inc. 100 71.9 Consolidated Delek Refining Inc. 100 71.9 Consolidated Delek Marketing and Supply Inc. 100 71.9 Consolidated

Held by Delek Europe Holdings Ltd.

Delek Benelux BV 100 95.4 Consolidated Delek France BV 100 95.4 Consolidated

(1) Direct and indirect ownership and control (without the holdings of Excellence exchange traded funds) (2) Held by Delek – The Israel Fuel Corporation Ltd. (20%) (3) Held by Delek Real Estate Ltd. (75%) and Delek Petroleum (25%) (4) Held by Delek Petroleum Ltd. (80%)

C-224 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Delek Group Ltd.

Appendix to the Consolidated Financial Statements

PRINCIPAL PARTNERSHIPS AND INVESTEES

Rate of Rate of holding and holding of the control of the Group in final investee retention December 31 December 31, Holding company Company 2010 (1) 2010 Presentation %%

Delek Investments and Consolidated Properties Ltd. Delek Infrastructure Ltd. 100 100 Delek Ecology – Limited Partnership 100 100 Consolidated Delek Automotive Systems Ltd. 32.8 32.8 Associate Gadot Biochemical Industries Ltd. 63.9 63.9 Consolidated Delek Energy Systems Ltd. (“DES”) 78.9 78.9 Consolidated Delek Drilling Limited Partnership 7.8 57.3 Consolidated Yam Tethys Joint Venture 4.4 30.8 Associate Delek and Avner Yam Tethys Ltd. (SPC) 9.1 39.2 Associate Avner Oil Exploration - Limited Partnership 13.7 50.3 Associate The Phoenix Holdings Ltd. (2) 55.3 54.6 Consolidated Delek Finance US Inc. 100 99 Consolidated Delek Capital Ltd. 47.9 47.4 Associate

Held by The Phoenix Holdings Ltd. The Phoenix Insurance Company Ltd. 100 54.6 Consolidated The Phoenix Insurance Investments and Finance Consolidated Ltd. 100 54.6

Held by The Phoenix Insurance Company Ltd. Salit Investments and Holding Co. Ltd. 100 54.6 Consolidated Hadar Yarok Properties and Investments Ltd. 100 54.6 Consolidated

Held by Phoenix Investments and Finance Ltd. Atara Technology Ventures Ltd. 100 54.6 Consolidated Atara Partnership Management Ltd. 100 54.6 Consolidated Excellence Investments Ltd. 73.32 40 Consolidated Mehadrin Ltd. 41.42 22.6 Associate Ampal Protected Living (1994) Ltd. 100 54.6 Consolidated Ampal Protected Living (1998) Ltd. 100 54.6 Consolidated Ampal Protected Living (1966) Ltd. 100 54.6 Consolidated AD 120 100 54.6 Consolidated

Held by Delek US Holdings Inc. Republic Companies Inc. 99 98 Consolidated

Held by Delek Infrastructures Ltd. IDE Technologies Ltd. 49.8 49.8 Associate

Held by Delek Ecology – Limited Partnership I.P.P. Delek Ashkelon Ltd. 100 100 Consolidated

Held by Delek Automotive Systems Ltd. Delek Motors Ltd. 100 32.8 Consolidated Delek Motors Spare Parts (1987) Ltd. 100 32.8 Consolidated DMR Properties (1985) Ltd. 100 32.8 Consolidated DSR – Delek Automobile Agencies 1994 – Consolidated Registered Partnership 75 24.6

(1) Direct and indirect ownership and control (without the holdings of Excellence exchange traded funds)

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Appendix to the Consolidated Financial Statements

PRINCIPAL PARTNERSHIPS AND INVESTEES

Rate of Rate of holding and holding of the control of the Group in final investee retention

December 31 December 31, Holding company Company 2010 (1) 2010 Presentation %%

Held by Delek Automotive Systems Ltd. Delek Drilling Management (1993) Ltd. 100 78.9 Consolidated Delek Drilling Trusts Ltd 100 78.9 Consolidated Delek Energy Debentures Ltd. (under voluntary Consolidated liquidation) 100 78.9 Delek Drilling Limited Partnership 62.7 57.3 Consolidated Avner Oil and Gas Ltd. 50 39.5 Associate Avner Oil Exploration - Limited Partnership (1) 46.5 51.1 Associate Avner Trusts Ltd. 50 39.5 Associate Delek Energy International Ltd. 100 78.9 Consolidated Delek Energy System US Inc. 100 78.9 Consolidated Delek Energy System (Gibraltar) Ltd. 100 78.9 Consolidated Delek Energy System (Rockies) LLC 100 78.9 Consolidated Matra Petrolum Plc 29.3 23.1 Associate Viking Oil Gas International Ltd 25.1 20 Associate

Held by Delek Drilling Limited Partnership Jointly-controlled Yam Tethys Joint Venture 25.5 30.8 asset Jointly-controlled Delek and Avner Yam Tethys Ltd. (SPC) 48.7 39 asset Jointly-controlled Michal Matan Joint Venture 15.1 16.9 asset Leviathan (1) 22.7 24.6

Held by Avner Oil Exploration - Limited Partnership Jointly-controlled Yam Tethys Joint Venture 23 30.8 asset Jointly-controlled Delek and Avner Yam Tethys Ltd. (SPC) 43.7 39 asset Jointly-controlled Michal Matan Joint Venture 15.1 16.9 asset Leviathan (1) 22.7 24.6 Consolidated Consolidated Held by IDE Technologies Ltd. Consolidated VID Desalination Company Ltd. Israel 49.8 25 Associate OTID Desalination Partnership 49.8 25 Associate

(1) Direct and indirect ownership and control (without the holdings of Excellence exchange traded funds)

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DRAFT 5 - 31 MARCH 2010

DELEK GROUP LTD.

Financial Information from the Consolidated Financial Statements Attributed to the Company

as at 31 December 2010

WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 DELEK GROUP LTD.

Breakdown of Financial Information from the consolidated financial statements of the Company

at December 31 2010 2009 NIS millions Current assets Cash and cash equivalents 108 313 Short-term investments 500 479 Other receivables (mainly interest received from investees) 95 91

Total current assets 703 883

Non-current assets Long-term loans - 9 Investments in investees 4,717 3,422 Loans to investees 5,320 4,332

Total non-current assets 10,037 7,763

10,740 8,646 Current liabilities Current maturities of debentures 450 83 Dividend declared - 183 Creditors and credit balances (particularly interest to be paid) 153 102

Total current liabilities 603 368

Non-current liabilities Loans to an investee 256 236 Debentures 6,968 5,910 Debentures convertible into Company shares 247 - Option warrants - 9 Deferred taxes 13 13 Other liabilities 1 2

Total non-current liabilities 7,485 6,170

Equity attributable to the Company’s shareholders Share capital 13 13 Share premium 1,622 1,590 Warrants and receipts for conversion option 32 25 Retained earnings 1,610 869 Adjustments for translation of financial statements of (539) (166) Capital reserve from transactions with holders of non-controlling rights (126) Other capital reserves 164 (94) Treasury shares (124) (129)

Total capital 2,652 2,108

10,740 8,646

The additional information constitutes an inseparable part of the financial information and of the separate financial information. March 31, 2011 Date of approval of the financial Gabriel Last Asi Bartfeld Barak Mashraki statements Chairman of the Board CEO CFO of Directors

The additional information constitutes an inseparable part of the financial information and of the separate financial information.

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Breakdown of Financial Information from the consolidated statements of profit and loss attributed to the Company

Year ended December 31 2010 2009 2008 NIS millions

Company's share in earnings of investees, net 1,812 847 105 Administrative fees from investees 3 6 4 Administrative and general expenses 15 10 10 Other expenses 6 1 5

Operating profit 1,794 842 94

Net financing income with respect to loans to investees 390 375 312 Financing income (mainly for financial investments) 37 107 106 Financing expenses (mainly with respect to debentures) 520 477 428

Profit before income tax 1,701 847 84 Income tax (tax benefit) - - 8

Profit (loss) from continuing operations 1,701 847 76 Profit (loss) from discontinued operations - 17 (1,885)

Net profit (loss) attributed to Company shareholders 1,701 864 (1,809)

The additional information constitutes an inseparable part of the financial information and of the separate financial information.

- 3 - WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 DELEK GROUP LTD.

Breakdown of Financial Information from the consolidated statements of comprehensive income attributed to the Company

Year ended December 31 2010 2009 2008 NIS millions

Net profit (loss) attributed to Company shareholders 1,701 864 (1,809)

Other comprehensive income (loss) attributed to investees (after impact of tax) (115) 51 253

Other comprehensive income (loss) from continuing operations, net 1,586 915 (1,556)

Other comprehensive income (loss) from discontinued operations, net - 198 (1,262)

Total comprehensive income (loss) attributed to Company shareholders 1,586 1,113 (2,818)

The additional information constitutes an inseparable part of the financial information and of the separate financial information.

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Breakdown of Financial Information from the consolidated statements of cash flows attributed to the Company

Year ended December 31 2010 2009 2008 NIS millions

Cash flows from the Company's operating activities

Net profit (loss) attributed to the Company 1,701 864 (1,809) Adjustments to reconcile cash flows from operating activities (a) (1,672) (915) 1,765

Net cash from (used for) continuing operations 29 (51) (44)

Cash flows from the Company's investment activities

Investment in investees (6) (6) (237) Short-term investments (8) 29 (3) Acquisition of financial assets, net 10 - (1) Repayment (grant) of loans to investees, net (659) (614) 115

Net cash used for the Company's discontinued investing activities (663) (591) (126)

Cash flows from the Company's financing activities

Dividend paid to shareholders of the Company (1,143) (177) (324) Share options exercised 16 - 6 Issue of option warrants - 25 - Acquisition of treasury shares - (33) (105) Sale of treasury shares - 15 - Short term credit from banks and others, net - (269) 333 Receipt of long-term loans and proceeds of issue debentures and convertible debentures 1,640 1,483 - Repayment of loans of debentures and convertible debentures (84) (119) (61)

Net cash from (used for) the Company's financing operations 429 925 (151)

Increase (decrease) in cash and cash equivalents (205) 283 (321)

Balance of cash and cash equivalents at beginning of year 313 30 351

Balance of cash and cash equivalents at end of year 108 313 30

The additional information constitutes an inseparable part of the financial information and of the separate financial information.

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Breakdown of Financial Information from the consolidated statements of cash flows attributed to the Company

Year ended December 31 2010 2009 2008 NIS millions

(a) Adjustments to reconcile statement of cash flows from the Company's continuing operating activities:

Company income and expenses not involving cash flows:

Loss (profit) from discontinued operation, net - (17) 1,885 Deferred taxes, net - - 8 Increase in the value of loans provided, net (229) (156) (253) Company's share in profits of subsidiaries*) (1,512) (847) (105) Increase in value of non-current liabilities, net 136 186 114 Proceeds from early redemption and exchange of debentures - (38) - Change in fair value of short-term investments (13) (51) (11)

Changes in the Company's asset and liability items:

Decrease (increase) in other receivables (111) (29) 128 Increase (decrease) in other payables 57 37 (1)

1,672 (915) 1,765

*) Dividends received 300 - -

(b) Company's significant non-cash activities

Convertible debentures converted into shares - 1 - Dividend declared and unpaid - 183 - Per share, exercise of options for shares 13 - 3 Allotment of shares in subsidiary as dividend in kind - 171 - Replacement of Debenture - 658 - Re-issue of debentures - 24 -

(c) Additional information on cash flows

Cash paid by the Company during the year for:

Interest 374 241 220

Cash received by the Company later in the year for:

Interest 50 16 30

Dividend 300 - -

The additional information constitutes an inseparable part of the financial information and of the separate financial information.

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Additional information

NOTE 1: METHOD OF PREPARATION OF THE FINANCIAL INFORMATION FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR 2010, ATTRIBUTED TO THE COMPANY

A. Definitions

The Company - Delek Group Ltd.

The Group - The Company and its subsidiaries and partnerships

Consolidated companies, - subsidiaries, investees, As these terms are defined in the Company's consolidated financial controlling shareholders, statements for 2010 ("the Consolidated Statements"). interested parties and related parties

B. Manner of preparing financial information

The financial information from the consolidated financial statements attributed to the Company itself as the parent company ("the Financial Information"), was prepared in accordance with Regulation 9 C of the Securities Regulations (Periodic and Immediate Reports), 1970.

The accounting policy applied for presenting this financial information are set out in Note 2 to the consolidated statements.

1 Assets and liabilities included in the consolidated statements attributable to the Company

The amounts of assets and liabilities in the consolidated statements that are attributable to the Company itself as the parent company are presented with a description of the type of assets and liabilities. This information is classified in the same manner by which the consolidated statements of financial position are classified. Furthermore, these figures reflect the mutual balances between the Company and its subsidiaries which were canceled in the consolidated statements.

In this matter these figures were presented according to the provisions of IAS1 and adjusted, where relevant, as detailed in the statement of financial position.

2 Income and expenses included in the consolidated statements attributable to the Company

The amounts of income and expenses in the consolidated statements, with a breakdown of profit or loss, attributable to the Company itself as the parent company, are presented with a description of the type of income and expenditure. This information is classified in the same manner by which the consolidated statements of income are classified. In addition, these figures reflect the results of operations for mutual transactions that were canceled in the consolidated statements.

In this matter these figures were presented according to the provisions of IAS1 and adjusted, where relevant, as detailed in the statement of income.

3 Cash flows included in the consolidated statements attributable to the Company

The amounts for cash flows in the consolidated statements attributable to the Company itself as the parent company are taken from the consolidated statements of cash flows with breakdown of cash flows from ongoing operations, cash flows from investment activities and cash flows from financing activities with a description

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Additional information

of their composition. This information is classified in the same manner by which the consolidated statements of income are classified.

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Additional information

NOTE 2: FINANCIAL INSTRUMENTS:

Financial risk factors

The Company's operations expose it to various financial risks, such as market risk (including currency risk, CPI risk, interest risk), credit and liquidity risk. The Company's comprehensive risk management plan focuses on measures to minimize possible negative effects on the financial performance of the Company.

1 Liquidity risk

The table below presents the repayment dates of the Company’s financial liabilities in accordance with the contractual terms, in undiscounted amounts (including interest payments):

As of December 31, 2010

1-2 years 2-3 years Up to Two Up to 3 Over 5 Year years years 3-4 years 4-5 years Years Total NIS millions

Debentures (including current maturities) 881 1,259 1,000 970 1,063 5,262 10,435 Debentures convertible into Company shares 10 266 - - - - 276 Loans to an investee 15 15 286 - - - 316

906 1,540 1,286 970 1,063 5,262 11,027

December 31, 2009

1-2 years 2-3 years Up to Two Up to 3 Over 5 Year years years 3-4 years 4-5 years Years Total NIS millions

Debentures (including current maturities) 421 773 893 901 871 4,459 8,318 Dividend declared 183 - - - - - 183 Loans from investees 14 14 14 249 - - 291

618 787 907 1,150 871 4,459 8,792

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Additional information

NOTE 2: FINANCIAL INSTRUMENTS (CONT’D.)

Financial risk factors (contd.)

2 Index and foreign currency risks

Exposure to index and foreign currency assets and liabilities risks, including financial instruments

December 31, 2010 Non Linked to Linked to in fair financial Unlinked CPI the dollar value items Total NIS millions

Current assets

Cash and cash equivalents 105 - 3 - - 108 Short-term investments - - - 500 - 500 Other receivables (mainly interest received from investees) - 92 3 - - 95

Non-current assets

Investments in investees - - - - 4,717 4,717 Loans to investees - 5,164 156 - - 5,320

Total assets 105 5,256 162 500 4,717 10,740

Current liabilities

Creditors and credit balances (particularly interest to be paid) 27 101 - 6 19 153

Long-term liabilities

Loans from investees - 256 - - - 256 Debentures (including current maturities) 1,818 5,600 - - - 7,418 Convertible debentures 247 - - - - 247 Option warrants - - - 1 - 1 Deferred taxes Other liabilities - - - - 13 13

Total liabilities 2,092 5,957 - 7 32 8,088

Net exposure (1,987) (701) 162 493 4,685 2,652

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Additional information

NOTE 2: FINANCIAL INSTRUMENTS (CONTD.)

Financial risk factors (contd.)

2 Index and foreign currency risks (cont'd)

Exposure to index and foreign currency assets and liabilities risks, including financial instruments

December 31, 2009 Non Linked to Linked to in fair financial Unlinked CPI the dollar value items Total NIS millions

Current assets

Cash and cash equivalents 311 - 2 - - 313 Short-term investments - - - 479 - 479 Other receivables (mainly interest received from investees) - 85 6 - - 91

Non-current assets

Long-term loans, deposits and receivables - 9 - - - 9 Investments in investees - - - - 3,422 3,422 Loans to investees - 4,087 245 - - 4,332

Total assets 311 4,181 253 479 3,422 8,646

Current liabilities

Dividend declared 183 - - - - 183 Creditors and credit balances (particularly interest to be paid) - 102 - - - 102

Long-term liabilities

Loans from investees - 236 - - - 236 Debentures (including current maturities) 1,482 4,511 - - - 5,993 Option warrants - - - 9 - 9 Deferred taxes - - - - 13 13 Other liabilities - - - 2 - 2

Total liabilities 1,665 4,849 - 11 13 6,538

Net exposure (1,354) (668) 253 468 3,409 2,108

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Additional information

NOTE 2: FINANCIAL INSTRUMENTS (CONT’D.)

Financial risk factors (contd.)

3. For further information pertaining to debentures and convertible debentures issued by the Company see Note 26 and 27 to the consolidated financial statements.

NOTE 3: BEFORE INCOME TAX

A. Tax Laws that apply to the Company

The Income Tax Law (Inflationary Adjustments), 1985

Pursuant with the Law, until the end of 2007, the business results for tax purposes in Israel are measured when they are adjusted to the CPI fluctuations.

In February, 2008, the Knesset enacted an amendment to the Income Tax Law (Adjustments for Inflation), 1985, limiting the applicability of the Adjustments Law from 2008 onwards. Since 2008, the business results are measured for tax purposes in nominal values, with the exception of certain adjustments for changes in the consumer price index in the period until December 31, 2007. Adjustments referring to capital gains, such as for disposal of real estate (betterment) and securities, continue to apply until the date of disposal. The amendment to the Law includes, inter alia, cancellation of the additions and deductions for inflation and for devaluation as from 2008.

B. Tax rates that apply to the Company

The corporate tax rate in Israel is as follows: 2008 – 27%, 2009 – 26%, 2010 – 25%. Reduced tax rate of 25% applies to capital gains derived as from January 1, 2003, instead of the normal tax rate In July 2009, the Knesset passed the Economic Arrangements (Amendments for the Application of the Economic Plan for 2009 and 2010) Law, 2009. The law includes provisions for an additional gradual decrease of corporate tax, and tax on real capital gain in Israel commencing from 2011, at the following tax rates: 2011 – 24%; 2012 – 23%; 2013 – 22%; 2014 – 21%; 2015 – 20% and 2016 onwards – 18%.

The foregoing changes do not have material impact on the balance of deferred taxes.

C. Tax assessments

The company has tax assessments that are considered as final through to and including the 2006 fiscal year.

D. Losses carried over for tax purposes and other interim differences

The Company has losses for tax purposes that are carried over to the following years and which at December 31, 2010 amounted to NIS 278 million.

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Additional information

NOTE 4: SUBSTANTIAL AGREEMENTS AND TRANSACTIONS WITH INVESTEES

A. On December 30, 2010 the boards of directors of the Company and Delek Investments, a wholly owned subsidiary, approved the decision in principal to merge the Company with Delek Investments. Subsequent to balance sheet date, on March 1, 2011 the boards of directors of both companies approved the final merger decision.

Effectiveness, execution and completion of the merger agreement is contingent upon receipt of all the approvals as set forth in the merger agreement, including pre-ruling approval of the tax authorities, according to which the merger plan, pursuant to the provisions of section 103C of the Income Tax Ordinance as stated in the merger agreement, will be carried out without tax liabilities (deferred tax) in accordance with the provisions of Part E 2 of the Income Tax Ordinance. Upon completion of the merger of all the assets, rights, liabilities and obligations of Delek Investments, including future contingent charges, known and unknown, will be transfered to and incorporated into the Company. Upon completion of the merger, Delek Investments will be eliminated without liquidation and it will be struck from the Registrar of Companies register of companies.

B. Financial guarantees as at December 31, 2010

1 The Company is guarantor for part of the liabilities of the affiliate, Delek Real Estate and its subsidiaries at banks (guarantees which were provided when Delek Real Estate was a subsidiary of the Group). As at December 31, 2010, Delek Real Estate's liabilities and the liabilities of its subsidiaries which are secured by these guarantees amounted to NIS 58 million. 2 The Company provided guarantees in the total amount of NIS 36 million to the affiliate, A. D. I. with respect to projects for the establishment of sea water desalination plants. 3 The Company provided guarantees in the total amount of NIS 460 million for the acquisition of the France operations. 4 The Company provided guarantees in favor of the Israel Electric Corp Ltd., under an agreement to supply natural gas, in a total amount of USD 15.9 million for Delek Drilling - Limited Partnership (total of USD 7.7 million), Avner Oil and Gas Exploration - Limited Partnership (total of USD 6.9 million) and Delek Investments and Properties Ltd. (total of USD 1.3 million).

C. Loans extended to investees

The Company extended loans to subsidiaries, the balance of which (principal) as at December 31, 2010 amounted to NIS 159 million, linked to the USD and bearing annual interest of 8.25% and NIS 4,789 linked to the CPI and bearing annual interest of 6%. In addition, the loans extended to Delek Real Estate, which amount to (principal and interest) NIS 384 million at December 31, 2010, were linked to the CPI with annual interest of 10.7%. Subsequent to the balance sheet date, on January 10, 2011, the transaction for the acquisition of RoadChef shares by Delek Petroleum was completed. After completing the transaction, the total loans provided to Delek Real Estate amounts to NIS 226 million. In addition, on December 31, 2010 the Company set aside provisions for impairment of value in the amount of NIS 22 million. For further information see Note 14G(1) to the consolidated financial statements.

D. Agreements

1 Under the agreement dated June 4 2000 (as amended on July 31, 2007), the Company undertook to provide management and consultancy services to Delek Israel, requiring ongoing management of Delek Israel. This agreement states that, in return for providing the services, Delek Israel will pay the Company USD 25,000 per month. The agreement is in effect until July 31, 2012.

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Additional information

The total amount paid to the company for management fees for 2010, 2009 and 2008 amounted to NIS1,138,000, NIS 1,182,000 and NIS 1,077,000, respectively.

NOTE 4: SUBSTANTIAL AGREEMENTS AND TRANSACTIONS WITH INVESTEES (CONTD.)

D. Agreements (contd.)

2 Under an agreement dated January 1, 2006, the Company undertook to provide management and consultation services to Delek US. This agreement states that, in return for providing the services, Delek USA will pay the Company USD 125,000 per month. This agreement will be automatically renewed for an additional period of one quarter. The total amount paid to the Company for management fees for 2010, 2009 and 2008 amounted to NIS 1,874,000, NIS 1,966,000 and NIS 1,794,000, respectively.

3 Under an agreement dated June 04, 2000, the Company undertook to provide management and consultation services to Delek Real Estate, as may be required from time to time. This agreement states that, in return for providing the services, Delek Real Estate will pay the Company USD 15,000 per month. In June 2009, subsequent to distribution of Delek Real Estate shares as dividend in kind, the management agreement expired. The total amount paid to the Company for management fees for 2009 and 2008 amounts to NIS 538,000 and NIS 646,000, respectively.

For further information concerning investees see Note 14 to the financial statements

E. Contingent Liabilities

There are certain contingent claims against certain investees for significant sums that might reach several hundred million or even billion shekels. In some cases, it is not possible to assess their outcome at this stage, and therefore no provision was recorded in the financial statements as set forth in Note 32A to the consolidated interim financial statements as at December 31, 2010

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Additional Information on the Corporation WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Chapter D - Additional Information about the Company

Company name: Delek Group Ltd. Company number in the Registrar of Companies: 52-004432-2.

Date of Statement of Financial Position: December 31, 2010 (Standard 9)

Date of periodic report: March 31, 2011 (Standard 1 and 7)

Standard 8A: Description of the Company's Business and its Business Developments The description of the Company's businesses and its business developments is an inseparable part of the Periodic Report and is attached to the Periodic Report.

Standard 9: Financial Statements Audited financial statements as at December 31, 2010 with enclosed auditor's report are attached hereto.

Standard 9A: Pro-forma event in the reporting year through to the date of approval of financial statements None.

Standard 9B: Annual report pertaining to the board of directors and the management's assessment of the effectiveness of the internal audit Report is included in the Board of Director's report on the State of the Company's Affairs.

Standard 9C: Financial information from the Company's consolidated financial statements pertaining to the company itself. Financial Information from the consolidated financial statements of the Company are attached hereto.

Standard 10: Directors' Report on the State of the Company's Affairs The Directors’ Report on the State of the Company’s Affairs as on December 31, 2010 is attached hereto.

Standard 10A: Summary of the Company's consolidated statements of income for each of the quarters of 2010. Attached hereto (in the Directors’ Report) is a summary of the quarterly statements of income of the Company.

Standard 10C: Use of proceeds for the securities with special reference to the proceeds based on the prospectus The proceeds received by the Company for the issue of debentures and convertible debentures in April, June and in November 2010, under the shelf prospectus dated August 2009, are used by the Company to finance its business operations. During the foregoing period debentures and convertible debentures were raised in an amount of NIS 1,643 million (net of issue costs), which were used and will be used to repay the Company's loans and debenture payments and for its ongoing business operations.

D-1 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Standard 11: Company's investments in each of its subsidiaries and material related companies as at the date of the statements of income: Companies held directly by the Company

NIS price of Loan balances Total securities on (including investment at the TASE at interest No. of par date of date of receivable) in value/units statements of statements of statements of Security no. Type of held by the (%) Capital % in voting income (NIS financial financial position Company name: on the TASE security Par value Group held rights millions) position (NIS millions) Delek Investments and Ordinary - NIS 0.01 5,586,407 100 100 3,526 - 3,616 Properties Ltd. shares Ordinary Delek Petroleum Ltd. - NIS 0.01 1,100 100 100 1,311 - 1,411 shares Ordinary Ordinary Delek Real Estate Ltd. 1093293 shares without 15,030,746 4.98 4.98 (68) 1.36 361 (*) shares nominal value

* For information pertaining to the loans and guarantees granted to Delek Real Estate by the Company, and changes applicable to them subsequent to the reporting date, see note 14G to the financial statements.

D-2 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Subsidiaries and affiliates of Delek Investments and Properties Ltd.

Loan balances NIS price of (including Total securities on interest investment at the TASE at receivable) in date of date of statements of No. of par statements of statements of financial Security no. Type of value/units held by Capital held % in voting income (NIS financial position (NIS Company name: on the TASE security Par value the Group (%) rights millions) position millions) Delek Automotive Systems Ordinary 829010 NIS 1 29,942,280 32.80 32.80 1,316 51.8 - Ltd. shares Ordinary (52) Delek Energy Systems Ltd. 565010 NIS 1 3,959,006 78.92 78.92 1,413 313 shares Delek Drilling – Limited Participating 73 475020 - 42,566,489 7.78 7.78 14.2 - Partnership units Avner Oil Exploration - Participating 163 268011 - 457,175,953 13.71 13.71 2.49 - Limited Partnership units

D-3 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Subsidiaries and affiliates of Delek Investments and Properties Ltd. (cont.)

Loan balances NIS price of (including Total securities on interest investment at the TASE at receivable) in date of date of statements of No. of par statements of statements of financial Security no. Type of value/units held by Capital held % in voting income (NIS financial position (NIS Company name: on the TASE security Par value the Group (%) rights millions) position millions) Gadot Biochemical Industries Ordinary 1093004 NIS 0.1 9,711,627 63.88 63.88 119 8.17 - Ltd. shares Ordinary 767012 NIS 1 118,849,101 12.77 - shares The Phoenix Holdings Ltd. *) 55.34 54.56 1,964 Ordinary 767038 NIS 5 3,761,082 58.4 - shares Ordinary I.P.P. Delek Ashkelon Ltd. - NIS 1 1,001,000 100 100 5 - 75 shares Ordinary IDE Technologies Ltd. - NIS 1 638,009 49.8 49.8 331 -- shares Ordinary Delek Finance US Inc. (*) (**) - USD 0.01 100 99 99 223 - 635 shares Ordinary Delek Capital Ltd. (*) - NIS 0.01 499,000 47.85 47.85 83 - 66 shares

(*) Delek Capital Ltd. which held part of the Group's finance operations, is in voluntary liquidation since December 2010. As at December 31, 2010, shares of Phoenix, Delek Finance and Barak Capital, which were in the past held by it and are now held by Delek Investments. For further information see section 1.16.1 of the Part 4 of the description of the Company's businesses, in this report.

(**) Holds 99% of Republic shares

D-4 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Subsidiaries and affiliates of Delek Energy Systems Ltd.

NIS price of Total securities on Loan investment at the TASE at balances in date of date of statements of No. of par statements of statements of financial Security no. Type of value/units held by Capital held % in voting income (NIS financial position (NIS Company name: on the TASE security Par value the Group (%) rights millions) position millions) Delek Drilling – Limited Participating 475020 - 343,115,616 62.73 62.73 418 14.2 - Partnership (*) units Avner Oil Exploration - Participating 268011 - 1,551,103,260 46.40 46.40 665 2.49 - Limited Partnership units (*) Including holdings through wholly-owned subsidiary Subsidiaries and affiliates of Delek Petroleum Ltd.

NIS price of Total securities on Loan investment at the TASE at balances in date of date of statements of No. of par statements of statements of financial Security no. Type of value/units held by Capital held % in voting income (NIS financial position (NIS Company name: on the TASE security Par value the Group (%) rights millions) position millions) Ordinary Delek US Holdings Inc. (*) NYSE USD 0.01 39,736,432 73.04 73.04 1,086 25.84 156 shares Delek- The Israel Fuel Ordinary 6360044 NIS 1 8,761,774 77.20 77.20 810 134.7 106 Corporation Ltd. shares Ordinary Delek Benelux B.V. (**) - EUR 0.01 1,800,000 100 100 600 - 566 shares Ordinary RoadChef Ltd. (***) - GBP 0.10 82,250,000 25 25 (193) - 330 shares

(*) Most of the holdings are indirectly held through the subsidiary, Delek Hungry which is held by Delek Petroleum and Delek Israel Fuel Corporation at 97% and 3%, respectively. (**) Held by Delek Europe Holdings Ltd., which is held by Delek Petroleum Ltd. and Delek the Israel Fuel Corporation Ltd. at 80% and 20%, respectively. (***) As at December 31, 2010, held through Delek Petroleum and Delek Real Estate at 25% and 75%, respectively. Subsequent to the reporting date, held 100% by Delek Petroleum – with regard to the acquisition of the entire holding in RoadChef by Delek Petroleum see Note 14B to the financial statements.

D-5 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8

Standard 12: Material changes in investments in subsidiaries and affiliates in the reporting period:

Share no. Nature of the on the Cost (in NIS Date of change change Company name: TASE Class of share Total par value millions) Fuel marketing operations of BP October 1, 2010 Acquisition - Ordinary shares - Euro 209 million France SA 1 October 20, 2010 Sale Delek Automotive Systems Ltd. 829010 Ordinary shares 49,942,280 370 Conceptual October 10, 2010 Delek Automotive Systems Ltd. 829010 Ordinary shares 29,942,280 1,358 2 acquisition December 31, Voluntary 3 Delek Capital Ltd. - Ordinary shares 1,000 (537 ) 2010 liquidation June 2010 Sale Delek Energy Systems Ltd. 565010 Ordinary shares 31,696 33 January – October Acquisition Delek Drilling Limited Partnership 475020 Participating units 5,332,572 65 2010 January – October Avner Oil and Gas Limited Acquisition 26811 Participating units 20,879,876 38 2010 Partnership Delek Motorway Services Ltd. January 2011 Acquisition - Ordinary shares 25,000 497 (RoadChef) January – Avner Oil and Gas Limited Acquisition 268011 Participating units 17,480,015 43 February 2011 Partnership January – Acquisition Delek Drilling Limited Partnership 475020 Participating units 4,752,285 65 February 2011 January – Acquisition Delek Energy Systems Ltd. 565010 Ordinary shares 37,634 52 February 2011 January 2011 Acquisition Phoenix Holdings Ltd. 767012 Ordinary shares 528,438 7

1 Before impact of ETN. Also see footnote 2. 2 In October 2010, 20,000,000 shares of Delek Automotive were allotted, according to GAAP,IFRS 3R, when reducing control the transaction is treated as a sale of the entire holding on the one hand and as a conceptual acquisition of the remaining shares, on the other 3 Started voluntary liquidation.

D-6 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Standard 13: Comprehensive and net income of subsidiaries and affiliates and the Company's revenues therefrom as of the date of the financial statements for the year ended December 31, 2010 (NIS millions).

Annual comprehensive profit Net earnings (loss) for year (loss) Income received by the Company from: Equity Equity Attributable to attributed to Attributable to attributed to the Company's holders of the Company's holders of Management Company name: shareholders minority rights shareholders minority rights Dividends Interest fees Delek Automotive Systems Ltd. 428 - 428 - 245 - 1 Delek Energy Systems Ltd. (14) 70 (81) 55 - 27 - Delek Drilling – Limited Partnership 188 - 148 - - - - Gadot Biochemical Industries Ltd. (61) 3 (60) (3) - - - I.P.P. Delek Ashkelon Ltd. 11 - 11 - - 4 1 The Phoenix Holdings Ltd. 309 24 408 24 - - - Delek US Holdings Inc. (290) - (423) - 21 17 1 Delek- The Israel Fuel Corporation Ltd. 57 3 18 3 21 12 - Delek Europe B.V. 72 - (30) - - - - Republic Companies Group Inc. 61 1 (2) - 36 - 2 Avner Oil Exploration - Limited Partnership 193 - 153 - - - - IDE Technologies Ltd. 121 (2) 132 (2) 20 - 2 Delek Capital Ltd. 54 - 54 - - 1 - Delek Real Estate Ltd. (484) (195) (745) (236) - 29 -

D-7 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Standard 14: List of categories of loan balances granted as of the statement of financial affairs date, if granting the loans was one of the corporation’s main businesses Extending of loans is not one of the Company's main businesses

Standard 20: Trading the Company’s securities on the TASE, dates and reasons for interruption of trade Securities listed for trade: In Q1 of 2010, an additional 33,416 ordinary shares of NIS 1 par value each were listed as a result of the exercise of warrants (5 series) for purchase of the Company's shares. In April 2010, 255,378,000 par value convertible debentures (series DD) were listed for trading. During June 2010, 300,000,000 NIS par value debentures (Series N) and 500,00 NIS par value debentures (Series R) were listed for trading - both by way of existing series expansion. In November 2010, 559,910,000 par value debentures (series S) were listed for trading. Interruption of trade:

Security name Reason for interruption of Date of interruption and number trade Dec 19, 2010 through Dec Debentures Series Prior to final redemption 30, 2010 F (1091891) Nov 17, 2010 through Nov Debentures Series Prior to final redemption 30, 2010 I (1095074)

D-8 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Standard 21: Payments made to senior officers (NIS thousands)

21A(1):

Below is a breakdown of the benefits given in 2010 to each of the five recipients of the highest benefits among the senior officers at the Company or at a corporation under its control, and which were given to them in lieu of their tenure at the company or at a corporation under its control, as recognized in the financial statements (the figures hereunder represent the cost to the employer) in NIS thousands:

Benefits in lieu of services Recipient Share-based payment Other benefits Total

Total % of without holding of Share share Employm Company's Managem Bonus based based Name Position ent basis capital Salary ent fees payment Other Interest Other Total payments Chairman, Delek Yoram Turbovitz (1) 66% 0 - 925 - 24,535 62 - - 25,522 987 Energy Eyal Lapidot (2) CEO of Phoenix Full-time 0 2,150 - 1,294 10,665 - - - 14,109 3,444 CEO of Asi Bartfeld* (3) Full-time 0.04 1,689 - 2,000 7,603 - - - 11,292 3,689 The Company Uzi Yamin**(4) CEO Delek USA Full-time 0 1,661 - - 5,103 1,792 - - 8,556 3,453 Joint CEO at Yitzhak Oz (5) Full-time 0 - 2,247 4,634 - - - - 6,881 6,881 Agam Leaders

* Mr. Asi Bartfeld received bonuses in 2010 for 2009, and his bonus for 2010 has not yet been discussed.

** Translated according to the USD-NIS exchange rate at December 31, 2010: 3.549

D-9 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 21[A](2):

Below is a breakdown of the benefits paid to each of the Company's three senior officers who are not among those appearing in the foregoing table, in lieu of their tenure at the Company and at corporations under its control, as recognized in the financial statements in NIS thousands:

Recipient Benefits in lieu of services Other Benefits Total

% of Share- Total Employmen holding of Manage- based without Name Position Salary Bonus Other Interest Other t basis Company's ment fees payment Total share- based capital payment Chairman, Gabi Last (6) Board of Full-time 0.06 1,807 - 500 1,072 4 - - 3,383 2,311 Directors. Mashraki Barak CFO Full-time 0 982 - 600 1,326 - - - 2,908 1,582 (7)

D-10 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 21[A](3): The table below presents details of the remuneration paid to each of the Company's senior officers who are not represented in the foregoing table, with respect to their service in the Company and in its investees:

Recipient Benefits in lieu of services % of Directors Share-based Employment holding of Manage- Commissio Remunerati Total Name Position Salary Bonus Other payment basis Company's ment fees n on capital

Moshe Amit (8) Director Full-time 0 796 400 - - 132 - 1,328 -

Elad Sharon Director 60% 0 - - - - 235 158 - 393 (Teshuva) (9) Directors that are not ------682 - 682 external (10) External directors ------609 - 609 (101)

D-11 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Standard 21 – cont'd Notes on the figures represented in the tables: (1) Dr. Yoram Tarbovitz - Dr. Yoram Tarbovitz ("Dr. Tarbovitz") serves as Chairman of Delek Energy board of directors since February 1, 2010, under a service provision contract between Mr. Tarbovitz and D.N.C.H.T Ltd. (in this section: "the Management Company") and Delek Energy (in this section: "the Agreement"), which was approved by the general meeting of Delek Energy on March 3, 2010 (following approval by the audit committee and the board of directors of Delek Energy on January 17, 2010). Under the agreement, in return for providing services, the management company is entitled to monthly management fees in the amount of NIS 84,000, which includes the cost of Dr. Tarbovitz's employment by the management company, constituting the equivalent of 66% of the monthly salary of the CEO of Delek Energy (the salary component only without other benefits paid to the CEO such as annual bonus, options, loans, etc), as will be set from time to time, including fringe benefits and rights that the management company will pay for Dr. Tarbovitz and which would have been paid by Delek Energy if Dr. Tarbovitz was employed by it (such as pension insurance, severance compensation, expenses, annual leave, sick leave, convalescent pay, study fund, employee's share to National Insurance Institute, including health tax, etc) (" the Management Fees"). As at March 2011, the management fees amount to gross NIS 87,000 per month (it is clarified that updating of the management fees pro rata to the salary of the CEO is subject to the approval of the relevant Delek Israel institutions in accordance with any law, including the general meeting of Delek Energy's shareholders). The management fees will be updated according to changes in the CPI, once every three months. Furthermore, the management company is entitled to an annual bonus in an amount that will be fixed by the board of directors of Delek Energy and at its sole discretion. In addition, the management company is entitled to a level 7 company car (Delek Energy bears all the costs involved in the use of the car), a home telephone line and a mobile phone (Delek Energy bears all the costs involved in the use thereof), subscription to a daily newspaper, expenses involved in providing the services, per diem expenses as customary at Delek Energy (no ceiling was set for expenses), inclusion of Dr. Tarbovitz in the insurance policies for general indemnification, responsibility and related expenses deriving from fulfilling his duties at Delek Energy and in the policies customary at Delek Energy for indemnification of officers (as these may be from time to time and as permitted by law) and to an annual bonus, if determined, in an amount that will be decided by the board of directors of Delek Energy and at its sole discretion. The engagement period under this agreement is for four years as of February 1, 2010, where the parties will be entitled to terminate the engagement at any time with 4.5 months prior notice ("the Prior Notice"). If Delek Energy gives prior notice to terminate the engagement, Delek Energy may waive the Chairman services provided by the management company during the prior notice period, in whole or in part, and will be entitled to terminate the engagement immediately, provided that it will pay the management company the prior notice remuneration, the fee that would have been due to it for the prior notice period, during which it did not provide the services and provided that during the prior notice period Dr. Tarbovitz was willing to fulfill his duties and obligations towards the Company. Notwithstanding the foregoing, under circumstances which constitute the "reason", Delek Energy will be entitled to terminate the agreement immediately without having to pay the management company prior notice remuneration. Furthermore, the agreement includes provisions pertaining to copyrights, confidentiality and non-competition conditions. Phantom options: Under the agreement, Delek Energy allotted, gratis, to the management company a special phantom package of 2% of its issued and paid-up equity as at January 17, 2010, i.e. 100,108 phantom units, in four equal tranches, whereby the first and second tranches will be exercisable from January 31, 2012, the third tranche from January 31, 2013, and the fourth tranche from January 31, 2014. The first and second trances will be exercisable during the course of two years from vesting date of each one, the third tranche will be exercisable for one year from vesting date and the fourth tranche will be exercisable for 90 days from vesting date. The exercise price is NIS 1007 per phantom unit of the first tranche (Delek Energy share price at January 17, 2010), with the addition of five percent (5%) per tranche from the second tranche, which will be added to the previous tranche price. The exercise price is subject to adjustments for the distribution of cash dividends. The rights of the management company with regard to each of the four tranches will only be effective after completion of one full year of service with respect to that tranche ("the Tranche Year"). However, it is emphasized that the effective date for the first tranche, is subject to Dr. Tarbovitz serving a period of no less than two years as Chairman of the board of directors of Delek Energy. It is clarified that in the event of the termination of the engagement by Delek Energy without "reason" as defined in the agreement, the management company will be entitled to receive the remuneration due to it for the tranche that vested by the date of termination of the engagement, and this for a period of 90 days

D-12 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 following the termination of the engagement. Options that have not vested by the date of termination of the engagement will not be granted and will not be exercisable. The cash remuneration that the management company will be eligible to receive for each tranche will be calculated according to the difference between the average price of Delek Energy shares on the TASE during the last thirty (30) trading days prior to Delek Energy's notice of exercise and the exercise price as presented above. The proceeds due to the management company for the tranche will not be calculated as part of the management fees or as part of Dr. Tarbovitz's remuneration, for all intents and purposes (including for social benefits). It is hereby clarified, to remove any doubt, that in the event that the termination of engagement is caused due to special circumstances as aforesaid, then the right to receive the phantom payment will expired and the management company will not be eligible to any rights with regard to the phantom bonus. The financial value of the phantom options described above at January 1, 2010 (the date of approval of the agreement by the audit committee and board of directors of Delek Energy) amounted to NIS 39.6 million. On March 30, 2011 a general meeting of Delek Energy has been called. The agenda of the general meeting includes the termination of Mr. Tarbovitz's term as Chairman of the Company. If the general meeting approves all the options allotted to him will expire, with the exclusion of the first tranche which has already vested. The expected payment for the first tranche (if were paid today) would be NIS 9.1 million (at the average price per share of the Company over the 30 last trading days). It is noted that this amount will be updated according to the average price per share of the Company over the 30 days prior to the date actually exercised by Mr. Tarbovitz, in accordance with the terms of his employment agreement. (2) Mr. Eyal Lapidot - Employment terms of Mr. Eyal Lapidot, former CEO of Delek Israel and current CEO of Phoenix Under the agreement dated July 3, 2005 between Delek Israel and Mr. Eyal Lapidot ("Mr. Lapidot"), Mr. Lapidot was employed as CEO of Delek Israel from July 17, 2005 through May 31, 2009. Under the agreement, Delek Israel or Mr. Lapidot have the right to terminate the agreement at any time, with 4 months advance notice Prior Notice period). At the end of the advance notice period, Mr. Lapidot is entitled to an acclimation period of 6 consecutive months, during which he will not be required to perform any work for Delek Israel. During the acclimation period, Mr. Lapidot will receive his salary in full from Delek Israel, including all payments, provisions and rights to which he is entitled under the terms of the agreement. Mr. Lapidot’s monthly salary (gross) is NIS 75,000 (linked to the CPI – positive only). After one year of employment, in every year of employment and/or part thereof, Mr. Lapidot will be eligible for an annual bonus, in view of his efforts and achievements and the achievements of Delek Israel, provided this is no lower than the rates detailed in the agreement, which are calculated from Delek Israel’s net profit (not including capital gains or losses stemming from operations that began before the date of signing of the agreement and/or losses from the fuel operations in the US), with the bonus not exceeding NIS 4 million in any case. In addition, Mr. Lapidot is also entitled to managers’ insurance, study fund, a company car, telephone and cell phone expenses, vacation days, sick leave, recuperation leave, reimbursement of entertainment expenses as accepted at Delek Israel, and so on. On May 11, 2009, Delek Israel allotted to Mr. Lapidot, gratis, 486,589 options exercisable into up to 486,589 ordinary shares of Delek Israel. The said options were allocated to Mr. Lapidot in unequal parts on five acquisition dates, the last of which shall be on July 17, 2010. The said options shall be exercisable subject to their acquisition dates until December 31, 2010 or until the end of 90 days from the termination of the employer-employee relationship between Delek Israel and the CEO, the earlier of the two ("the Exercise Period"), and on condition that Mr. Lapidot is an employee of Delek Israel or regularly provides Delek Israel with services at the time of exercising the rights. The exercise price per ordinary share is USD 20.551 (based on the Company's value of USD 200 million. Mr. Lapidot was entitled to receive from Delek Israel a non-recourse loan (linked to the CPI and bearing annual interest of 4%) for financing the exercise, provided that on the date the loan is requested, Mr. Lapidot is still employed by Delek Israel or still regularly provides Delek Israel with services. The option allocation agreement prescribes terms pertaining to the repayment of the loan. The financial value of the said options as at the granted date, based on the options agreement, is approximately USD 8.6 million. On August 27, 2009 the board of directors of Delek Israel resolved to amend the option agreement with Mr. Lapidot so that an options exercise mechanism would be added, based on cashless exercise, similar to that for Delek Israel employees who were awarded options, as set forth in the 2007 options plan approved by the company's board of directors on November 5, 2007. On September 22, 2009, Mr. Lapidot exercised 437,930 options by means of the foregoing exercise mechanism for 253,782 shares, based on cashless exercise. Mr. Lapidot terminated his term as CEO of Delek Israel on May 31, 2009. Under the foregoing employment contract, the employer-employee relations between Delek

D-13 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Israel and Mr. Lapidot will end on July 31, 2010 at the end of the cumulative period of the advance notice period, the acclimation period and the actual utilization of the accrued vacation balances. Mr. Lapidot is entitled to exercise all the options allotted to him. Employment terms of Mr. Eyal Lapidot as CEO of Phoenix and Phoenix Insurance: On June 1, 2009 Mr. Lapidot began serving as CEO of Phoenix Holdings and of Phoenix Insurance. Under the terms of his employment, which was approved by the audit committee and board of directors of Phoenix on March 19, 2009 and August 30, 2009, respectively, Mr. Lapidot will be entitled to a monthly salary of NIS 120,000 (gross) ("the Total Salary"), which will be updated according to the rise in the CPI (in this section: "the Index"), every month (the base index is November 2008, which was published on December 15, 2008). The total salary, as updated from time to time, as aforesaid, is the effective salary agreed as the basis for provisions for social benefits, including study fund (as at March 2011, Mr. Lapidot's monthly salary amounted to NIS 128,000). Furthermore, Mr. Lapidot will be eligible for an annual bonus, in every year of employment and/or part thereof, which will be the higher amount between: a) an amount equivalent to 1% of the total net profits of Phoenix in the relevant year, less taxes, and less an amount equivalent to a yield of 15% of the equity of Phoenix at the beginning of the relative year, as reflected in the relative audited consolidated financial statements of Phoenix. In this matter, the net profit will be subject to adjustments for non-recurring items; b) an amount of NIS 1.2 million, linked to the CPI and the base index shall be the CPI for November 2008, which was published on December 15, 2008. Mr. Lapidot's right to an annual bonus, throughout the entire term of the employer-employee relationship between Mr. Lapidot and Phoenix, including if at the actual time of granting of the bonus, the employer-employee relationship between the parties no longer exists, for any reason whatsoever, other than under circumstances of immediate caution. Mr. Lapidot's right to receive an annual bonus will also apply to the prior notice period and acclimation period, as set forth above. In 2010, Mr. Lapidot received a bonus in the amount of NIS 1.3 million for 2010. In addition, Phoenix insures Mr. Lapidot under the officers insurance policy that Phoenix purchased and issued him with a letter of indemnification undertaking and exemption of liability customary for senior officers at Phoenix. Furthermore, Phoenix undertook to ensure to issue a run off policy for Mr. Lapidot until the end of the limitation period with respect to Mr. Lapidot's tenure as an officer at Phoenix if there will be a transfer of control at Phoenix. Furthermore, an acclimation period was set for a period of 6 consecutive months, which Mr. Lapidot will be entitled to upon termination of his employment at Phoenix, for any reason whatsoever with the exclusion of circumstances of immediate notice, from the end of the advance notice period and the actual utilization of any accrued vacation during which Mr. Lapidot will not be required to perform work for Phoenix. During the acclimation period, Mr. Lapidot will receive his salary in full from Phoenix, including all payments, provisions and rights to which he is entitled under the terms of his employment. The acclimation period shall be considered a cooling off period (during which he may not be employed by an insurance company or other insurance organizations and investment house, so long as such activities are essential activities of Phoenix), unless if Mr. Lapidot waives the payment for the acclimation period, when the cooling off period will be canceled Furthermore, Mr. Lapidot is entitled to receive directors / pension insurance and work disability insurance, in-service study fund, annual vacation days, convalescence pay, sick leave, company car, media and internet, health insurance and reimbursement of expenses, as generally accepted for managers of Mr. Lapidot's rank.. It is noted that Mr. Lapidot is entitled to endorse his rights to a company owned by him and wholly under his control, subject to prior consent of Phoenix. Allotment of options to purchase Phoenix shares - on August 30, 2009, Phoenix decided to allot to Mr. Lapidot, gratis, 6,177,879 options to purchase 2.5% of the issued equity of Phoenix (in this section: "the Options" and "the Allotment", respectively), instead of its undertaking to extend to Mr. Lapidot a line of credit in a total amount of NIS 19.3 million for the purchase of the Phoenix shares, at non-recourse terms. The main terms for allotment are: The exercise price for the options will be NIS 7.976 per share with the addition of annual adjusted interest at 3.75% that will be calculated from the first vesting date through the rest of the vesting dates of the options. The options will vest over a period of four years from the commencement of Mr. Lapidot's employment, (June 1, 2009) through June 1, 2013, and the options will expire on June 1, 2014 if not exercised by this date, subject to Mr. Lapidot's continued employment at Phoenix until aforesaid dates. The vesting dates as aforesaid will be accelerated in the event of any changes in the control of Phoenix or in the event of Mr. Lapidot's dismissal (other than in certain circumstances). Mr. Lapidot may exercise the options at his discretion by way of cashless exercise, or alternately, if the CEO chooses to exercise the options not through a cashless exercise, Mr. Lapidot will be entitled to receive a loan from Phoenix to pay the exercise price. Such loan will be linked to the CPI at the date of receipt of the loan and will bear interest at 4% per annum until

D-14 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 repayment date. Such loan will be non-recourse and will be assured only by way of first fixed lien on the shares deriving from the exercise of the options. The loan will be repaid in the occurrence of certain events and no later than June 1, 2015. In any event of distribution of bonus shares, merger or split of equity or distribution of dividend, the terms of the options will be adjusted accordingly. Furthermore, inthe event of a rights issue, Phoenix will offer Mr. Lapidot identical rights, under the same conditions, as though he exercised the options shortly prior to the effective date for the issue of rights, and Mr. Lapidot will be eligible to receive a loan that is not a non recourse loan, from Phoenix for exercising the said rights, under the terms of the loan set forth above. In addition, terms were set concerning the vesting of the options and their exercise in the event of the termination of Mr. Lapidot's employment at Phoenix. The financial value of the said options as at the granted date is approximately NIS 30 million. (3) Mr. Asaf Bartfeld – Mr. Asaf Bartfeld ("Mr. Bartfeld"), is employed as full time CEO of the Company under an employment contract dated July 21, 1996 and amendments. His monthly salary under the contract is updated from time to time and as at March 2011 amounts to NIS 93,000, gross. The salary is linked to the Consumer Price Index. Mr. Bartfeld is also entitled to a special bonus to be fixed by the Company's board of directors, a convalescent bonus, annual vacation days, in-service study fund, severance benefits and pay, a company car and payment for the expenses thereof and payment of the telephone expenses at the CEO’s home. The monthly salary and convalescent bonus constitute the basis for provisions for fringe benefits. The agreement is for an unlimited period or until age 65. The Company is permitted to terminate the agreement with 12 months prior notice, and Mr. Bartfeld is permitted to terminate it with four months prior notice. The Company may waive employment during the advance notice period and pay a salary for this period. Under special circumstances, the Company is entitled to terminate the employment agreement immediately. In addition to the foregoing severance compensation, in the event of dismissal, Mr. Bartfeld is entitled to a retirement bonus in the amount of the determining salary for provisions for fringe benefits, for each year of employment, and in the event of resignation, the CEO is entitled to a retirement bonus in an amount equivalent to half of the foregoing amount. In 2010, Mr. Bartfeld received a bonus in the amount of NIS 2,000,000 for 2009 (the bonus for 2010 has not yet been discussed and approved). Loans: On February 14, 2006 Delek Investments extended a loan in the amount of NIS 500,000 to Mr. Bartfeld, for the acquisition of securities of companies belonging to the Delek Group. The loan is recourse, linked to the CPI and bears interest at a rate of 4% per annum. The original repayment date was March 30, 2008 and was extended to March 30, 2011. On March 31, 2011, the Company's audit committee and board of directors approved an extension until April 29, 2013. Pursuant to the loan agreement the borrower is entitled to make early payment, in full or in part. The acquired securities were deposited as collateral against the repayment of the loan. The borrow is entitled to sell the collateral provided that the proceeds for the sale will be transferred to Delek Investments to repay the loan balance. The balance of this loan as at December 31, 2010, is NIS 718,000. In addition, in 2007 the Company granted Mr. Bartfeld a non recourse loan equivalent to the amount of USD 800,000 (which on date granted was approximately NIS 3,064,000), which was used by Mr. Bartfeld to acquire 0.2% of IDE shares as set forth below. This loan was granted for a period of three years at annual interest of 4%, linked to the CPI under and with the addition of VAT on the CPI linkage differentials and the interest. In November 2010, the Company's audit committee and board of directors approved the extension of the loan, which was meant to be repaid on November 29, 2010, until November 29, 2013, at the same terms as originally approved. The benefit in extending the loan amounts to NIS 572,000 and is recognized in the statement of income. It is noted that in addition to the foregoing loans, Mr. Bartfeld received loans from Delek Investments prior to 2006. A loan in the amount of NIS 4,400,000 was for acquiring securities of companies belonging to the Delek Group. Repayment dates of the loan which was meant to be January 29, 2010 was extended by the Company's board of directors on January 25, 2010 (after approval by the audit committee on January 24, 2010) until April 29, 2013 at the same terms as the original loan – the benefit in extending the loan amounted to NIS 897,000 and is recognized in the statement of income. Furthermore, the CEO was given a non recourse loan in the amount of NIS 2,338,666, which was used to acquire share in the subsidiary, Gadot Biochemical Industries Ltd., and is repayable on March 3, 2011. The amount of the loan as at December 31, 2010 was NIS 3,653,000 and the benefit value at that date was NIS 817,000 The total balance of all the loans set forth above, as at December 31, 2010 amounted to NIS 15,524,000.

D-15 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Allocation of securities: In December 2006, Mr. Bartfeld was granted the option to purchase 28,000 ordinary shares of Delek USA, in which he serves as a director, in return for an exercise price of USD 17.64 per share, and this further to the option plan that was approved at Delek USA at the time of its offering on the New York stock exchange in May 2006. At the end of each of the first four years after the allotment of the option, one quarter of the quantity of shares (7,000 shares) will be released and become exercisable, with the last exercise date being 10 years after the allocation of the option. Should Mr. Bartfeld’s tenure as an officer at Delek USA end, he will be entitled to exercise the portion of the option exercisable at that time, within a period of 180 days, and will not be entitled to exercise the balance of the option that has not yet vested. The economic value of the option that was allotted to Mr. Bartfeld amounted to approximately NIS 790,000, on allotment date. Delek USA included an expense in the amount of USD 44,000 (pretax) in its financial statements for 2010 with regard to the foregoing options, in accordance with their vesting terms.. The figures that appear in the table for 2010, in NIS, are calculated at the exchange rate on December 31, 2010 (NIS 3.549). As at reporting date, the options are out of money. In November 2007, Mr. Bartfeld exercised options and acquired 0.2% of the shares in IDE for an amount of USD 800,000 through a loan extended to him by the Company, as aforesaid. It should be noted that Mr. Bartfeld serves as a director at IDE. The value of the benefit as calculated in July 2007, based on an external assessment according to agreed accounting principles, amounted to USD 90,000 (also taking into account the possibility of future issue). Phantom options: In June 2009 the audit committee and the board of directors of the Company decided to award a total of 20,000 phantom options to Mr. Bartlet, under the phantom options plan for senior managers and officers. The Company included in its financial statements for 2010, a notional expenditure in the amount of NIS 5,977,000 (pretax) for the phantom options allotted to Mr. Bartfeld under the plan. For further information pertaining to the phantom options plan and the allocations made under it, see subsection (12) below. Holdings in Delek Capital: Mr. Bartfeld holds 1% of the issued and paid-up shared of Delek Capital, since its establishment in May 2006. Delek Capital is in liquidation since December 2010. On January 5, 2011, the Company's audit committee and baord of directors approved Delek Investment's engagement in an agreement with Mr. Bartfeld, who serves as CEO of Delek Investments, with regard to regulating his holdings in Delek Capital, due to the liquidation process by Delek Investments, without distribution of assets and liabilities. The agreement fixes a mechanism by which, when all the assets will be sold to third parties or upon termination of Mr. Bartfeld's tenure as CEO of the Company, the earlier date ("the Effective Date"), Delek Investments will pay to Mr. Bartfeld, in consideration for his holdings in Delek Capital shares, an amount equivalent to one hundredth (1/100) of the theoretic value of Delek Capital, on the effective date of its liquidation ("the Consideration"). The consideration will be calculated, in accordance with the agreement that will be signed, by an assessor whose identity will be agreed upon by the parties. If the calculation of the consideration on the effective date, as aforesaid, results in a negative amount, then Mr. Bartfeld will be entitled to any financial consideration for additional items concerning the engagement of Delek Investments in an agreement with Mr. Bartfeld. Pless see immediate report issued by the Company on January 6, 2011 (Ref. No. 2011-01-009015). (4) Mr. Uzi Yamin- Mr. Uzi Yamin has served as CEO of Delek USA since 2001. In September 2009, a new employment contract was signed between Delek USA and Mr. Yamin, according to which Mr. Yamin is entitled to a monthly salary of USD 39,000. Furthermore, Mr. Yamin shall be entitled to various benefits such as a company car, residence owned by Delek USA, education expenses and telephone. The board of directors of Delek USA may, at its sole discretion, decide to grant Mr. Yamin an annual bonus. The period of the contract is from May 1, 2009 through to October 31, 2013. Either party is entitled to terminate the contract with advance notice of twelve months or the balance of the contract term (the shorter of the two). Under the terms of the new employment contract, Mr. Yamin was awarded 1,850,040 stock appreciation rights (SAR), in accordance with Delek USA's benefit plan for 2006. The rights will vest in installments from March 31, 2010 through October 31, 2013, at various exercise prices. The rights will expire one year following the termination of Mr. Yamin's employment, or on October 31, 2014, the earlier of the two dates. The financial value of the rights is approximately USD 2 million. The rights are exercisable for ordinary shares or cash, at the sole discretion of Delek USA. Moreover, in September 2009, Delek USA board of directors approved the settlement pertaining to 1,319,493 options awarded to Mr. Yamin under his previous employment contract and which were not exercised by their expiry date and for which the exercise period could not be extended. Under the foregoing settlement, Mr. Yamin may receive in shares the difference TASE share price and the theoretic exercise price, as set out in the agreement. In February 2010, Mr. Yamin exercised his rights

D-16 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 under the foregoing settlement and Delek USA awarded him 638,909 shares in lieu of the expired options. (5) Mr. Yitzhak Oz - Mr. Yitzhak Oz serves as co-CEO at Agam Leaders (Israel) Insurance Agency (2003) Ltd. ("Agam"). In 2003, Phoenix Agencies (a subsidiary of Phoenix Insurance) acquired 25% of the share capital of Agam from Mr. Yitzhak Oz and Mr. Moshe Sasson. In 2005, Phoenix Agencies acquired from Mr. Yitzhak Ox and Mr. Moshe Sasson 60% of the share capital of Agam Leaders Holdings (2001) Ltd. ("Agam Holdings"), which holds 75% of the share capital of Agam. On June 29, 2003 Agam signed an agreement with A. Oz Life Insurance Agency (1998) Ltd., a private company wholly owned by Mr. Yitzhak Oz: ("Oz") for provision of services (in this section: "the Agreement"), according to which Mr. Yitzhak Oz will provide services to Agam in return for management fees in the amount of NIS 159,000 per month, with the addition of VAT, which will be linked to the CPI. The agreement stipulates that the board of directors of Agam Holdings will determine once a year whether to update the management fees and by how much. Furthermore, the agree states that Oz will be entitled to expenses, indemnification for civilian financial liabilities for actions and/or oversights which are carried out as part of his position as CEO, a BMW 728 company car, which will be replaced ever 3 years or after 100,000 km, with a new car of the same standard, a mobile phone and subscriptions to two daily newspapers. Agam undertook, under the agreement, to bear all costs involved in operating and maintaining the car and the mobile phone. The agreement stipulates that Oz will be entitled to a fixed annual bonus of 5.025% of Agam's pretax profits before deduction of provisions, management fees, bonuses or payments to the shareholders. On January 23, 2008 the board of directors of Agam Holdings approved updating the annual bonus that Oz is entitled to receive, so that for fixing the annual rate of the bonus (5.025%), the shared profit of Agam Holdings and Agam must be taken together. If the profit for purposes of the annual profit of Agam Holdings and Agam together will be higher than NIS 8 million, Oz will be entitled to an additional bonus of 8.375% of the marginal profit. The agreement, which was originally to be valid until June 30, 3010, and afterwards be renewed for an additional two years, unless one of the parties gives notice to terminate it with a minimum of 6 months prior notice, was extended in July 2005 for an additional 7 years (as of July 2005) while updating the management fees paid to Oz to an amount of NIS 159,400. The agreement includes additional cases due to which the agreement may be terminated, such as: in the event of a liquidation order and/or receivership order for most or all assets and/or appointment of a receiver for most all all their assets; if Mr. Yitzhak Oz is declared bankrupt or is convicted of a flagrant criminal offense; if Oz or Mr. Oz embezzled the Company's money or breach of trust; if Mr. Oz is proclaimed incompetent by a competent court order; and if Mr. Oz looses the ability to work for nine or more consecutive months. (6) Mr. Gabriel Last – Mr. Gabriel Last ("Mr. Last"), is employed full time as the Chairman of the Company's Board of Directors under an employment contract approved by the Company on August 30, 2001. Since September 4, 2003 Mr. Last has been employed as chairman of the Company’s board of directors, under the agreement, after his appointment was approved by the shareholders' meeting. Pursuant to the agreement, Mr. Last is eligible for a gross monthly salary of NIS 80,000, linked to the June 2001 CPI (NIS 100,000 as of March 2011) and an annual bonus determined by the board of directors. The effective salary for determining provisions for bonuses and compensation (“the Assured Salary”) is lower than the monthly and amounts to NIS 37,100 linked to the CPI for June 2001. Due to the decreased provision for benefits and compensation, according to the agreement Mr. Last is eligible for a special increment of 13.33% of the difference between the monthly salary and the guaranteed salary and a special increment of 2.5% of the monthly salary as will be from time to time. It was also determined that the bonus will not be included in the salary for the purpose of provisions to social conditions. Pursuant to the agreement, Mr. Last will not be eligible for managers' compensation for his position as director in the Company and/or in other companies in the Delek Group. Apart from the foregoing, Mr. Last is entitled to convalescent pay, annual vacation days, sick leave, provisions to an in-service study fund, reimbursement of job-related expenses, a mobile phone and costs incurred in connection therewith, reimbursement of expenses for a landline, and a company car provided by the Company, which will bear the maintenance and operating costs thereof. Under the contract, each party may terminate the agreement with three months' advance notice to the other party. The Company may waive employment during the advance notice period and pay a salary for this period. In the event of termination of employment by the Company, Mr. Last is entitled to an acclimation bonus in the amount of six monthly salaries. Under special circumstances, the Company is granted the option of terminating the agreement immediately, without giving an acclimation bonus. The employment contract sets out provisions pertaining to the avoidance of conflict of interest, maintaining

D-17 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 confidentiality, employee obligations towards the Company, etc. In 2010, Mr. Last received a bonus in the amount of NIS 500,000 for 2009 (the bonus for 2010 has not yet been discussed and approved). Loans: Mr. Last received in the past two loans from the Company in the amounts of NIS 4,400,000 and NIS 2,500,000 prior to 2006, for the purchase of securities of companies belonging to the Delek Group. These loans were recourse, linked to the CPI and carry interest at a rate of 4% per annum. The repayment dates for these loans were August 3, 2010 (loan principal as aforesaid, in the amount of NIS 4,400,000) and October 17, 2011 (loan principal as aforesaid, in the amount of NIS 2,500,000). In September 2010, Mr. Last repaid the full amount of the loan that he had received in the past. At the repayment date, the outstanding balance of the loan amounted to NIS 10 million.

Allocation of securities: In December 2006, the general meeting of the Company approved the allotment of an option to Mr. Last to purchase 28,000 ordinary shares of Delek USA, in which he serves as a director, in return for an exercise price of USD 16 per share. The options were granted in January 2007 further to the options plan approved at Delek USA at the time of its offering on the New York stock exchange in May 2006 At the end of each of the first four years after the allotment of the option, one quarter of the quantity of shares (7,000 shares) will be released and become exercisable, with the last exercise date being 10 years after the allocation of the option. Should Mr. Last's tenure as an officer at Delek USA end, he will be entitled to exercise the portion of the option exercisable at that time, within a period of 180 days, and will not be entitled to exercise the balance of the option that has not yet vested. The financial value of the option that was allotted to Mr. Last amounted to approximately NIS 650,000. Delek USA included an expense in the amount of USD 39,000 (pretax) in its financial statements for 2010 with regard to the foregoing options, in accordance with their vesting terms. The figures that appear in the table for 2010, in NIS, are calculated at the exchange rate on December 31, 2010 (NIS 3.549). As at reporting date, the options are out of money. In August 2007 the audit committee of the board of directors of Delek Energy decided to approve awarding of options to Mr. Last, who at that time served as chairman of Delek Energy's board of directors. The agreement was approved by the general meeting of the Delek Energy's shareholders in October 2007. Under the terms of the allotment made to Mr. Last, in October 2007, 55,345 options exercisable into ordinary shares of Delek Energy in five equal annual tranches were awarded to Mr. Last, gratis. The options are exercisable until the year 2012, with the possibility of shortening the vesting period of each tranche during the course of the relevant year if Delek Energy achieves the market value goals that were set in advance in the agreement. Should Mr. Last cease to serve as chairman of the board of directors of Delek Energy, all the options that were transferred to him and whose exercise date has not yet arrived, will expire immediately. The shares that were allotted in the framework of the exercise of the options constitutes approximately 1.2% of Delek Energy’s share capital before the allotment, assuming all the convertible securities of Delek Energy are exercised. The exercise price of the shares varies between NIS 349.96 to NIS 425.37 per share, according to the vesting periods set. In addition, to finance the exercise price, Mr. Last is entitled to receive from Delek Energy a non-recourse loan, linked to the CPI and bearing 4% interest per annum. The loan will be secured solely by a first degree lien on the exercise shares. The entitlement to exercise the options will be spread out, beginning on the entitlement date (July 1, 2007), and will be exercisable until the end of one year from the last vesting date. The economic value of the options at the approval date amounted to NIS 5.7 million. In view of Mr. Last's announcement of the termination of his service as chairman of Delek Energy's board of directors as of February 1, 2010, and his appointment as vice chair as of the same date, the general meeting of Delek Energy, subsequent to the approval of the audit committee and the board of directors of Delek Energy, approved on January 17, 2010, amendments to the terms of Mr. Last's options plan, as follows: (a) the fifth option tranche, which vesting date is not yet effective, will be canceled; (b) the fourth option tranche, which vests as of July 1, 2011, or when the Company's value reaches USD 600 million, shall be waived under the current terms and shall vest so long as Mr. Last is still serving as vice chairman of the Delek Energy's board of directors, but not prior to his third cumulative year as chairman of the board and as vice chairman of the board It is noted that Mr. Last's third cumulative year of service was July 1, 2010; (c) the termination of Mr. Last's service as chairman of the board of directors shall not be deemed cause for the exercise of the options for a period of 120 days following the termination of service; (d) other than the foregoing changes, no other changes are applicable to the allotment plan, including the exercise periods of the option tranches which will remain up to the end of 12 months from the last vesting date, as set in the options plan (i.e. 12 months from July 1, 2012), or in Mr. Last's rights to receive a non- recourse loan from Delek Energy to finance the additional exercise as described above. In view of the foregoing, the total number of options that will be awarded to Mr. Last is 44,276 options in place of 55,345 options as set in the original options plan. On June 27, 2010, Mr. Last exercised the first option tranche (for which he was allotted 11,069 Delek Energy shares) and as at December 31, 2010 Mr.

D-18 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Last's total remaining number of options is 33,207 options. Delek Energy included an expense in the amount of USD 935,000 (pretax) in its financial statements for 2010 with regard to the foregoing options, in accordance with their vesting terms. (7) Mr. Barak Mashraki – Mr. Barak Mashraki ("Mr. Mashraki") is employed as CFO under a personal employment contract with Delek Investments since July 16, 2006 (the "Employment Contract"). Under the employment contract Mr. Mashraki is entitled, as of March 2011, to monthly salary (gross) of NIS 57,000, which will be linked to the CPI (the salary will be update accordingly, every three months), and to a special bonus which will be fixed according the the decision of board of directors of Delek Investments and at its sole discretion and/or at the sole discretion of the CEO of Delek Investments (taking into account, inter alia, Mr. Mashraki's achievements). In 2010, Mr. Mashraki received a bonus in the amount of NIS 600,000 for 2009 (the bonus for 2010 has not yet been awarded). Furthermore, Mr. Mashraki is entitled to generally accepted social and fringe benefits, such as convalescent pay, annual leave, sick leave, provisions for pension savings and study fund, subscription to a daily newspaper, mobile phone and company car. The Company also carries car maintenance and operating costs and the costs of maintaining the mobile phone. The employment contract also includes Mr. Mashraki's undertaking to maintain confidentiality and non-competition during his employment at the Company and for the first year after termination of his employment at Delek Investments. The employment contract also contains an appendix that arranges his right5s to severance compensation, which consists of provisions set aside by Delek Investments into various provident funds (compensation, remuneration and loss of ability towork). It is noted that, as part of his position in the Company, Mr. Mashraki is entitled to insurance under the Company's officers insurance policy and to exemption and indemnification arrangements as customary in the Company. Phantom options: On July 5, 2009, the Company resolved to allocate phantom options to Mr. Mashraki, under the phantom options plan for senior managers and officers. During September 2010, Mr. Mashraki exercised 1,100 phantom options for consideration of NIS 637,000. For further information pertaining to the phantom options plan and the allocations made to Mr. Mashraki under it, see subsection (12) below. (8) Mr. Moshe Amit – In addition to serving as a director of the Company, Mr. Moshe Amit ("Mr. Amit") serves as chairman of the board of directors of Delek Israel, under an agreement between him and Delek Israel of August 4, 2004 (in this section: (“the agreement"). Under the agreement, Mr. Amit is entitled, throughout his employment period, to a monthly payment (gross) of NIS 36,000 (linked to the CPI of June 2004) ("the Remuneration Amount"), from which will be deducted the amounts paid by Delek Group and/or related companies ("the Group Companies") to Mr. Amit as joint remuneration and annual remuneration and/or any other remuneration fro his position in the Group Companies. In additio, Mr. Amit is entitled to receive from Delek Israel, a company car (Delek Israel provides Mr. Amit with a level 7 company car), payment of maintenance and operating costs of the car, mobile phone and expenses. Under the agreement Mr. Amit is not considered and shall not be considered as an employee of Delek Israel and the amount paid to Mr. Amit for his services as chairman of the board of directors at Delek Israel is set taking into consideration the fact that Delek Israel will not be obligated to pay and/or make a provision for Mr. Amit and/or for any payment for fringe benefits, vacation, sick leave, severance compensation, national insurance and any other payment of the kind that Delek Israel customarily pays and/or provides for its employees. Under the agreement, Mr. Amit undertook to pay all the taxes and/or other mandatory payments under any law for an independent contractor, including income tax, national insurance, health tax, etc. In addition, the employment contract includes provisions aimed at protecting the intellectual property of Delek Israel and a confidentiality clause. Mr. Amit undertook that during his service as a director for Delek Israel, he personally and the companies he controls and/or he has material impact on their administration, shall not compete in any way, directly or indirectly, with Delek Israel and its businesses. Furthermore, Mr. Amit undertook not to serve on the boards of directors and to to take any part in the management of companies which are or are related to companies competing in the business operations of Delek Israel, unless with prior written consent of Delek Israel. On August 27, 2006, Mr. Amit's employment contract with Delek Israel was amended so that the monthly payment he is entitled to receive, as of June 1, 2006 would be raised to NIS 60,000 per month (linked to the CPI for July 2006). As at March 2011, the monthly payment that Mr. Amit is entitled to is NIS 68,000. The remaining terms of the contract remain unchanged.

D-19 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 In practice, Delek Israel pays Mr. Amit the foregoing monthly payment and receives reimbursement from Delek Group for the amounts owing to Mr. Amit for his role as a director of Delek Group. The agreement will remain valid until terminated by one of the parties. The agreement may be terminated by Delek Israel with two months advance notice and Mr. Amit is entitled to terminate the agreement with one month advance notice. The agreement determines that upon termination, Mr. Amit shall resign, at the request of Delek Israel, his tenure as a member of the board of directors and any other position that he may hold as part of fulfilling his position under the agreement. In addition to the payments under the contract, Delek Israel pays Mr. Amit bonuses, which in 2010 amounted to (for 2009) NIS 400,000. On December 26, 2007, Delek Israel allotted 109,483 options ("the Options") to Mr. Amit under its 2007 options plan for employees, officers and consultants of Delek Israel, which was adopted on November 5, 2007 (the “Option Plan”). Under the option plan, Delek Israel may grant, gratis, to the employees, officers, consultants and service providers of Delek Israel and/or related companies, options that are not listed for trading on the stock exchange, which are exercisable into ordinary NIS 1 par value shares of Delek Israel. The options allotted to Mr. Amit vested in two tranches, as follows: (a) 54,742 options on June 1, 2008 (a) 54,741 options on June 1, 2009 ("the Vesting Dates") Each option that vests at each vesting date will be exercisable subject to payment of an exercise price that changes at each vesting date, so that the exercise price for the first tranche is NIS 139.95 and the exercise price upon the next vesting date will be equivalent to the exercise price of the first tranche with the addition of annually adjusted interest of 4%. Said options are exercisable for shares until May 31, 2013 or earlier in the event of termination of employment as set forth in the plan. The exercise right is subject to adjustments as set forth in th option plan, and includes mainly adjustments for the distribution of bonus shares, issue of rights and distribution of cash dividends, adjustments for sale of the Company's assets to a third party or merger, voluntary liquidation or winding up of the company, and adjustment for changes in the company's equity structure. Mr. Amit will be eligible to receive a loan for the purpose of exercising the options, at annual interest of 4% and linked (principal and interest) to the known CPI on the date on which said loan is granted. The loan will be a non-recourse loan that will be secured solely by a fixed senior lien on the underlying shares. The financial value, on allotment date, of the options allotted to Mr. Amit amounted to NIS 4.8 million. (9) Mr. Elad Sharon (Teshuva): Mr. Elad Sharon (Teshuva), the son of the Company’s controlling shareholder, serves as active vice Chairman of the Board of Directors of the Company. The scope of his position is 60%. For information of the terms of his service see Standard 22 below. (10) Terms of service of directors who are not external directors The remuneration to which Mr. Moshe Amit is entitled, is paid by Delek Israel (and reimbursed by the Company) and is a set sum pursuant to the remuneration standards, i.e. participation remuneration, and amounts to NIS 2,860 and annual remuneration of NIS 76,800. Total remuneration paid to Mr. Amit (through Delek Israel) in 2010 amounts to NIS 152,000. For details pertaining to the terms of Mr. Amit's service see section (8) above. Ms. Mazal Bronstein is entitled to a fixed maximum about as set in the remunerations standard, i.e. to participation remuneration of NIS 3,660 and annual renumeration of NIS 95,100. Total remuneration paid to Ms. Bronstein in 2010 amounts to NIS 220,000. Mr. Avi Harel, who has accounting expertise, is entitled to participation remuneration in the amount of NIS 4,880 and annual remuneration of NIS 126,900. The total remuneration paid to Mr. Harel in 2010 amounts to NIS 310,000 (excluding remuneration for his service as a director of Phoenix). It is noted that Mr. Harel served as chairman of Delek Europe Holdings Ltd. from January 1, 2009 through to August 10, 2009. The foregoing remuneration does not include remuneration for 2009 which was paid to Mr. Harel in 2010, for his service as chairman of the board of directors of Delek Europe Holdings Ltd. (11) Terms for service of external directors On May 29, 2008 the Company's board of directors resolved that, pursuant to the provisions of the Companies Regulations (Regulations for Compensation and Expenses of an External Director) 2000. each external director serving in the Company will be entitled to maximum annual remuneration of NIS 126,900 and maximum participation remuneration of NIS 4,880. The remuneration paid to the

D-20 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 directors is updated according to the CPI and updates in the Regulations. The cost of the two external directors in the Company in 2010 amounted to NIS 609,000. (12) Phantom Options Plan In June 2009 the Company's audit committee and board of directors decided to adopt a phantom options plan for senior employees and officers, under which phantom options were, inter alia, awarded to the Company's CEO and other officers. Under the terms of the plan, the options were awarded gratis and may be exercised for a monetary bonus and not securities of the Company. The options will vest in three equal annual tranches and the first tranche will vest one year after the date of approval of the allocation by the Company's board of directors (June 2010) or the date on which it is approved by the CEO of the Company, accordingly, as set forth in the plan. The exercise price of the phantom options is the share price on June 2, 2009, which was NIS 503.20 per share. The exercise price is not linked. The phantom options are subject to adjustment as set forth in the plan, in cases such as technical changes in the Company's equity, mergers and acquisitions, distribution of dividend and issuance of rights. The options will expire at the end of two years following the end of the vesting period for the last tranche that will be awarded to a participant at that time, so long as they have not expired prior thereto. The total number of phantom options approved under the plan is 46,895 options of which, as at the reporting date, 34,400 phantom options have been allocated. In September 2010, some of the employees exercised 2,833 options for NIS 2 million. At December 31, 2010, the financial value of the balance of the options amounted to NIS 14 million and in 2010, an expense of NIS 10 million was recognized for the plan. For further information pertaining to the phantom options plan and the allocation thereunder to the CEO, legal counsel (VP) and CFO of the Company see immediate reports of the Company dated June 11, 2009 (Ref. No. 2009-01-139182) and dated July 5, 2009 (Ref. No. 2009-01-161811). (13) Exemption, indemnification and insurance of officers

The Company's undertaking to indemnify all the eligible officers for any action taken by virtue of their service as officers in the Company past, present and future and to grant them an exemption regarding their liability as a result of a breach of their fiduciary duty towards the Company, will also apply to Mr. Elad Sharon (Teshuva), who serves as a a director in the Company and is the son of the controlling shareholder. Pursuant to the letter of indemnification, as the Company's articles of association include a provision allowing it to undertake in advance to indemnify an officer, provided the undertaking is restricted to the types of events that the board of directors anticipate in view of the Company’s actual actions at the time of undertaking to indemnify, in an amount or scope determined by the board of directors to be reasonable under the circumstances, all on account of any liability or expenditure that shall be authorized at that time according to the law at the time the resolution is adopted, the company also undertakes to indemnify the officer for reasonable litigation expenses, including attorneys' fees, such that may be incurred as a result of an investigation or proceedings that shall take place against the officer by any authority certified to launch an investigation or proceeding and that has ended without filing charges against the officer and without a fine being imposed in lieu of criminal proceedings or that has ended without an indictment being filed against the officer, while imposing a fine in lieu of criminal proceedings in a felony that does not warrant the proof of criminal intent. The Company engages in an officers insurance policy every year. On May 3, 2010, the Company's general meeting approved, subsequent to the approval of the audit committee and the board of directors on March 24, 2010 and October 29, 2010, the Company's engagement with Phoenix Insurance Company, a company controlled by the Company (through its wholly owned subsidiary), in a collective insurance policy to insure officers and directors liability, for the Company and for its subsidiary, and in related companies for the officers who serve in them on behalf of the Company and/or on behalf of its subsidiaries, and to insure the liabilities of the controlling shareholders and their relatives, and this as part of their roles, from time to time as officers in the Company. This policy has liability limit of USD 75 million (seventy five) and in total per year, at annual premium of USD 300,500,000, of which the Company's share amounts to USD 56,259,000 per annum. The insurance premium was distributed among the other subsidiaries included in the policy according to the recommendation of an Insurance specialist. The Company may increase the limit of liability in the policy to a total of USD 100 million (one hundred million) for additional annual premium in the amount of USD 55,625. In such event, the Company's share in the premium will increase pro rata. In addition, the general meeting of the Company approved on said date that the Company may extend and/or renew the insurance policy or alternatively, if necessary, as part of the collective insurance policy that includes the subsidiaries and related companies, all or some of them, from time to time, without requiring additional approval of the general meeting, with Phoenix Insurance Co. Ltd., or another

D-21 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 insurer, in Israel or abroad, so that it will include all the officers in the Company and or in its subsidiaries and related companies, including directors and/or officers who are controlling shareholders in the Company or their relatives, at a premium and under terms as will be generally accepted at the date of the extension, renewal or replacement of the insurance policy, as long as certain terms will exist. For further information pertaining to the engagement in said policy, its terms and conditions for extending, renewing or replacing the police, see the immediate report issued by the Company on March 24, 2010 (Ref. No. 2010-01-31340), and the information contained therein is noted here by way of reference. Letters of undertaking to indemnify and insure the directors who serve at Phoenix, also apply to Mr. Elad Sharon (Teshuva) who is the son of the controlling shareholder in the Company, and who serves as a director, pursuant to the approval of the general meeting of Phoenix of December 17, 2008, which was given in accordance with section 275 of the Companies Law. The wording of the letter of undertaking to indemnify and insure, which was given to Mr. Elad Sharon (Teshuva), is identical to that given in the past to the other directors of Phoenix and includes Phoenix's undertaking to indemnify the directors in advance for financial liabilities or expenses that they may incur due to actions (including oversights) taken by them to that may be taken by them by virtue of their being officers. The insurance and indemnification will not be applicable for breach fiduciary duty, provided the officer acted in good faith and had reasonable grounds to assume that the act would not harm the Company. In addition, letters of undertaking to indemnify and insure the directors who serve at Republic will also apply to Mr. Elad Sharon (Teshuva), who serves as a director.

Standard 21 (B): Description of the payments that were given to the officers after the reporting year and before the date on which the report was submitted, in connection with their tenure or their employment during the reporting year. There have been no changes the remuneration of the senior officers as specified above, also for the period subsequent to the reporting year and prior to the date of issue of the report, unless explicitly noted otherwise.

Standard 21A: Control of the Company: The controlling shareholder of the Company is Mr. Yitzhak Sharon (Teshuva), who holds 64.33% of the equity and 64.45% of the voting rights in the Company and 61.75% of the equity fully diluted and 61.86% of the voting rights in the Company, fully diluted.

Standard 22: Transactions with the controlling shareholder The controlling shareholder who has a personal interest in all the engagements set forth under Standard 22 below is Mr. Yitzhak Sharon (Teshuva). Mr. Yitzhak Sharon" (Teshuva) interest arises from the fact that these engagements are with companies under his control, or with his relatives or with companies under their control.

Transactions as provided under section 270(4) of the Companies Law:

1. Agreement between Delek Investments and Roni Elroi:

On December 30, 2004, Delek Investments entered into an agreement with Mr. Roni Elroi (the son- in-law of Mr. Yitzhak Teshuva, the controlling shareholder in the Company) and a company controlled by him (“Elroi”) stipulating the terms of tenure and employment of Elroi as deputy chairman of the board of directors of Delek Investments. The services provided by Elroi includes, mainly, participation in Delek Investments' board of directors and as consultant to the officers of the subsidiary, Delek Investments, primarily with respect to business developments and investments abroad. The period of the agreement is from January 1, 2005 for an unlimited period, as long as the agreement has not been brought to an end. Delek Investments is permitted to terminate the agreement with two months advance notice, and Elroi is permitted to terminate it with one month advance notice. The agreement determines that upon termination, Elroi shall resign, at the request of Delek Investments, his service as a member of the board of directors and any other position that he may hold as part of fulfilling his position under the agreement. In lieu of his services, Mr. Elroi is entitled to an amount of NIS 56,000 per month with the addition of VAT, linked to the CPI of December 2004(an amount of NIS 65,000 as at December 31, 2010). In addition, Mr. Elroi is

D-22 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 entitled to reimbursement of expenses and all costs of a car (the car will be purchased by Mr. Elroi and will be his property). Furthermore, Elroi shall be eligible to receive options if Delek Investments or its subsidiary issue securities publically, and this subject to approval of the audit committee, board of directors and general meeting of Delek Investments and/or its subsidiary, respectively, and subject to the provisions of any law. The agreement stipulates that Elroi shall not be deemed an employee of Delek Investments and that it is not required to set aside any provisions customarily paid for employees. Under the agreement, Delek Investments pronounced that it is aware that Elroi serves in positions in the Teshuva Group and in other roles and that he is entitled to continue these operations on condition that they will not disrupt the fulfilling of his role in Delek Investments and will not be in conflict of interest with his service and roles in Delek Investments. Elroi undertook not to compete, directly or indirectly, with Delek Investments and its businesses, and to to serve on the boards of directors or to take any part in the management of companies competing with the operations of Delek Investments, unless with prior written consent of Delek Investments. The total amounts paid to Elroi in 2010 by Delek Investments amounted to NIS 770,000.

2. Agreement between Delek Motors and Rami Naor:

On October 04, 1999, Delek Automotive engaged in an agreement with Mr. Rami Naor (the son-in- law of Mr. Yitzhak Teshuva, the controlling shareholder in the Company) and/or R.G. Naor Management Services Ltd. (a company wholly controlled by Mr. Naor) (“Naor”) stipulating the terms of tenure and employment of Elroi as deputy chairman of the board of directors of Delek Investments. The original agreement period was until August 31, 2002. The engagement was approved by the general meeting of Delek Automotive, by ordinary majority, and was extended by it on December 2002, for an additional year and thereafter, without time limitation, so long as the agreement is not terminated by one of the parties. The agreement stipulates that Naor will act as active vice chairman of the board of directors of Delek Automotive and will be responsible for new business development and enterprises at Delek Automotive, and will devote the required time for the scope of one third position as set by the parties. In lieu of his services, Naor is entitled to a monthly payment in the amount of NIS 17,000 gross, with the addition of VAT, linked to the CPI of July 2004 (an amount of NIS 21,000 as at December 2010). In addition, Naor is entitled to reimbursement of expenses and all costs of a car (the car will be purchased by Naor and will be its property). The agreement stipulates that Naor shall not be deemed an employee of Delek Automotive, and it is not required to set aside any provisions customarily paid for employees. Under the agreement, Delek Automotive pronounced that it is aware that Naor serves in other positions in the Teshuva Group and is entitled to continue these operations on condition that they will not disrupt the fulfilling of his role in Delek Automotive and will not be in conflict of interest with his service and roles in Delek Automotive. Naor undertook not to compete directly or indirectly with Delek Automotive or its business. On October 28, 2010, subsequent to changes in the control of Delek Automotive, Naor resigned from his position as vice chairman of the board of directors of Delek Automotive. The total amounts paid to Naor in 2010 by Delek Automotive amounted to NIS 234,000.

3. Agreement with Mr. Elad Sharon (Teshuva):

Mr. Elad Sharon (Teshuva), the son of the controlling shareholder ("Mr. Teshuva"), serves as vice chairman of the Company since August 13, 2006. Until Janujary 13, 2010, Mr. Teshuva did not receive remuneration for his service as a director. On January 13, 2010, the general meeting, subsequent to the approval of the audit committee and board of directors of the Company on November 29, 2010, approved an agreement according to which Mr. Teshuva will be eligible for director's remuneration in amounts equivalent to the maximum annual remuneration and maximum participation remuneration permitted for external directors, under the Companies Regulations (Regulations for Compensation and Expenses of an External Director) 2000 ("the Remunerations Regulations"), according to the Company's classification for each fiscal year, and reimbursement of expenses, as follows" (1) the Company will provide Mr. Teshuva with office and secretarial services, including the rental of an office in Beit Adar, at 7 Giborey Israel Street in Netanya, where the Company's offices are located. The Company will bear 60% of the cost of the office and secretarial service and a private company owned by Mr. Teshuva will bear the balance of the costs. The foregoing costs borne by the Company for rental of the office and the salary of the secretary in 2010 amounted to NIS 153,952; (2) participation of 60% in the costs of car maintenance (level 5); (3) reimbursement of expenses for trips abroad and hospitality expenses as part of Mr. Teshuva's position; (4) participation of 60% in the costs of the maintenance and use of a mobile phone. It is noted that the participation in the reimbursement of expenses are unlimited and are based on the

D-23 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 actual expenses and that payment for the foregoing expenses is subject to the approval of the audit committee and is made once every quarter. The reimbursement of expenses described above in subsections 2 through 4 above, in 2010, amounted to NIS 80,874.

For further information pertaining to the terms of Mr. Teshuva's service, as approved by the general meeting, see the immediate report issued by the Company on November 30, 2009 (Ref. No. 2009- 01-304638), and the information contained therein is noted here by way of reference

4. Agreement between Delek Israel and Ms. Carmit Elroi:

On February 21, 2011, the general meeting of Delek Israel approved the agreement with Ms. Carmit Elroi, the daughter of the controlling shareholder in the Company, concerning the terms of her employment, including exemption of indemnification and insurance of Ms. Carmit Elroi, in her position as a director of Delek Israel. Pursuant to the terms of the agreement, Ms. Carmit Elroi will be entitled to annual and participation remuneration in amounts equivalent to the amount fixed in the remuneration standard, in accordance Delek Israel's classification for each fiscal year and as paid to the external directors and serving directors of Delek Israel.

5. Transactions with Delek Real Estate:

Delek Real Estate was a subsidiary of the Company until the majority of its shares held by the Company were distributed as dividend in kind on May 3, 2009. Since the controlling shareholder of the Company is the controlling shareholder of Delek Real Estate, subsequent to the distribution of its shares as dividend in kind, below is a breakdown of the contracts signed between the Company and its subsidiaries and affiliates with Delek Real Estate subsequent to the distribution in kind or contracts signed as aforesaid prior to the distribution in kind and which are still valid as at the reporting date:

A. Loan for NCP transaction – On November 3, 2002 the Company extended a loan to Delek Real Estate, when Delek Real Estate was a subsidiary of the Company, in the amount of NIS 160 million for the NCP transaction (acquisition of a company holding parking lots in the UK) ("the NCP Loan"). The final repayment installment of the interest and the principal of the NCP loan was meant to be on June 7, 2009, however this installment was not paid. On July 12, 2009, the Company's general meeting approved the extension of the NCP loan until December 31, 2010. For further information pertaining to the loan and its extensions, see the Company's immediate report of June 4, 2009 (Reference No. 2009-01-133929), and the amendment to it issued on June 11, 2009 (Ref. No. 2009-01-139833). On January 10, 2011 the Company engaged with Delek Real Estate and Delek Belron for the acquisition of RoadChef shares in return for, inter alia, offsetting the NCP loan and all as set forth below. B. RoadChef loan – as part of rescheduling of the financing of the RoadChef transaction (acquisition of the share capital of a foreign company, which owns on its own and by way of its subsidiaries 29 motorway service areas in the UK, by Delek Israel (25%) and Delek Belron (75%) (a subsidiary, 100%, of Delek Real Estate) ("Delek Belron"), in September 2008 the Company extended two loans to Delek Real Estate, when Delek Real Estate was a subsidiary of the Company (" the RoadChef Loans): 1 On September 15, 2008 the Company provided a loan in the amount of NIS 80 million to Delek Real Estate for a period of 12 months; 2 on September 25, 2008 the Company provided an additional loan in the amount of NIS 200 million for a period of 13 months. For providing the RoadChef loans the Company received various securities of Delek Real Estate. On July 12, 2009 the general meeting of the Company's shareholders approved the extension of the term of the RoadChef loans, under similar terms, until December 31, 2010 or until the sale of the rights in RoadChef, the earlier of the two, with the exception of the interest on the loans, which will be paid in six-monthly installments at 9.5% (annual interest) as of the date of the approval of extension of the loans through the new repayment date. On December 31, 2010 an additional 1.2% interest will be paid on the loan for the period from July 12, 2009 until the registration of the Adar House mortgage, or until the outstanding NCP loan is repaid in full, the earlier of the two. For further information pertaining to the loans and their extensions, see the Company's immediate report of June 4, 2009 (Reference No. 2009-01-133929), and the amendment to it issued on June 11, 2009 (Ref. No. 2009-01-139833). The Company's agreements with banks – it is noted that as part of the agreements of March 26, 2009 with the bank in favor of which Delek Real Estate's shares were

D-24 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 attached for the purpose of carrying out the distribution of the Delek Real Estate shares as dividend in kind, the Company undertook, inter alia, vis-à-vis the bank, that on the dates on which Delek Real Estate pays to the Company an amount on account of the loans provided by the Company to Delek Real Estate for RoadChef, the Company will acquire from the bank for the entire amount received in payment part of the rights in the debt that Delek Real Estate has with the bank in the amount of the amount that is paid, up to an accrued amount of NIS 150 million. For further information pertaining to the agreements with the bank see section 1.18 of the Part 4, the chapter on the description of the Company's businesses, in this report. On January 10, 2011 the Company engaged with Delek Real Estate and Delek Belron for the acquisition of RoadChef shares in return for, inter alia, offsetting the NCP loan and all as set forth below. C. Acquisition of RoadChef - subsequent to the reporting period, on January 10, 2011 the general meetings of the Company and Delek Real Estate approved the Company engaging (through Delek Petroleum) with Delek Real Estate and with Delek Belron for the acquisition of Delek Belron's rights in the issued shares of a foreign company that holds the issued and paid-up shares of RoadCef ("the Foreign Company") and for the acquisition of Delek Belron's share in the shareholders loans granted to the foreign company ("the Transaction"). The consideration for the transaction amounts to NIS 497 million, which was the equivalent of GBP 86.25 million at the date of the closing of the transaction, reflecting RoadChef's value as GBP 115 million. The transaction was closed on January 25, 2011 and the consideration was paid as follows: a total amount of NSI 394 million was paid by way of offsetting Delek Real Estate's debt for the RoadChef loans, the NCP loan and the balance of its current deficit and an amount of NIS 104 million was paid directly to the bank by the Company for Delek Real Estate's debt to the bank. Pursuant to the Company's undertakings towards the bank, which was given with respect the distribution of Delek Real Estate's shares, the Company purchased from the bank an additional debt of Delek Real Estate for an amount of NIS 150 million, to repay Delek Real Estate's loans to the bank which will extend a new loan to Delek Real Estate. Delek Real Estate undertook to register in favor of Delek Petroleum, a second tier lien on the Hof Hacarmel project with restrictions agreed upon with the bank. The RoadChef holdings were acquired as part of the transaction of its transfer to Delek Petroleum, so that as at the reporting date, Delek Petroleum holds the full share capital of RoadChef, while Delek Real Estate's debt arising from the purchase of Delek Real Estate's debts from the bank is with the Company. The consideration for the transfer of the holdings as aforesaid, was given as a capital note issued by Delek Petroleum to the Company in a NIS amount equivalent to GBP 86.25 million, for a period of 5 years, without interest and unlinked. For further information pertaining to the foregoing transaction, the terms fo the agreement between the Company and the sellers, and for a description of RoadChef's operations see the immediate reports issued by the Company on January 7, 2011 (Ref. No. 2011-01-006375 and 2011-01-006393) and also see section 1.10 in the third part of the chapter on description of the Company's businesses, in this report. D. Collateral – the Company guaranteed part of the liabilities of Delek Real Estate and its subsidiaries to banks. As at December 31, 2010, Delek Real Estate's debts and the debts of its subsidiaries which are secured with the Company's guarantee amounted to NIS 59 million (of the said amount, as at the signing of the report, the bank agreed to erase a guarantee in the amount of NIS 28 million, however written confirmation has not yet been received from the bank). On May 39, 2005 an agreement was signed between Delek Real Estate and the Company according to which Delek Real Estate will pay the Group commissions for the guarantees provided by it until the date of the signing of the agreement: (1) annual commission equivalent to 1.5% of Delek Real Estate's debt balances to the financial institutions covered by the Company's guarantee and no more than NIS 157,000,000; (2) annual interest equivalent to 1.25% of the balance of Belron's liabilities vis-à-vis debenture holders covered by Delek Group guarantees. The total revenue recorded in the Company's financial statements for the foregoing collateral in 2010 was NIS 1,003,000. E. The engagement between Phoenix and Delek Real Estate– according to the loan agreement of July 8, 2004, Phoenix Insurance provided Delek Real Estate with a loan in the amount of NIS 132,298,000 and according to the loan agreement of November 28, 2004 Phoenix Insurance provided Delek Real Estate with a loan in the amount of NIS 16,700,000. These two loans were used for the purpose of acquiring all of the shares in Dankner Investments Ltd. (" the Dankner Loans"). On September 21, 2005 Delek Real Estate signed an agreement together with its subsidiary for a loan framework with Phoenix Insurance. At the date of the signing of the Dankner loans agreements, and at the date of the signing of the framework agreement, Phoenix was not in the Company's control. Under the framework agreement, Phoenix and Phoenix

D-25 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Insurance provided Delek Real Estate with a credit facility in the amount of NIS 75 million against the payment of quarterly commitment commissions. On August 20, 2008, a loan agreement was signed between Phoenix Insurance and Phoenix and Delek Real Estate according to which, subject to conditions set out in the framework agreement, the lender would provide a loan to Delek Real Estate in the amount of NIS 75 million (" the 2008 Loan"). To guarantee the fulfillment of all Delek Real Estate's liabilities under the 2008 loan and to secure the fulfillment of the Company's commitments under the Dankner loans and in accordance with the loan agreement Delek Real Estate provided various collateral in favor of the lender. On November 4, 2009, the general meetings of Phoenix and Delek Real Estate approved the principal and interest payments on the Dankner loan and the 2008 loan. Within the framework of the changes to the loan terms, Phoenix approved Delek Real Estate rescheduling the installments that were to be paid in August 2009 until January 1, 2010, and it was resolved that Phoenix will not be entitled to call the loans for immediate repayment in the event that Delek Real Estate does not comply with the financial terms fixed in the loan agreements or in the event that the ratings awarded by S&P Maalot for the debentures issued by Delek Real Estate decrease to BBB Plus or lower ("the Financial Terms and the Ratings"). In return for the foregoing rescheduling and cancellation of the financial terms and ratings: 1) Delek Real Estate will bring forward expected payments set in the terms of the loans so that Delek Real Estate will repay amounts totaling NIS 170 million by January 1, 2011 in order that the balance of the loans after said payments will total NIS 65 million plus interest and linkage); 2) Additional interest (annual interest) of 2.5% was set, which will be added to the interest borne by the loans; 3) Phoenix will receive additional collateral that will include shares held by Delek Real Estate in Vitania Ltd. and the rights held by Delek Real Estate's subsidiary in the plot in Raanana, which is intended for the construction of a shopping center, and the plot in Kfar Saba. The Vitania shares will be released following payment of installments on account of the loans in the total amount of NIS 170 million (in other words, when the balance of the loans will be NIS 65 million plus interest and linkage). The lien on the plots will not be released until the final repayment of the loans. In addition, as part of the foregoing, amendments will be made to the provisions of the loan agreements pertaining to the level and release of the shareholders' loans extended by Delek Real Estate, which were extended by Delek Real Estate to its subsidiary, part of which are mortgaged to Phoenix. On August 15, 2010, the general meeting of Phoenix signed an amendment ot the loan agreements as follows: (1) from July 1, 2010 through to October 3, 2010 or until the date on which Delek Real Estate will repay the balance of the payments which were to be paid on July 1, 2010, in full, (approximately NIS 47 million with the addition of linkage differentials and accrued interest) ("the July Payment Balance"), at the later date of the two ("the Refusal Option Period"), any sale or other transfer of shares and balances held by Delek Real Estate's subsidiary, with th exception of the sale of shares of up to 6% of the issued and paid-up equity of Vitania to the existing shareholders in Vitania or any of them ("the Transfer Transaction"), will be subject to Phoenix's first refusal rights, pro rate to their share in the loans, for the acquisition of up to 20% of the issued and paid up equity of Vitania. Exercise of the first refusal rights under the terms of the sales agreement signed between Delek Real Estate and a third party, while the consideration for the purchased shares will be based on the lower of: (a) the consideration calculated according to the value to Vitania's as reflected in the consideration fixed in the sales agreement that was signed with the third party; and (b) consideration calculated according to the value to Vitania of NIS 380 million. (b) the payment of the July payment balance will be deferred until October 3, 2010 and the interest on one of the loans will increase as of July 1, 2010, and will bear interest of 10%; (c) as of July 1, 2010, the interest on the balance of the loan principal will be repaid on an ongoing basis every quarter. On September 27, 2010, Delek Real Estate notified Phoenix that it would make a payment of NIS 50 million on account of the July payment balance no later than October 24, 2010, instead of October 3, 2010. On October 24, 2010 Delek Real Estate requested an additional deferral from Phoenix. On December 12, 2010, The general meeting of Phoenix approved the agreement with Delek Real Estate to defer a payment in the amount of NIS 50 million that was meant to be paid on October 3, 2010 ("the Updated October Payment"), until January 2, 2011 under the following terms: (a) the loans would continue bearing annual interest of 10%, linked to the CPI (b) it was clarified that the first refusal rights granted to the lender would remain for the entire period until Delek Real Estate will repay the updated October payment in full. (c) Delek Real Estate undertook that until the date on which it will pay the updated October payment, ("the deferral period"), it would notify the lender in writing, three working days prior to the payment of each loan principal payment to any of the other creditors of Delek Real Estate, including its debenture holders, financial institutions, institutional bodies, etc. (d) during the

D-26 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 deferral period, the lender will be entitled to place the loans or any of them up for immediate repayment, pursuant to the provisions of the relevant loan agreement, by written notice to be sent to the borrower, also in the event that at the sole discretion of the lender, and without it having the duty of stating so. (e) The loans may be placed for immediate repayment by written notice or without prior notice to Delek Real Estate. On November 26, 2010, Delek Real Estate signed an agreement to sell its full holdings in its subsidiary in Vitania shares. In accordance with the decision of the Phoenix audit committee and board of directors, Phoenix did not exercise its first refusal right under the loan agreements as described above. As part of completing the transaction for the sale of Vitania shares, Delek Real Estate paid Phoenix on December 29, 2010 an amount of NIS 80 million from the proceeds, made of the updated October payment and an additional NIS 30 million which were payable by January 1, 2011, as set forth above, against the release of the lien on the Vitania shares in favor of Phoenix. Following payment of the foregoing amount, the balance of the principal of Delek Real Estate's debt to Phoenix for the loans amounted, as of December 31, 2010, to NIS 65 million. It is noted that on December 25, 2010, the board of directors of Phoenix approved the transfer of Delek Real Estate's rights and liabilities in a real estate housing venture project in Israel to Elad Israel on condition that an amount of NIS 20 million, constituting part of the proceeds for the transferred rights, be paid by Elad Israel to Delek Real Estate by June 30, 2011, and if the payment will not be made by that date, it will be cause for calling for immediate repayment of the loans. F. Delek Real Estate and Phoenix acquisition of loans from a bank – on July 8, 2008 the transaction was concluded to acquire three parts of a loan from an international bank, given to Delek Belron (a subsidiary of Delek Real Estate) and Phoenix Insurance, in an overall amount of EUR 80.07 million, which is backed by 30 profit yielding real estate properties located in Germany and Switzerland. The acquisition of the loans was carried out through a foreign consultancy company (SPC) that was established and whose share capital and voting rights were held, in equal share, by Delek Belron and Phoenix Insurance. A collaboration agreement was signed between Delek Belron and Phoenix Insurance defining the rights of the parties in the foreign subsidiary and the nature of the collaboration between them concerning the loans. The total consideration that the foreign subsidiary paid for the transaction to acquire the loans amounts to EUR 58 million. G. Purchase of Industrial Buildings shares from Delek Real Estate by Phoenix - in February 2010, as part of the sale of shares of Industrial Buildings Ltd., 3,210,000 shares which were owned by Delek Real Estate were sold to a company of the Phoenix Group in overall consideration of NIS 20 million (constituting approximately 10% of the total consideration from the sale of the shares). H. Acquisition of plot and establishment of project by Vitania and DMR Properties – under the agreement signed on January 28, 2008 between Vitania Ltd. (a holdings company in which Delek Real Estate holds 48%) and DMR Properties (1995) Ltd. (a company wholly owned by Delek Automotive) and a third party which is a company in voluntary liquidation, DMR Properties and Vitania acquired the ownership rights in a 5-dunam plot in Tel Aviv (the “First Plot”) for NIS 64 million in equal shares and under the same terms (50% each party). The First Plot is designated for industry, high-tech industries and offices. On February 6, 2008, DMR Properties and Vitania entered into an agreement to establish a profit-yielding property on the First Plot and on an adjacent plot, if acquired. In addition, on 6 February, 2008, DMR Properties and Vitania signed a loan agreement according to which DMR Properties undertook to grant Vitania a loan of NIS 32 million to finance the acquisition of Vitania’s share in the First Plot. The loan was extended to Vitania on November 19, 2008. On May 26, 2008, the general meeting of the shareholders of DMR approved the aforesaid agreements, in accordance with the provisions of section 275 of the Companies Law. On November 26, 2010, Delek Real Estate completed the sale of its full holdings in its subsidiary in Vitania shares. As part of the closing of the transaction, an amount of NIS 80 million of the consideration that was received was paid to Phoenix to repay Delek Real Estate's liabilities towards Phoenix as stipulated above I. Nir Zvi Partnership – On July 1, 2004 Delek Israel signed an agreement with DMR Properties (1995) Ltd. (a wholly owned subsidiary of Delek Automotive) and Delek Real Estate to establish a partnership known as Delek – Nir Zvi, for the purpose of acquiring 50% (in partnership) of the leasing rights in a plot adjacent to the plot on which Delek Automotive's logistics center was built, in order to allow easy access to the said logistics center. The shares of the partners in the aforesaid partnership at the time of establishment were Delek Real Estate (25%), DMR

D-27 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Properties (50%), and Delek Israel (25%). The leasing rights in the land were acquired according to an agreement entered into on September 29, 2003 between the DMR Properties - Delek Real Estate - Deled Israel Partnership (in establishment) and the Middle East Tube Company Ltd. In January 2010, DMR Properties acquired Delek Real Estate's share in the partnership after Delek Real Estate announced that it wished to leave the partnership and redeem its investment. After completing the transfer of Delek Real Estate shares in the partnership to DMR Properties, DMR Properties will hold 75% of the rights in the partnership. For further information pertaining to Delek Automotive and Delek Israel's contract with Delek Real Estate, see the description of the Company's businesses in the third part, section1.14.10 in the chapter on the description of the Company's businesses in the third part. J. Agreements between Delek Israel and Delek Real Estate – Delek Israel signed agreements with Delek Real Estate and its subsidiaries as follows: A. On March 31, 2010 the Company purchased from Delek Real Estate Profitable Properties Ltd. ("DNIP") all the shares held by DNIP in Ein Yahav - Delek Ltd. ("Ein Yahav") constituting 50% of the issued share capital of Ein Yahav. Furthermore, DNIP assigned to the Company the loans that Delek Real Estate extended to Ein Yahav, which assigned by Delek Real Estate to DNIP and amounted to NIS 21.5 million on the date of purchase. The Company paid DNIP NIS 15.4 million for shares and assignment of the loans. Ein Yahav has a lifetime lease at capitalized lease from the Israel Lands Administration on 1.5 hectare of land situated adjacent to Park Sapir on the Aravah highway, on which is a gas station, commercial building and a building that serves the station. B. On March 31, 2010, Delek Israel purchased from Delek Project Initiation and Development Ltd. ("Delek Enterprise") all the shares it held in Delek - Saadon Project Initiation and Development Ltd. ("Delek Saadon"), constituting 50.1% of the issued share capital of Delek Saadon. Furthermore, DNIP assigned to Delek Israel the loans that Delek Real Estate extended to Delek Saadon, which were assigned by Delek Real Estate to DNIP and amount to a total of NIS 6.7 million on acquisition date. Delek Israel paid to DNIP an amount of NIS 7.6 million. Delek Saadon owns .14 hectare of land situation in Givat Zion in Ashkelon and on which there is a gas station and commercial building. C. On March 31, 2010 Delek Israel acquired from DNIP all its rights in Orhan Mei Megido Ltd. ("Mei Megido"), constituting 50% of the issued share capital of Mei Megido. In addition, DNIP assigned to Delek Israel the loans that Delek Real Estate extended to Mei Megido, which were assigned to DNIP and amounted to NIS 10.7 million on acquisition date. Delek Israel paid to DNIP and amount of NIS 4.3 million for the shares and endorsement of the loans. Mei Megido owns capitalized lifetime lease from the Israel Lands Administration for a continuous block of land covering and area of 12.5 hectare, located close to Megido Junction and which consists of a plot including two commercial buildings, a plot including a gas station and an empty plot zoned for recreation and tourism. As part of the engagement Delek Real Estate was released from limited guarantee in the amount of NIS 10 million that it provided to the bank to secure Mei Megido's liabilities and Delek Israel extended in favor of the bank limited guarantee on similar terms. D. On March 31, 2010 Delek Israel acquired from DNIP its rights to be registered as sub- tenant of 3,884 sq. m. of land located north west of Raanana in return of an amount of NIS 9 million E. On March 31, 2010, Delek Israel purchased from Delek Real Estate all its shares in Delek Retail Lots Ltd. ("DRL"), constituting 50% of the issued share capital of DRL. Delek Israel paid to Delek Real Estate an amount of NIS 4.6 million for the shares. Furthermore, on the same date, DRL repaid a shareholders' loan for Delek Real Estate in the amount of NIS 1.6 million. Following this purchase, Delek Israel holds 100% of the share capital of DRL. DRL owns the rights to 6 gas stations and retail lots and owns the rights to 7 plots that were purchased and on which it intends in the future to establish, after planning, gas stations and commercial space . The said agreement was approved on January 21, 2010 by the audit committee and the board of directors of Delek Israel and on March 15, 2015 by the general meeting of Delek Israel's shareholders. If the foregoing transactions will be completed, ownership rights in 3 gas stations will be transferred to Delek Israel, pursuant to section 275 of the Companies Law. F. On May 27, 2010, Delek Israel purchased from DNIP and a third party the sole rights to a 0.3 hectare plot of land on which there is a gas station, commercial building, offices,

D-28 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 covered filling station, car wash machines and other areas. The plot of land is located adjacent to the Ramlod Mall (which is situation north west of the Ramlod junction and west of the Achisamech junction at the north western part of Ramla) for NIS 39 million. This transaction was approved by the audit committee and board of directors of Delek Israel on April 14, 2010 and on May 24, 2010 it was approved by the general meeting of Delek Israel. Transactions not provided under section 270(4) of the Companies Law:

6. Gas station operating agreement with Mr. Avi Lalewski:

Under the agreement between Delek Israel and Mr. Avi Lalewski, brother-in-law of the controlling shareholder in the Company, and Or-Li Energy Resources Ltd. (which to the best of the Company's knowledge, is a company controlled by Mr. Lalewski) ("Or-Li"), Or-Li operates a gas station in Givat Olga belonging to the Delek Israel chain. The agreement includes the customary terms and conditions for this type of agreement. The agreement became effective on March 21, 1999 for a period of two years and was extended at the discretion of Delek Israel for additional two-year periods (or less), and no longer than a total of six years. As at the reporting date, Or-Li continues to operate the station, after the termination of the agreement period. Delek Israel is conducting negotiations with Or-Li Energy Resources Ltd. to sign a new agreement at the customary market terms for other Delek Israel operators. It is noted that Delek Israel is examining the running of gas stations via external operators, including the foregoing engagements.

7. Negligible transactions:

Apart from the transactions described above, there are additional agreements which are classified as negligible transactions as defined in section 9 of the Board of Directors report, as follows:

Agreements between Delek Real Estate and subsidiaries and related companies of the Company: An agreement to rent a Delek Real Estate gas station to Delek Israel; providing Delek Israel Dalkan services to Delek Real Estate; purchase of a car by Delek Real Estate from the subsidiary, Delek Automotive; insurance policies taken out by Delek Real Estate at Phoenix; renting of space at Beit Adar (which until June 30, 70% of the non-specific rights were owned by Delek Real Estate).

Agreements between subsidiaries and related companies of the Company and private companies owned by the controlling shareholder in the Company, or his relatives: Transactions for providing Delek Israel's Dalkan services, insurances taken out at Phoenix; agreement with Ms. Gal Naor, the daughter of the controlling shareholder in the Company, for architectural planning of a gas station and commercial center for Delek Israel; agreement with Ms. Carmit Elroi, the daughter of the controlling shareholder for production of energy bars and toilet paper under a private label for Delek Israel's chain of convenience stores; employment of officers in the Company and its subsidiaries, who are also employed by the controlling shareholder and by private companies owned by him.

8. Holdings in debentures of companies controlled by the controlling shareholder:

For the sake of caution, it is noted that, as at December 31, 2010, holdings in provident funds, pension funds, profit-sharing policies ("Peer Assets"), Phoenix and Excellence trust and nostro funds, debentures of companies controlled by the controlling shareholder are as follows:

Peer assets held NIS 3 million par value debentures of Delek Real Estate.

Excellence trust funds and ETFs held NIS 19 million par value debentures of Delek Real Estate.

Insurance peer assets held NIS 35 million par value debentures of Elad Fluride and Elad Group, private companies owned by the Company's controlling shareholder. In addition, peer assets held NIS 88 million par value debentures of Elad Canada and in nostro NIS 39 million par value.

D-29 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Standard 24: Shares and other securities of the Company, held by interested parties and senior officers in the Company, in the Company itself, in its subsidiaries and its related companies, as at March 23, 2011 Holdings of interested parties and executive officers in the Company's shares:

Company No. in the Par value held % Holding in Percentage of Registrar of Name of No. of security on Mar 23, capital, % in voting voting rights Name of interested party Companies/ ID security on the TASE 2011 % in capital diluted rights (fully diluted) Yitzchak Sharon (Teshuva) * 043480003 Delek Group Ltd. 1084128 7,319,043 64.33% 61.75% 64.45% 61.86% Daniel (Hachmon) Orli ** 32011124 Delek Group Ltd. 1084128 19,500 0.17% 0.16% 0.17% 0.16% Gabriel Last 4787933 Delek Group Ltd. 1084128 4,572 0.04% 0.04% 0.04% 0.04% Asi Bartfeld 65474108 Delek Group Ltd. 1084128 4,903 0.04% 0.04% 0.04% 0.04% Excellence Investments Ltd.*** 520041989 Delek Group Ltd. 1084128 95,410 0.81% 0.78% 0.84% 0.80% The Phoenix Insurance 520023185 Delek Group Ltd. 1084128 2,595 0.02% 0% 0.02% 0% Company Ltd. Elad Sharon **** 37336997 Delek Group Ltd. 1084128 0 0% 0% 0% 0% Delek Group Ltd. Delek Group Ltd.* 520044322 1084128 346,407 0% 0% 0% 0% Dormant shares Delek Investments and Delek Group Ltd. 520032129 1084128 22,462 0.19% 0.18% 0% 0% Properties Ltd.* Dormant shares Leora Pratt Levin 57906919 Delek Group Ltd. 1084128 1,017 0.1% 0% 0.1% 0% Michael Grinberg 069108231 Delek Group Ltd. 1084128 220 0% 0% 0% 0% Gideon Tadmor 057995755 Delek Group Ltd. 1084128 179 0% 0% 0% 0% Moshe Amit 1127885 Delek Group Ltd. 1084128 57 0 0 0 0

* The shares are held through wholly-owned companies (100%) of Mr. Yitzchak Sharon (Teshuva) ** Mr. Yitzchak Sharon (Teshuva) and Ms. Orli Daniel (Hachmon) are considered together to be holders of the company's securities. *** The holdings include holdings in a nostro account, provident funds and trust funds **** Treasury shares

D-30 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Holdings of interested parties and senior officers of the Company in shares and options of Phoenix Holdings, a subsidiary of the Company:

Company No. in the Par value held % Holding in Percentage of Registrar of Name of No. of security on Mar 23, capital, % in voting voting rights Name of interested party Companies/ ID security on the TASE 2011 % in capital diluted rights (fully diluted) Delek Investments and Phoenix 1 767012 118,849,103 520032129 55.55% 52.59% 54.74% 51.53% Properties Phoenix 5 767038 3,761,082 Asi Bartfeld 65474108 Phoenix 1 767012 198,518 0.08% 0.08% 0.09% 0.08% Eyal Lapidot 022030159 F 08/09 7670144 6,177,879 0% 0% 0% 0% Phoenix 1 767012 3,491,749 Excellence Investments 520041989 1.45% 0.08% 0% 0% Phoenix 5 767038 18,401 Phoenix Insurance Company* 520023185 Phoenix 1 767012 799,430 0.32% 0.32% 0.40% 0.40% Leora Pratt Levin 65474108 Phoenix 1 767012 10,050 0% 0% 0% 0% * As at March 28, 2011 Holdings of interested parties and senior officers of the Company in shares and options of Delek Energy, a subsidiary of the Company:

Company No. in the Par value held % Holding in Percentage of Registrar of Name of No. of security on Mar 23, capital, % in voting voting rights Name of interested party Companies/ ID security on the TASE 2011 % in capital diluted rights (fully diluted) Delek Investments and 520032129 Delek Energy 565010 3,996,640 79.67% 75.30% 79.67% 75.30% Properties Delek Energy Gabi Last 4787933 5650072 33,207 0 0.63% 0 0.63% 08/07 Gideon Tadmor 057995755 Delek Energy 565010 4,219 0.08% 0.08% 0.08% 0.08% Delek Energy Gideon Tadmor 057995755 5650072 258,265 0 4.87% 0 4.87% 08/07 Leora Pratt Levin 57906919 Delek Energy 565010 315 0% 0% 0% 0% Excellence Investments 520041989 Delek Energy 565010 42,985 0.86% 0.81% 0.86% 0.81% Phoenix Insurance Company 520023185 Delek Energy 565010 37,979 0.76% 0.72% 0.76% 0.72% Phoenix Insurance Company 520023185 Delek Energy 565010 90 0% 0% 0% 0% Dalia Black Dubov 324335751 Delek Energy 565010 12 0% 0% 0% 0%

D-31 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Holdings of interested parties and senior officers of the Company in shares and options of Delek Israel, a subsidiary of the Company:

Company No. in the Par value held % Holding in Percentage of Registrar of Name of No. of security on Mar 23, capital, % in voting voting rights Name of interested party Companies/ ID security on the TASE 2011 % in capital diluted rights (fully diluted) Delek Group 520044322 Delek Israel 6360044 8,761,774 77.420% 74.41% 77.420% 74.41% Eyal Lapidot 022030159 Delek Israel 6360044 224,225 1.98% 1.90% 1.98% 1.90% Delek Israel Moshe Amit 1127885 6360085 109,483 0% 0.93% 0% 0.93% 11/07 Excellence Investments 520041989 Delek Israel 6360044 62,537 0.51% 0.49% 0.51% 0.49% Phoenix Insurance Company 520023185 Delek Israel 6360044 153,538 1.35% 1.28% 1.35% 1.28% Sharon Elad 520023185 Delek Israel 6360044 45,317 0.36% 0.35% 0.36% 0.35% Leora Pratt Levin 520023185 Delek Israel 6360044 223 0% 0% 0% 0% Holdings of interested parties and senior officers of the Company in participating units of Delek Drilling, a subsidiary of the Company:

Company No. in the Par value held % Holding in Percentage of Registrar of No. of security on Mar 23, capital, % in voting voting rights Name of interested party Companies/ ID Name of security on the TASE 2011 % in capital diluted rights (fully diluted) Delek Drilling Delek Group 520032129 475020 47,319,374 8.70% 8.70% 8.70% 8.70% Participating Units Delek Drilling Elad Sharon 37336997 475020 881,209 0.16% 0.16% 0.16% 0.16% Participating Units Delek Drilling Excellence Investments 520041989 475020 2,835,455 1.52% 1.52% 1.52% 1.52% Participating Units Delek Drilling Phoenix Insurance Company 520023185 475020 109,188 0.02% 0.02% 0.02% 0.02% Participating Units Delek Drilling Leora Pratt Levin 57906919 475020 1,850 0% 0% 0% 0% Participating Units Delek Drilling Michael Grinberg 069108231 475020 30,098 0% 0% 0% 0% Participating Units

D-32 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Holdings of interested parties and senior officers of the Company in participating units of Avner Oil Exploration, a subsidiary of the Company:

Company No. in the Par value held % Holding in Percentage of Registrar of Name of No. of security on Mar 23, capital, % in voting voting rights Name of interested party Companies/ ID security on the TASE 2011 % in capital diluted rights (fully diluted) Delek Investments and 520032129 Avner 268011 474,655,968 14.23% 14.23% 14.23% 14.23% Properties Participating Units Gideon Tadmor 057995755 Avner 268011 1,896,787 0.06% 0.06% 0.06% 0.06% Participating Units Excellence Investments 520041989 Avner 268011 33,693,174 1.01% 1.01% 1.01% 1.01% Participating Units Phoenix Insurance Company 520023185 Avner 268011 14,762,874 0.44% 0.44% 0.44% 0.44% Participating Units Avner 268011 Michael Grinberg 069108231 5,099 0% 0% 0% 0% Participating Units

Holdings of interested parties and senior officers of the Company in shares and options of Delek USA, a subsidiary of the Company:

Company No. in the Par value held % Holding in Percentage of Registrar of Name of No. of security on Mar 23, capital, % in voting voting rights Name of interested party Companies/ ID security on the TASE 2011 % in capital diluted rights (fully diluted) Asi Bartfeld 65474108 Ordinary shares - 16,935 -- - - - Asi Bartfeld 65474108 Options - 28,000 -- - - - Eyal Lapidot 022030159 Ordinary shares - 3,200 -- - - - Gabi Last 4787933 Ordinary shares - 6,500 -- - - - Gabi Last 4787933 Options - 28,000 -- - - - Leora Pratt Levin 57906919 Ordinary shares - 750 -- - - - Uzi Yamin 024035743 Ordinary shares - 644,009 -- - - - Uzi Yamin 024035743 Options (SAR) - 1,850,040 -- - - - Moshe Amit 1127885 Ordinary shares - 50 -- - - -

D-33 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Holdings of interested parties and senior officers of the Company in shares and options of IDE Holdings, a subsidiary of the Company:

Company No. in the Par value held % Holding in Percentage of Registrar of Name of No. of security on Mar 23, capital, % in voting voting rights Name of interested party Companies/ ID security on the TASE 2011 % in capital diluted rights (fully diluted) Avshalom Halevi Felber 058370412 Options - 21,173 -- - - - Eyal Lapidot 65474108 Ordinary shares - 2,541 -- - - -

Holdings of interested parties and senior officers of the Company in shares and options of Delek Automotive, a related company of the Company:

Company No. in the Par value held % Holding in Percentage of Registrar of Name of No. of security on Mar 23, capital, % in voting voting rights Name of interested party Companies/ ID security on the TASE 2011 % in capital diluted rights (fully diluted) Delek Investments and 520032129 Delek Automotive 829010 29,942,280 32.42% 32.42% 32.42% 32.42% Properties Gabi Last 4787933 Delek Automotive 829010 72,530 0.08% 0.08% 0.08% 0.08% Asi Bartfeld 65474108 Delek Automotive 829010 113,149 0.12% 0.12% 0.12% 0.12% Excellence Investments 520041989 Delek Automotive 829010 861,601 0.93% 0.93% 0.93% 0.93% Phoenix Insurance Company 520023185 Delek Automotive 829010 350,631 0.38% 0.38% 0.38% 0.38% Leora Pratt Levin 57906919 Delek Automotive 829010 2,445 0% 0% 0% 0% Dalia Black Dubov 324335751 Delek Automotive 829010 225 0% 0% 0% 0%

D-34 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Holdings of interested parties and senior officers of the Company in shares and options of Gadot Biochemical Industries, a subsidiary of the Company:

Company No. in the Par value held % Holding in Percentage of Registrar of Name of No. of security on Mar 23, capital, % in voting voting rights Name of interested party Companies/ ID security on the TASE 2011 % in capital diluted rights (fully diluted) Delek Group 520044322 Gadot 1093004 9,711,627 63.92% 60.62 63.92% 60.62 Gabi Last 4787933 Gadot 1093004 18,668 0.12% 0.12% 0.12% 0.12% Asi Bartfeld 65474108 Gadot 1093004 100,000 0.66% 0.62% 0.66% 0.62%

D-35 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Holdings of interested parties and executive officers in the Company's debentures:

Company No. in the

Name of interested Registrar of Par value held on party Companies/ ID Name of security Security No. March 23, 2011 Excellence 520041989 Debentures Series O 1115070 33,994,250 Investments Excellence 520041989 Debentures Series P 1115385 5,551,560 Investments Excellence 520041989 Debentures Series M 1105543 12,235,972 Investments Excellence 520041989 Debentures Series N 1115062 12,177,939 Investments Excellence 520041989 Debentures Series Q 1115401 4,649,728 Investments Excellence 520041989 Debentures Series R 1115823 23,645,621 Investments Excellence 520041989 Debentures Series S 1121326 49,335,455 Investments Excellence 520041989 Debentures Series V 1106046 7,070,156 Investments Yosef Dauber 007447584 Debentures Series W 1107465 61,832 Eyal Lapidot 022030159 Debentures Series W 1107465 109,290 Phoenix Insurance 520023185 Debentures Series W 1107465 1,816,401 Co. Ltd. Excellence 520041989 Debentures Series W 1107465 77,291,516 Investments Excellence 520041989 Debentures Series DD 1118884 6,220,434 Investments Excellence 520041989 Op Series 6 1115393 7,369 Investments

Holdings of interested parties and executive officers in the Phoenix's debentures:

Company No. in

Name of interested the Registrar of Par value held on party Companies/ ID Name of security Security No. March 23, 2011 Excellence 520041989 Phoenix Debentures 1 7670102 7,672,557 Investments Excellence Phoenix Capital 520041989 1115104 7,672,557 Investments Debentures A Excellence Phoenix Capital 520041989 1120799 7,672,557 Investments Debentures B Excellence Phoenix Capital 520041989 1120807 7,672,557 Investments Debentures C

D-36 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Holdings of interested parties and executive officers in the Delek Energy's debentures:

Company No. in the

Name of interested Registrar of Par value held on party Companies/ ID Name of security Security No. March 23, 2011 Excellence 520041989 Debentures Series C 5650098 291,068 Investments Barak Mashraki 029714086 Debentures Series D 5650106 150,981

Asi Bartfeld 065474108 Debentures Series D 5650106 352,027

Excellence 520041989 Debentures Series D 5650106 2,384,579 Investments Asi Bartfeld 065474108 Debentures Series E 5650114 178,000

Excellence 520041989 Debentures Series E 5650114 1,516,299 Investments Phoenix Insurance 520023185 Debentures Series E 5650114 7,617,081 Co. Ltd.

Holdings of interested parties and executive officers in the Delek Israel's debentures:

Company No. in the

Name of interested Registrar of Par value held on party Companies/ ID Name of security Security No. March 23, 2011 Excellence Delek Israel Debentures 520041989 6360069 81,084,982 Investments Series A Excellence Delek Israel Debentures 520041989 6360127 8,366,096 Investments Series B

D-37 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Holdings of interested parties and executive officers in the Delek Petroleum's debentures:

Company No. in the

Name of interested Registrar of Par value held on party Companies/ ID Name of security Security No. March 23, 2011 Excellence Delek Petroleum 520041989 1111319 22,797,578 Investments Debentures Series G Excellence Delek Petroleum 520041989 1111327 1,196,250 Investments Debentures Series H 10949 Delek Petroleum Excellence 520023185 non-negotiable CPI linked - 2,666,667 Investments Debentures 115519 Delek Petroleum Excellence 520023185 non-negotiable CPI linked - 2,333,333 Investments Debentures

Holdings of interested parties and executive officers in the Gadot Biochemical Industry debentures:

Company No. in the

Name of interested Registrar of Par value held on party Companies/ ID Name of security Security No. March 23, 2011 Excellence Gadot Debentures 520041989 1107796 2,847,274 Investments Series J

Standard 24 A: Registered and issued capital, and convertible securities Below are figures as at March 31, 2011: Equity:

Issued and outstanding Registered capital capital Par value Par value Ordinary shares of par value NIS 1 each Labor 15,000,000 11,723,669 Dormant shares 346,407 (do not grant any rights)

Treasury shares - held by the subsidiary Delek Investments and Properties Ltd. (do not grant 22,462 any rights)

Convertible securities Par value - Option warrants – Series 6 260,000

Convertible Debentures Series DD 255,378,000

D-38 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Below figures as at December 31, 2010:

Equity: Issued and outstanding Registered capital capital

Par value Par value Ordinary shares of par value NIS 1 each 15,000,000 11,723,669 Labor Dormant shares 346,407 (do not grant any rights)

Treasury shares - held by the subsidiary Delek Investments and Properties Ltd. (do 22,462 not grant any rights)

Convertible securities Par value - Option warrants – Series 6 260,000

Convertible Debentures Series DD 255,378,000

Standard 24B: The Company's Shareholders Register: Attached herewith is the Company's Shareholders Register:

Standard 25A: Registered address Address: 7 Giborei Israel St., Netanya Tel: 09-8638444 Fax: 09-8854955 Email: [email protected] Website: www.delek-group.com

Standard 26: Directors of the corporation Name: Gabriel Last ID: 004787933 Date of birth: September 9, 1946 Address for delivery of court notices: 7 Giborei Israel St., Industrial Zone Netanya South, 2504. Citizenship: Israeli Position in the Company: Chairman of the Board of Directors A. Is he an external director No B. If yes, is he an expert in accounting - and finance or does he have professional qualifications: C. If yes, is he an expert external - director:

D-39 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Serves as a member of the board of Member of Investment Committee director committee or committees: Commenced serving as a director: September 4, 2003 Education: LLB, Tel Aviv University Graduate of Social Sciences and Mathematics, Haifa University; AMP (Executive Officer Management Program), Harvard University Primary occupation in the past 5 years: Chairman of the Company's board of directors Companies in which serves as a serves as Chairman of the Board of Directors of Delek Group and as a director: Companies in which serves as director at: Delek Petroleum Ltd., Delek Capital Ltd., Delek Motors Ltd., a director: Delek Automotive Ltd., Delek Investments and Properties Ltd., Delek Energy Ltd., IPP Delek Ashkelon Ltd., Delek Natural Gas Marketing & Distribution Ltd., Delek the Israel Fuel Corporation Ltd., Delek Drilling Management (1993), Ltd., Delek Energy International Ltd., Delek Energy Bonds Ltd., Gadot Biochemical Industries Ltd., Avner Oil and Gas Ltd., and Delek Foundation for Education, Culture and Science, Delek US Holdings Inc, Delek Europe Holdings Ltd. and Delek Benelux B.V. Is he an employee of the Company, its Chairman of the board of directors subsidiaries, affiliates or of an interested party: Related to other interested parties in the No Company: Does the Company consider him to No having accounting and financial expertise for compliance with the minimum number set for the board of directors under section 92(A)(12) of the Companies Law: Independent director: No

Name: Elad Sharon ID: 37336997 Date of birth: July 25, 1980 Address for delivery of court notices: 7 Giborei Israel St., Industrial Zone Netanya South, 2504. Citizenship: Israeli Position in the Company: Vice Chairman of the board of directors A. Is he an external director No B. If yes, is he an expert in accounting - and finance or does he have professional qualifications: C. If yes, is he an expert external - director: Serves as a member of the board of Member of Investment Committee director committee or committees: Commenced serving as a director: August 13, 2006 Education: LL.B from the Netanya Academic College, MBA from Tel Aviv University, currently completing LL.M at Bar Ilan University Primary occupation in the past 5 years: vice Chairman of the board of directors of a subsidiary of Elad Group (USA) and provides management services to Tashluz Investments and Holdings Ltd. (both subsidiaries owned by the controlling shareholder)

D-40 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Companies in which serves as a Phoenix Holdings Ltd., Republic Companies Inc., Delek Europe Holdings director: Companies in which serves as Ltd., Delek Natural Gas Marketing & Distribution Ltd. a director: Is he an employee of the Company, its Vice Chairman of the board of directors subsidiaries, affiliates or of an interested party: Related to other interested parties in the Son of Mr. Yitzhak Sharon (Teshuva), the controlling shareholder in the Company: Company Does the Company consider him to No having accounting and financial expertise for compliance with the minimum number set for the board of directors under section 92(A)(12) of the Companies Law: Independent director: No

Name: Mazal Bronstein ID: 51245330 Date of birth: February 13, 1952 Address for delivery of court notices: 8 Haharuv Street, Zichron Yaakov, 30900 Citizenship: Israeli Position in the Company: Director A. Is he an external director No B. If yes, is he an expert in accounting - and finance or does he have professional qualifications: C. If yes, is he an expert external - director: Serves as a member of the board of No director committee or committees: Commenced serving as a director: April 1, 2003 Education: BA Political Science and Middle East, Haifa University

Primary occupation in the past 5 years: Independent in the marketing, entrepreneurship and construction of real estate projects, director in Sacham House Ltd. and partner (40%) in home for the elderly Companies in which serves as a Beit Shacham, Home for the Elderly, Zichron Yaakov director: Companies in which serves as a director: Is he an employee of the Company, its No subsidiaries, affiliates or of an interested party: Related to other interested parties in the No Company: Does the Company consider him to No having accounting and financial expertise for compliance with the minimum number set for the board of directors under section 92(A)(12) of the Companies Law:

D-41 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Independent director: No

Name: Avraham Harel ID: 030108195 Date of birth: February 26, 1948 Address for delivery of court notices: 4 Queen Esther Street, Bnei Brak, 51446 Citizenship: Israeli Position in the Company: Director A. Is he an external director No B. If yes, is he an expert in accounting - and finance or does he have professional qualifications: C. If yes, is he an expert external - director: Serves as a member of the board of Committee for examining financial statements and Audit Committee director committee or committees: Commenced serving as a director: May 29, 2006 Education: BA and MA Economics, Tel Aviv University

Primary occupation in the past 5 years: Deputy CEO, manager of the finance division and IT systems, and board member – Bank Hapoalim and chairman of the subsidiary, Delek Europe Holdings, Ltd. Companies in which serves as a Phoenix Holdings Ltd., Phoenix Insurance Co. Ltd., Poalim Capital Markets director: Companies in which serves as Ltd., Poalim Capital Markets - Investment House Ltd., Poalim Capital a director: Markets Investments & Holdings Ltd., Capital Funds Ltd., Marathon Mobile Access Ltd., Mickal Group Ltd., Bank Hapoalim (Switzerland) Ltd., Bank Hapoalimg (Luxembourg) S.A. Is he an employee of the Company, its No subsidiaries, affiliates or of an interested party: Related to other interested parties in the No Company: Does the Company consider him to No having accounting and financial expertise for compliance with the minimum number set for the board of directors under section 92(A)(12) of the Companies Law: Independent director: No

Name: Ben-Zion Zilberfarb ID: 30134605 Date of birth: October 9, 1949 Address for delivery of court notices: 7 Giborei Israel St., Industrial Zone Netanya South, 2504. Citizenship: Israeli Position in the Company: External director A. Is he an external director Yes

D-42 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 B. If yes, is he an expert in accounting Director with accounting and financial expertise and finance or does he have professional qualifications: C. If yes, is he an expert external Yes director: Serves as a member of the board of Audit committee and committee for examining financial statements director committee or committees: Commenced serving as a director: (extended term) May 29, 2009 Education: B.A. and M.A. in Economics, Bar Ilan University, PhD in Economics, University of Pennsylvania Primary occupation in the past 5 years: Professor of economics, Bar Ilan University, dean of the School of Banking and Capital Markets at Netanya Academic College Previously served as director for Pandect (external director), Brimag Digital Age Ltd., Partner and Clal Provident and Study Funds Companies in which serves as a Israel Discount Bank Ltd. (external director), Perrigo Ltd. (external director: Companies in which serves as director), Angel Resources (external director) a director: Is he an employee of the Company, its No subsidiaries, affiliates or of an interested party: Related to other interested parties in the No Company: Does the Company consider him to No having accounting and financial expertise for compliance with the minimum number set for the board of directors under section 92(A)(12) of the Companies Law: Independent director: No

Name: Joseph Dauber ID: 007447584 Date of birth: November 20, 1935 Address for delivery of court notices: 8 Hakishon Street, Ramat Hasharon, 47205 Citizenship: Israeli Position in the Company: External director A. Is he an external director Yes B. If yes, is he an expert in accounting Director with accounting and financial expertise and finance or does he have professional qualifications: C. If yes, is he an expert external Yes director: Serves as a member of the board of Member of Audit Committee director committee or committees: Commenced serving as a director: January 1, 2009 Education: BA in Economics and Statistics, Hebrew University Jerusalem, LL.M, Bar Ilan University Primary occupation in the past 5 years: Served as a director at Bank Hapoalim Ltd., and as co-CEO and co-Chair of the board of directors of Bank Hapoalim Ltd.

D-43 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Companies in which serves as a Nice Systems Ltd., Vocaltec Technologies Ltd. (external director), Micro director: Companies in which serves as Medic Ltd. and Orbit Technologies Ltd., serves as Chairman of KCPS a director: Manof fund Is he an employee of the Company, its No subsidiaries, affiliates or of an interested party: Related to other interested parties in the No Company: Does the Company consider him to No having accounting and financial expertise for compliance with the minimum number set for the board of directors under section 92(A)(12) of the Companies Law: Independent director: No

Name: Moshe Amit ID: 1127885 Date of birth: April 14, 1935 Address for delivery of court notices: 7 Giborei Israel St., Industrial Zone Netanya South, 2504. Citizenship: Israeli Position in the Company: Director A. Is he an external director No B. If yes, is he an expert in accounting - and finance or does he have professional qualifications: C. If yes, is he an expert external - director: Serves as a member of the board of No director committee or committees: Commenced serving as a director: April 1, 2004 Education: BA Political Science and Sociology, Bar Ilan University

Primary occupation in the past 5 years: Director in the Company, Chairman of the board of directors of Delek - The Israel Fuel Corp. Ltd., previously served as co-CEO of Bank Hapoalim and acting manager of the bank Companies in which serves as a Global Factoring Business Finance Ltd., Poalim Capital Markets director: Companies in which serves as Investments Bank Ltd, Saint Laurence Bank, Barbados Ltd., Mega a director: Retailers Ltd., AFI Development PLC Is he an employee of the Company, its Chairman of the board of directors of Delek- The Israel Fuel Corporation subsidiaries, affiliates or of an interested Ltd. party: Related to other interested parties in the No Company: Does the Company consider him to No having accounting and financial expertise for compliance with the minimum number set for the board of directors under section 92(A)(12) of the

D-44 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Companies Law: Independent director: No

Name: Moshe Bareket ID: 059825539 Date of birth: December 31, 1965 Address for delivery of court notices: 7 Giborei Israel St., Industrial Zone Netanya South, 2504. Citizenship: Israeli Position in the Company: Director A. Is he an external director No B. If yes, is he an expert in accounting - and finance or does he have professional qualifications: C. If yes, is he an expert external - director: Serves as a member of the board of Member of Investment Committee director committee or committees: Commenced serving as a director: January 5, 2011 Education: PhD in Business Management from Columbia University, (New York); MBA, Columbia University, (New York); MBA Tel Aviv University; BSc in Practical Accounting and Performance Survey, Tel Aviv University. CPA Primary occupation in the past 5 years: Head of Corporate Division at the Securities Authority (2006-2010), Lecturer in accounting and business management at universities and academic institutions (2001 to present), Chief Financial and Strategy Officers at Teshuva Group (2010 to present) Companies in which serves as a Delek Energy Systems Ltd. director: Companies in which serves as a director: Is he an employee of the Company, its Chief Finance and Strategy Officer at Teshuva Group (personal friend of subsidiaries, affiliates or of an interested the controlling shareholder) party: Related to other interested parties in the No Company: Does the Company consider him to No having accounting and financial expertise for compliance with the minimum number set for the board of directors under section 92(A)(12) of the Companies Law: Independent director: No

D-45 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Standard 26A Additional senior officers in the corporation Attached herewith are details of the senior officers in the Company. Name: Asaf Bartfeld ID: 6547410 Date of birth: February 24, 1952 Commencement of service: September 4, 2003 Position in the Company, its CEO of the Company; CEO of Delek Investments & Properties Ltd. and subsidiaries, related companies or the director of the following Delek Group subsidiaries: Phoenix Insurance Co., controlling shareholder: Phoenix Holdings Ltd., Delek Petroleum Ltd., Delek US Holdings Inc., Gadot Biochemical Industries Ltd., Avner Oil and Gas Ltd., Delek Energy Ltd., Delek and Avner Yam Tethys Ltd., Delek Natural Gas Marketing and Distribution Ltd., Delek Drilling Management (1993), Ltd., IPP Delek Ashkelon Ltd., Delek Energy International Ltd., Delek Energy Bonds Ltd. Delek Investments and Properties Ltd., Delek Automotive Ltd., Delek Motors Ltd., PP Delek Alon Tavor Ltd., IPP Delek Ramat Gavriel Ltd., Delek US Holdings Inc., and IDE Technologies Ltd. Delek Europe Holdings Ltd Is he an interested party in the Yes Company: Education: BA in Economics, Tel Aviv University

Business experience in the past 5 years: CEO of the Company since 2003 Is he related to another senior officer or No interested party in the Company:

Name: Liora Pratt Levin ID: 57906919 Date of birth: October 12, 1962 Commencement of service: April 1, 2007 Position in the Company, its VP, Chief Legal Counsel and company secretary subsidiaries, related companies or the controlling shareholder: Serves as director in the following Gadot Biochemicals Ltd., Delek Energy Systems Ltd., Phoenix Holdings companies: Ltd., Delek Europe Holdings Ltd., IDE Technologies Ltd. Phoenix Holdings Ltd. and Phoenix Insurance Co. Ltd. Is he an interested party in the No Company: Education: BA Political Science, Tel Aviv University, LL.B, Reading University, UK

Business experience in the past 5 years: VP, legal counsel and company secretary of Delek Group Ltd Is he related to another senior officer or No interested party in the Company:

Name: Barak Mashraki ID: 029714086 Date of birth: January 28, 1973

D-46 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Commencement of service: January 1, 2008 Position in the Company, its Serves as CFO of Delek Group Ltd., as a director of Delek - Israel Fuel subsidiaries, related companies or the Corp. Ltd., Delek Petroleum Ltd., Phoenix Holdings Ltd. and the companies controlling shareholder: subsidiaries Is he an interested party in the No Company: Education: BA Economics and Accounting, Bar Ilan University

Business experience in the past 5 years: Controller at Delek Group Ltd. and served as a senior auditor in Kost Forer Gabbay & Kasierer / Lubovitch Kasierer (2000-2006) Is he related to another senior officer or No interested party in the Company:

Name: Michael Grinberg ID: 069108231 Date of birth: August 5, 1955 Commencement of service: January 1, 2002 Position in the Company, its Internal auditor of the Company and its subsidiaries: Delek Petroleum subsidiaries, related companies or the Ltd., Delek Automotive Systems Ltd., Delek Energy Systems Ltd., Delek controlling shareholder: Drilling Management (1993) Ltd. and Avner Oil and Gas Ltd Is he an interested party in the No Company: Education: BA in Accounting, Tel Aviv University

Business experience in the past 5 years: Internal auditor of the Company and its abovementioned subsidiaries Is he related to another senior officer or No interested party in the Company:

Name: Dalia Black Dubov ID: 324335751 Date of birth: July 25, 197 Commencement of service: May 27, 2010 Position in the Company, its serves as VP Investor Relations and Business Communications at the subsidiaries, related companies or the Company controlling shareholder: Is he an interested party in the No Company: Education: MA Economics and Political Science, Leads University, England

Business experience in the past 5 years: Investor Relations and Business Communications at the Company (since 2006), Associate & Investor Relations at Plens Lending Solutions Funds (2002-2006) Is he related to another senior officer or No interested party in the Company:

Name: Amir Lang ID: 036403830

D-47 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Date of birth: July 19, 1979 Commencement of service: May 27, 2010 Position in the Company, its Serves as VP Business Developments, Mergers and Procurement of the subsidiaries, related companies or the Company, deputy CEO of Delek Infrastructures Ltd., and serves as a controlling shareholder: director of Delek Infrastructures Ltd., and as a director in: Delek Petroleum Ltd. and Delek Israel Fuel Corp. Ltd., IPP Delek Ashkelon Ltd. Is he an interested party in the No Company: Education: LL.B, Tel Aviv University; MBA and LL.M, Tel Aviv University

Business experience in the past 5 years: VP Business Development at the Company (since 2008), assistant CEO of the Company (2005-2008) Is he related to another senior officer or No interested party in the Company:

Standard 26A Senior Officers of Subsidiaries controlled by the Company, as defined in section 37 of the Securities Law: Name: Avshalom Halevi Felber ID: 058370412 Date of birth: October 14, 1963 Commencement of service: June 16, 2002 Position in the Company, its CEO of the subsidiary, IDE Technologies Ltd. subsidiaries, related companies or the controlling shareholder: Is he an interested party in the No Company: Education: BA in Economics and in Philosophy, Hebrew University in Jerusalem ; MBA specializing in financing and employee relations, Hebrew University, Jerusalem Business experience in the past 5 years: CEO, IDE Technologies Ltd. since 2002CEO, IDE Technologies Ltd. since 2002 Is he related to another senior officer or No interested party in the Company:

Name: Uzi Yamin ID: 024035743 Date of birth: September 18, 1968 Commencement of service: November 1, 2001 Position in the Company, its CEO of the subsidiary, Delek US Holdings Inc.,director in the subsidiaries subsidiaries, related companies or the of the subsidiary, Delek US controlling shareholder: Is he an interested party in the No Company: Education: LLB, Hebrew University, Jerusalem ; MBA, Hebrew University, Jerusalem ; CPA

D-48 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Business experience in the past 5 years: Serves as CEO of the subsidiary, Delek US Holdings Inc. Is he related to another senior officer or No interested party in the Company:

Name: Hod Gibsu ID: 024481848 Date of birth: July 30, 1969 Commencement of service: February 15, 2006 Position in the Company, its CEO and chairman of the subsidiary, Delek Europe Holdings, Ltd Serves subsidiaries, related companies or the as a director in Delek Benelux B.V., Delek Netherlands B.V, Delek Europe controlling shareholder: B.V. Is he an interested party in the No Company: Education: BA Economics and MBA, Bar Ilan University

Business experience in the past 5 years: Serves as a director of Delek Energy Systems Ltd. and VP at Delek Israel Fuel Corp. Ltd. (2001-2006) Is he related to another senior officer or No interested party in the Company:

Name: Gideon Tadmor ID: 057995755 Date of birth: January 9, 1963 Commencement of service: January 23, 2001 Position in the Company, its Serves as CEO of the subsidiary, Delek Energy Systems Ltd., and CEO subsidiaries, related companies or the and director of Avner Oil and Gas Ltd., Chairman of the board of directors controlling shareholder: of Delek Drilling Management (1993) Ltd. Also serves as a director of Cohen Development and Industrial Buildings Ltd. and its subsidiaries. Is he an interested party in the No Company: Education: LL.B, Tel Aviv University

Business experience in the past 5 years: Serves as a director of Cohen Development and Industrial Buildings Ltd. and its subsidiaries, CEO of Avner Oil and Gas Ltd., Chairman of the board of directors of Delek Drilling Management (1993) Ltd. Is he related to another senior officer or No interested party in the Company:

Name: Eyal Lapidot ID: 022030159 Date of birth: September 8, 1965 Commencement of service: June 1, 2009 Position in the Company, its Serves as CEO of the subsidiaries, Phoenix Holdings Ltd., Phoenix subsidiaries, related companies or the Insurance Co. Ltd. and Phoenix Investments Ltd. controlling shareholder: Is he an interested party in the No

D-49 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Company: Education: BA Economics and Accounting, MBA (Finance and Banking), CPA, Hebrew University, Jerusalem Business experience in the past 5 years: Served as CEO at Delek The Israel Fuel Corporation Ltd. (2005-2009) and CEO at Direct – IDI Insurance Co. Ltd. (2001-2005) Is he related to another senior officer or No interested party in the Company:

Name: Avraham Ben Asayag ID: 059277483 Date of birth: April 24, 1965 Commencement of service: August 22, 2010 Position in the Company, its CEO of Delek The Israel Fuel Corp. Ltd. subsidiaries, related companies or the controlling shareholder: Is he an interested party in the No Company: Education: CPA; Advanced Accounting studies; AMP (Executive Officer Management Program), Harvard University Business experience in the past 5 years: CEO of IDB Tourism (2009) Ltd (2009-2010), Chairman of board of directors of The Third Millennium Ltd. (2009-20101), deputy CEO and COO at Strauss Group Ltd. (2007-2009), and CFO at Strauss Group Ltd. (2001- 2007) Is he related to another senior officer or No interested party in the Company:

During the course of 2001 ceased serving as senior officers of the Company:

* Mr. David Kaminitz, served as CEO of Delek Israel until August 15, 2010. * Mr. Zvi Grinfeld, served as CEO of Delek Drilling until December 31, 2010. * Mr. Dani Guttman, served as CEO of Delek Capital until September 8, 2010. * On October 20, 2010 the Company ceased being the controlling shareholder in Delek Automotive and as of same date, Mr. Gil Agmon is no longer considered a senior officer of the Company.

Standard 26B: Independent authorized signatories: The Company has no independent authorized signatories.

Standard 27: The corporation's accountants Kost Forer Gabbay & Kasierer– 3 Aminadav St., Tel-Aviv 67067

Standard 28: Changes in the Company’s memorandum or articles of association In January 2011, the Company's general meeting approved the replacement of the Company's articles of association with new articles of association as set forth in Standard 29 (C) below.

Standard 29 – Recommendations and resolutions of the board of directors

D-50 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Standard 29A (1) – The board of director’s decision concerning distribution of a dividend Decisions of the board of directors pertaining to the distribution of a cash dividend:

Date of Amount of Amount per Effective date resolution Dividend in NIS share for payment Payment date Mar 26, 2010 100,000,444 NIS 8.7895 Apr 14, 2010 Apr 28, 2010 May 31, 2010 150,000,097 NIS 13.1842 Jun 16, 2010 Jun 30, 2010 July 26, 2010 120,000,000 NIS 10.5474 Aug 08, 2010 Aug 23, 2010 Sept 21, 2010 90,000,000 NIS 7.9106 Oct 07, 2010 Oct 19, 2010 Nov 30, 2010 500,000,000 NIS 43.9473 Dec 12, 2010 Nov 30, 2010

Standard 29 C - Resolutions adopted at an extraordinary general meeting (EGM) On January 13, 2010 the Company’s EGM adopted the following resolutions: To approve the agreement with Mr. Elad Sharon (Teshuva), the son of the controlling shareholder, as set out in Regulation 22 above. Particulars pertaining to the foregoing EGM are included in the immediate reports issued by the Company on November 30, 2009 (Ref. No. 2009-01-304638), (2009-01- 304638) and on January 13, 2010 (Ref. No. 2009-01-353700). On January 13, 2010 the Company’s EGM adopted the following resolutions: 1. To approve engaging with Phoenix Insurance Co. Ltd, to insure the directors of the Company and its subsidiaries in a collective insurance policy for officers insurance for the Company and its subsidiaries as set forth in Standard 29A (4) below. 2. To approve the Company engaging in a directors and officers insurance policy with Phoenix Insurance Co. and/or an other insurer, from time to time, without requiring additional approval of the general meeting. Particulars pertaining to the foregoing EGM are included in the immediate reports issued by the Company on October 29, 2009 (Ref. No. 2010-01-430005), and November 24, 2009 (Ref. No. 2010-01-467598). On January 13, 2010 the Company’s EGM adopted the following resolutions: To approve a bonus for 2009 and 2010 in the amount of NIS 500,000 for the chairman of the board, Mr. Gabi Last, Particulars pertaining to the foregoing EGM are included in the immediate reports issued by the Company on September 7, 2009 (Ref. No. 2010-01-633252), and October 13, 2009 (Ref. No. 2010-01-607545). On January 11, 2010 the Company’s EGM adopted the following resolutions: To approve the acquisition of Delek Real Estate Ltd.'s holdings in RoadChef as set forth in Standard 22 above. Particulars pertaining to the foregoing EGM are included in the immediate reports issued by the Company on June 4, 2009 (Ref. No. 2010-01-698100), June 11, 2009 (Ref. No. -01-01-006393), July 12, 2009 (Ref. No. 2011-01-012630) and September 8, 2009 (Ref. No. 2011-01-022191). On January 11, 2010 the Company’s EGM adopted the following resolutions: to approve the replacement of the Company's articles of association with a new version of articles of association, enclosed with the immediate report issued by the Company on January 31, 2011, pertaining to the changes in the Company's articles of association. Particulars pertaining to the foregoing EGM are included in the immediate reports issued by the Company on June 4, 2009 (Ref. No. 2011-01-033561), June 11, 2009 (Ref. No. 2011-01-033579), July 12, 2009 (Ref. No. 2011-01-009723) and September 8, 2009 (Ref. No. 2011-01-031050).

D-51 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Standard 29A (3): Exemption from insurance and indemnity for officers – valid at the date of the report: On January 5, 2011, the audit committee and board of directors of the Company resolved as follows: Approval the engagement of the subsidiary in an agreement with the Company's CEO. For further information pertaining to the engagement, see the Company's immediate report of January 6, 2011 (Reference No.: 2011-01-009015), whereby the information appearing therein is noted here by way of reference. On November 24, 2010 and November 30, 2010, the Company's audit committee and board of directors resolved as follows: Approval of the extension of a loan extended to the Company's CEO For further information pertaining to the loan, see the Company's immediate report of November 30, 2010 (Reference No.: 2010-01-703773), whereby the information appearing therein is noted here by way of reference. On May 27, 2010 and May 31, 2010, the Company's audit committee and board of directors resolved as follows: Approval of the update of the salary of the Company's CEO. For further information pertaining to the salary, see the Company's immediate report of May 31, 2010 (Reference No.: 2010-01-504450), whereby the information appearing therein is noted here by way of reference. On April 18, 2010, the audit committee and board of directors of the Company resolved as follows: Approval of the payment of a bonus for 2009 to the Company's CEO. For further information pertaining to the bonus, see the Company's immediate report of April 19, 2010 (Reference No.: 2010-01-453423), whereby the information appearing therein is noted here by way of reference. On January 24, 2010 and January 25, 2010, the Company's audit committee and board of directors resolved as follows: Approval of the extension of a loan extended to the Company's CEO For further information pertaining to the loan, see the Company's immediate report of January 25, 2010 (Reference No.: 2010-01-365283), whereby the information appearing therein is noted here by way of reference.

Standard 29A (4): Exemption from insurance and indemnity for officers – valid at the date of the report: 1. Pursuant to the previous resolutions of the Company (adopted prior to 2010), the Company decided to grant senior officers an exemption regarding their liability for damages as a result of a breach of their fiduciary duty towards the Company, as set forth in the third section of the sixth part of the Companies Law and to indemnify them (according to and subject to the amendment adopted at the Company's EGM prior to 2010). The letter of indemnification complies with Amendment 3 of the Companies Law 5759-1999 and the Company's articles of association. Pursuant to the letter of indemnification, as the Company's articles of association include a provision allowing it to undertake in advance to indemnify an officer, provided the undertaking is restricted to the types of events that the board of directors anticipate in view of the Company’s actual actions at the time of undertaking to indemnify, in an amount or scope determined by the board of directors to be reasonable under the circumstances, all on account of any liability or expenditure that shall be authorized at that time according to the law at the time the resolution is adopted, the company also undertakes to indemnify the officer for reasonable litigation expenses, including attorneys' fees, such that may be incurred as a result of an investigation or proceedings that shall take place against the officer by any authority certified to launch an investigation or proceeding and

D-52 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 that has ended without filing charges against the officer and without a fine being imposed in lieu of criminal proceedings or that has ended without an indictment being filed against the officer, while imposing a fine in lieu of criminal proceedings in a felony that does not warrant the proof of criminal intent. 2. Insurance: On May 3, 2010 the Company’s EGM adopted the following resolutions: A. The engagement with Phoenix Insurance Co. Ltd. to insure the officers of the Company and its subsidiaries under a collective officers liability insurance policy for the Company and its subsidiaries as of December 1, 2009, with limit of liability of USD 75 million, at annual premium of USD 300,500, of which the Company's share amounts to USD 56,259 per annum. The Company may increase the limit of liability in the policy to a total of USD 100 million for additional annual premium in the amount of USD 55,625. B. The Company's engagement with Phoenix and/or any other insurer in an officers liability insurance policy, under the terms fixed in the resolution, from time to time, without requiring further approval of the general meeting, provided that the limit of liability of the insurance (in the collective policy) shall not be below USD 75 million and shall not exceed USD 100 million per event and per period and the annual premium will not exceed USD 450 per annum, with the addition of up to 15% per year. C. To approve the forgoing with regard to Mr. Elad Sharon (Teshuva), the son of the controlling shareholder, pursuant to the provisions of Regulation 5 of the Relief Regulation. 3. Subsequent to the reporting period, on January 5, 2011, the audit committee and board of directors of the Company approved engaging with Phoenix Insurance Co. Ltd. for officers' insurance for the Company and its subsidiaries under a collective officers insurance policy for the Company and its subsidiaries, in accordance with the framework terms approved by the general meeting on May 3, 2010, as aforesaid. The insurance policy is effective from January 1, 2011 through to December 31, 2011, with liability limits of USD 100 million, at annual premium of USD 320,900. The premium is at the generally accepted terms in the insurance market and based on the opinion of an external insurance consultant.

Delek Group Ltd.

Date: March 31, 2011

Names and positions of the signatories: Gabriel Last – Chairman of the board of directors Asi Bartfeld – CEO

D-53 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Register of Shareholders of the Company As at March 30, 2011

Name: Onikovsky (On) Yitzhak Address: 79 Feinstein, Tel Aviv, 69123 Balance held: 6 Name: Greenberg Henrietta Address: 10/1 Hannah Senesh, Azur, 58010 Balance held: 4 Name: Dekel Ben Zion Address: (office) 7 Giborei Yisrael, Netanya Balance held: 6 Name: Cohen Haim Address: 47 Weizman, Tel Aviv - Jaffa Balance held: 682 Name: Landsberg Bella Address: 11 Michal street, Tel Aviv - Jaffa Balance held: 69 Name: Silberman Shulamit Address: 58 Habiluim, Ramat Gan Balance held: 42 Name: Sides Ita Address: 20-3 Bnei Efraim, Tel Aviv District, Tel Aviv - Jaffa 69984 Balance held: 25 Name: Fredkin Avraham Address: 21/14 Grunner Street, Ramat Aviv, Tel Aviv – Jaffa, 69498 Balance held: 653 Name: Persol Yaakov Address: 44 Shazar Steet, Herzlia Pituah Balance held: 7 Name: Fischel Shlomo Address: P.O. Box 9937, Ramat Gan, 52199 Balance held: 1 Name: Konfino Yosef Address: 2 Wisotzky Steet, Tel Aviv - Jaffa, 62502 Balance held: 569 Name: Benbenishty David Address: 29 Tamatev Street, Holon, 58923 Balance held: 1 Name: Agiv Eliyahu Address: 32 Katzenelson, Bat Yam Balance held: 164 Name: Ozeri Moshe Address: 17 Tor Malka, Tel Aviv, 67310 Balance held: 2 Name: Greenberg Mordechai Address: 6 Shabo Street, Givat Hasharon, Hod Hasharon Balance held: 1 Name: the Late Manuelavitz Haim Att: Leah Nehama Address: 6/7 Moshe Kol Street, Jerusalem, 93715 Balance held: 218 Name: Izkovatzky Yehoshua Address: 6 Hapluga Street, Kiryat Haim Balance held: 1 Name: Assaf Rachel Address: 29 Stephan Weiz, Haifa, 35439 Balance held: 6 Name: Aragi Victor

D-54 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Address: 153 Acco Ave., Kiriyat Motzkin, 26412 Balance held: 1 Name: Best Haim Address: 13/4 Hahagana, Kiryat Ata, 28006 Balance held: 3 Name: Duvdevani Shimon Address: 7 D'Israeli, Haifa, 34333 Balance held: 609 Name: Surasky Philip Address: 10 Jabotinsky, Haifa, 35702 Balance held: 609 Name: Tahbura - Central Co-op for Agricultural Services Address: 17 Aminadav Street, Tel Aviv – Jaffa, 67067 Balance held: 289 Name: Delek Agencies Address: 6 Prof. Kaufmann, Tel Aviv – Jaffa Balance held: 3100 Name: Einhorn Orna Address: 5 Menachem Yitzhak Street, Ramat Gan, 52560 Balance held: 1 Name: Aukrant Mark Address: 21 Aharonowitz, Kfar Saba Balance held: 28 Name: Ashkenazi Yehoshua Address: 18 Habonim, Rehovot, 76204 Balance held: 2 Name: Ashkenazi Rachel Address: 35 Tabankin, Tel Aviv - Jaffa Balance held: 1 Name: Abergil Yaakov Address: Tel Aviv Balance held: 7 Name: Ashkenazi David Address: 11 Hatoren, Ein Hayam, Haifa Balance held: 1 Name: Abramowitz Victor Address: 7/4 Rambam, Tirat HaCarmel, Haifa Balance held: 16 Name: Eldar Arela Address: Moshav Rishpon, Rishpon 46915 Balance held: 1 Name: Ashkenazi Amira Address: 52 Negba, Ramat Gan Balance held: 53 Name: Buchbut Ahuva Address: 13 Fichman, Tel Aviv, 69027 Balance held: 124 Name: Barlev Yehuda Address: 3A Tolkowsky Street, Tel Aviv – Jaffa, 69352 Balance held: 11 Name: Balita Hannah Address: 17 Tabankin, Herzlia Balance held: 1 Name: Bovronaky Yair Address: 74 Katznelson, Bat Yam, 59505 Balance held: 2 Name: Bokar Ilana Address: 27 Reines, Raanana, 43374 Balance held: 10 Name: Gordon Yehudit

D-55 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Address: 11 Rashi Street, Ramat Gan, 52560 Balance held: 31 Name: Goldway Rina Address: 5 Giflich, Ramat Hasharon, 47261 Balance held: 1 Name: Guttfried Shalom Address: 17 Hannah Street, Haifa Balance held: 2 Name: Guanshir Yitzhak Address: 9 Tnuat Hanoar, Rishon LeZion Balance held: 75 Name: Dayanovsky Arieh Address: 62 Shamir Street, Jerusalem Balance held: 80 Name: Brenner Daniel Address: 4 Ein Gev, Rishon LeZion Balance held: 1 Name: Buzachman Shlomo Address: 4 Nordau, Haifa, 33122 Balance held: 5 Name: Ben Haim Gavriel Address: Tel Aviv - Jaffa Balance held: 4 Name: Dassa Geula Address: 13/5 Uri Bar On, P.O.Box 12121, Ariel, 44837 Balance held: 1 Name: Danziger Yoram Address: 47 Jerusalem Blvd., Ramat Gan Balance held: 40 Name: Hofin Varda Address: 5 Derech Hasadot, Kfar Shmeriyahu, 46910 Balance held: 3 Name: Herzberg David Address: 23 HaHermon, Haifa Balance held: 3 Name: Weis Chaya Address: 1 Borochov, Tel Aviv - Jaffa Balance held: 4 Name: Videnfeld Avraham Address: Tel Aviv - Jaffa Balance held: 4 Name: Victor Rephael Baruch Address: Tel Aviv - Jaffa Balance held: 15 Name: Zaltzman Arieh Address: Tel Aviv - Jaffa Balance held: 1 Name: Kalman Frieda Gort Chaya Address: 5 Harav Fishman – Meimon, Tel Aviv - Jaffa Balance held: 1 Name: Zamir Vardina Address: 18 Zichron Yaakov, Tel Aviv - Jaffa Balance held: 1 Name: Zarzer Yoseph for Shulamit Zarzer Address: 14 Mehalkei Hamaim, Jerusalem Balance held: 48 Name: Tuito Rivka Address: 7 Hahistadrut, Givatayim Balance held: 9 Name: Cohen Meira (Yani)

D-56 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Address: 29 Herzog, Givatayim, 53602 Balance held: 3 Name: Yachamovitz Sarah Address: 342 Grinberg Haim, Jerusalem, 62488 Balance held: 11 Name: Cohen Avraham Address: Haifa Balance held: 1 Name: Kanafo Rivka Address: 15A Betzalel, Jerusalem Balance held: 10 Name: Levi Haim Address: 56 Hatizmoret, Rishon LeZion Balance held: 76 Name: Levi Tov Aharon Address: 16 Harel Street, Haifa, 34555 Balance held: 51 Name: Levi Eliyahu Address: 46 Elkrawitz, Jerusalem Balance held: 1 Name: Margaret Ehern Address: 274 S. Brehl Avenue, Columbus, Ohio, U.S.A. Balance held: 249 Name: Louis Grossberg Address: Suite 1300, 5454 Wisconsin Ave., Chevy Chase MD 20015 USA Balance held: 623 Name: Arnold Goldman Address: 3 Leeward Lane, Rochester, N.Y. 14618 USA Balance held: 41 Name: levi Nissim Address: Haifa Balance held: 1 Name: Lipschitz Avraham Address: 57 Nachmani, Tel Aviv - Jaffa Balance held: 2 Name: Miron Amnon Address: Ramat Hasharon Balance held: 55 Name: Malchi Shoshana Address: Petach Tekva Balance held: 12 Name: Maron Idit Address: Simtat Hagai, Saviyon, 43565 Balance held: 4 Name: the Late Margalit Ephraim, Att Shoshana Margalit Address: 11 Hahagan St., Golden Hill House, Jerusalem, 97851 Balance held: 30 Name: Marmelstein Miriam Address: 17 Amdan Street, Tel Aviv, 62741 Balance held: 38 Name: Meiri Sarah Address: 3 Wolffson, Petach Tivah, 49541 Balance held: 28 Name: Lemashkia Goldman Address: 82 Yavneh, Tel Aviv - Jaffa Balance held: 1 Name: Nagi Moshe Geva Address: 8 Megadim, Ramat Gan Balance held: 2 Name: Nueman David

D-57 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Address: 31 Ibn Gevirol, Jerusalem Balance held: 1 Name: Neuman Dov Address: 6 Ahuzat Beit, Tel Aviv - Jaffa Balance held: 1 Name: Leumi Research Partners Ltd. Address: 9 Montefiore Street, Tel Aviv - Jaffa Balance held: 1 Name: Avni Yitzhak Address: 12 Boyar, Tel Aviv Balance held: 38 Name: Portznal Pnina Address: 392/15 Jaffa Street, Tel Aviv - Jaffa Balance held: 11 Name: the Late Fatigero Mary Att: Adv. Mashiah Yitzham Address: 16 Yehuda Halevi, Tel Aviv, 65781 Balance held: 10 Name: Palsar Yehuda Address: 132 Ben Gurion, Ramat Gan Balance held: 28 Name: Partok Yosef and Partok Haim Address: 16 Berez Zeev Street, Petah Tekva 49737 Balance held: 2295 Name: Peters Arieh Address: 9 Hanassi, Kiryat Ono Balance held: 31 Name: Farhi Yehuda Address: P. O. Box 6, Givatayim, 53100 Balance held: 187 Name: Potshevotzky Sara Address: 71 Wingate, Herzilia, 46752 Balance held: 470 Name: Friedman Yoav Adv. Address: 72 Ehad Ha'am, Tel Aviv Balance held: 5 Name: Zouder Zvi Address: 27 Hamaalot, Givatayim Balance held: 1 Name: Chernick Pnina Address: Afek Old People's Home, Ramat Gan Balance held: 9 Name: the Late Chizcosky Israel Att: Kiea Rachel Address: 17 Aharon Karon, Rishon LeZion, 75262 Balance held: 7 Name: Zror Shimon Address: 2 Hageffen, Nof Yam, Herzlia, 46665 Balance held: 238 Name: Kaufmann Ben-Zion Address: 6 Lillianblum, Tel Aviv - Jaffa Balance held: 3 Name: Carni Shlomo Address: 78 Hakishon, Tel Aviv - Jaffa Balance held: 1 Name: Kardosh Makloshna Address: 40 Hillel Yafe, C/o Kapush Herzlia, 46321 Balance held: 544 Name: Krasner Matitiyahu Address: Ramat Gan Balance held: 2 Name: Kimchi Zamir

D-58 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Address: Bnei Brak, Tel Aviv - Jaffa Balance held: 9 Name: Kraniel Regina Address: Tel Aviv - Jaffa Balance held: 27 Name: Koch Ilan Address: 56 Osishkin, Tel Aviv Balance held: 18 Name: Kalandorff Avraham Address: 40 Moshe Dayan Street, Ramat Gan, 52294 Balance held: 1 Name: Raz Yehosua Address: 1 Haim Hazaz, Haifa Balance held: 19 Name: Raizel Bella Address: Ramat Gan Balance held: 1 Name: Ranan David Address: 25 Montague Square, London WIH 1 RE, England Balance held: 76 Name: Reuveni Eli Address: 23 Azriel, Ban Yam, 59463 Balance held: 146 Name: Ramon Miriam and Jonathan Address: 12 Zamerot, Apt. 181, Herzlia, 46424 Balance held: 700 Name: Shamai Haim Address: 11 Borochov, Jerusalem Balance held: 1 Name: Schlossberg Att: Dan Shalbar Address: 30 Shai Agnon Street, Tel Aviv Balance held: 25 Name: Shnivit Gezella and Shani Adam Address: 47 Nordau, Tel Aviv - Jaffa Balance held: 1 Name: Schneidman Rivka Address: 13 Sharet, Ramat Gan Balance held: 12 Name: Shenbal Varda Address: Varda Balance held: 28 Name: Skolnik Sarah Address: 21 Gedud Michmesh, Apt. 9, Pisgat Zeev, Jerusalem Balance held: 1 Name: Schechter Pinhas Address: 5 Narkis, Omer Balance held: 1 Name: Shimmel Benjamin Address: 52 Negba, Ramat Gan Balance held: 47 Name: Bermans Mendel Address: Tel Aviv - Jaffa Balance held: 41 Name: Buton Tereza Address: Tel Aviv Balance held: 6 Name: Gazit Zippora Address: Tel Aviv - Jaffa Balance held: 5 Name: Taub Hanoch

D-59 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Address: Tel Aviv - Jaffa Balance held: 6 Name: Eliezer & Phyllis Dowin Address: #203 1152 Batterhayes Rd., Raleigh, North Carolina 51672, USA Balance held: 66 Name: Jack Habacht Address: 11 Russel Ave., South River, New Jersey, 0882, USA Balance held: 45 Name: Mawrica Lewinsky Address: 5241 Noble Ave., Bridgeport, Connecticut, 01660 USA Balance held: 623 Name: Henry Frenkel Address: 132 Valley Circle, Fairfield CT 06825 USA Balance held: 249 Name: Anna & Harry Kaplan Address: 2315 Rhawn St., Philadelphia Pennsylvania, 19152 USA Balance held: 247 Name: Catherine Rudner Address: #11 Wheeling Williamsburg 30062 WV USA Balance held: 498 Name: Yod Investment Brandeis Address: 5600 Wisconsin Ave., Apt. 19B, Chevy Chase MD 20815-4414 USA Balance held: 123 Name: Investment Group Charter Address: 2112 Acacia Park Ave., Suite 619, Langdhurst, 44124 USA Balance held: 2 Name: Robert Furman Address: 3935 Blackstone Ave., Bronx, New York, 10471 USA Balance held: 36 Name: Familial Holding Co Address: 02 Forest Lane, Scarsdale, 38501, NY USA Balance held: 35 Name: Herbert & Ilse Rosenbaum Address: 1561 Chestnut St. San Carlos, CA 94070, USA Balance held: 16 Name: Sam & Miriam Weinstein Address: 305 North Palm Drive, Beverly Hills, CA 90210 USA Balance held: 45 Name: Nathan Arthur Address: 6 Norton Rd., East Brunswick, NY 08816, USA Balance held: 18 Name: Dr. Rosow Michael Address: 2910 Motor Ave. Los Angeles, CA 90064 USA Balance held: 1813 Name: Syd Bassik Address: c/o Mrs. Clara Garvin, 3442 Camman Place, Bronx, NY 10463 USA Balance held: 63 Name: Samuel & Sylvia Lindenberg Address: 329 Old Lancaster Rd., Sudbury, MA 01776 USA Balance held: 102 Name: Leo Martin Address: 62941 Barrington AL, P.O.B. 94009 CA, USA Balance held: 181 Name: George & Ann Volimer Address: 5913 Culview St., Culver City, CA 90230, USA Balance held: 96 Name: Henry & Joan Kaufman Address: 2581 30th Ave., San Francisco, Ca, USA Balance held: 18 Name: Shelly Birenbaum

D-60 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Address: 007 Finch Ave., 0111 West Suite Downsview Ont N3J 2T2, Canada Balance held: 74 Name: Brian Birenbaum Address: 72 Joshua Ct., Thornhill, Ontario Canada L4J 8B6 Balance held: 62 Name: Michael Birenbaum Address: 16141 Kettleby, Weston Rd., On L0G 1J0 Canada Balance held: 62 Name: David Birenbaum Address: 007 Finch Ave., 0111 West Suite Downsview Ont N3J 2T2, Canada Balance held: 39 Name: Anna & Eugene Goidell Address: 8 Shelley Crt., Plainview NY 11803 USA Balance held: 36 Name: Ann Feinberg Address: Nathan Levinson 1171 Naroli Dr., Pacific Palisades, 90292 USA Balance held: 36 Name: David & Barbara Frank Address: 14624 Jaystone Dr., Silver Spring, MD 20905 USA Balance held: 60 Name: William Combs Address: 44 Van Dyke St., Thousand Oaks, CA 91360 USA Balance held: 54 Name: Martin Koffman Address: 517 Whittier Blvd. Montebello CA 90640 USA Balance held: 138 Name: Edward & Malicia Weinstein Address: 0142B Louth 5032 Las Vegas, Nevada, 50198 USA Balance held: 68 Name: Goodless Brothers Electric Address: POB 925 West Springfield Ma 01090 USA Balance held: 181 Name: Melvin & Mary Mcguiry Address: 0311 W Porter Ave., Fullerton, CA 33629 USA Balance held: 45 Name: Roth Charles Address: 137 Arneil Dr., Chamarillo, AC 31039 USA Balance held: 123 Name: Abe Zeitchik Address: 915 E 7th St., Brooklyn New York 11230 USA Balance held: 28 Name: Jack & Dolores Gootkin Address: 13121 Huston St., Sherman Oaks CA 91423 USA Balance held: 45 Name: Frank Kurtz Address: 112 Westwood Dr., San Francisco, CA 94112 USA Balance held: 240 Name: Sansal Company Address: 111 Broadway, New York NY 10006 USA Balance held: 3 Name: Louis Wittenberg Address: South Wood Dr., South Wood, Michigan 47252 USA Balance held: 21 Name: Pearl Moss Address: Berg Dr. Apt. 542 Southfield MN 95562 43084 USA Balance held: 21 Name: Don Maxwell Address: 955 Capital Ave. N.E. Battee Creek, Michigan 71094 USA Balance held: 317 Name: Jefferey Israel

D-61 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Address: 3357 NW 1015T Sunrise Florida 33351 USA Balance held: 3 Name: David Marcus Address: C/o Ada Marcus, 1010/A Baywood, Circle ChuiaVista CA 91915 USABalance held: 42 Name: Joseph Goldman Address: 1011 Felenolmp St., Philadelphia PA 15111 USA Balance held: 31 Name: Danziger Max Address: 47 Jerusalem Ave., Ramat Gan Balance held: 96 Name: Lipchitz Matilda Address: 1A Remez, Kiriyat Ata 00082 Balance held: 6 Name: Ezer Lydia Address: Moshav Gan Hadarom, Gan Hadarom 79255 Balance held: 308 Name: Gerta Goldhil: Address: London Balance held: 154 Name: Maurice & Sylvia Gross Address: 1481 S Darnago Ave., Los Angeles California 90035 USA Balance held: 35 Name: Chaim Greenberger Address: 5064 16th Ave., Brooklyn, NY 91211 USA Balance held: 140 Name: Sam Wietschner Address: 857 E 9th St., Brooklyn NY 11230 USA Balance held: 90 Name: Arieh Yakobs Address: 72 Meir Nakar St., Jerusalem Balance held: 35 Name: Michael Klein Address: 9701 SW 142 St., Miami Florida 33186 USA Balance held: 59 Name: Edoard & Meair Kasdan Address: USA Balance held: 7 Name: Blank Haim Address: 31 Bezalele, Migdal Paz, Ramt Gan Balance held: 1 Name: Bank Discount Registrations Co. Ltd. Address: 38 Yehuda Halevi St., Tel Aviv – Jaffa Balance held: 11698042 Name: Murray Buxbaum Address: 3500 E First St., Los Angeles, California 90063 USA Balance held: 13 Name: Josef Janowsky Address: 8922 Krestown Rd., Apt. 116, Philadelphia, PA USA 19115 Balance held: 124 Name: Borstein Eli Address: 686/18 Zin, Eilat Balance held: 87 Name: Harel Shai Address: 242 Ben Yehuda St., Tel Aviv - Jaffa Balance held: 5 Name: A.R.M-Nel Consultation and Trade Ltd. Address: 14 Baruch Hirsch St., Bnei Brak 51202 Balance held: 5 Name: Livnat Raz

D-62 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Address: 23 Harimon St., Givat Saviyon Balance held: 2 Name: Kadosh Rika (c/o Vivian Siboni) Address: 10/3 Tschernikowsky St., Beer Sheva Balance held: 4 Name: Arieh Paz Address: 98 Nativ Hen, Haifa 32682 Balance held: 2147 Name: Oren Revka Address: P.O. Box 1483, Roosevelt Park, 2129 Johannesburg, South Africa Balance held: 163 Name: Shpeck Meir Address: 39 Soroka, Haifa Balance held: 164 Name: Ray Applebaum Address: 11841 SW 57 Court, Miami Florida 33156 USA Balance held: 498 Name: Michalman Daniel Address: 33/C Yitzhak Sade Str., Bat Yam 59563 Balance held: 3 Name: Ephraim Salomon Address: 5 Simtat Yehuda, Haifa Balance held: 157 Name: Yona Cohen Address: 25 Rachel St., Har Hacarmel, Haifa 34402 Balance held: 395 Name: Achiman Shmuel Address: 6 Shmeriayhu Levin Str., Tel Aviv Balance held: 10 Name: Avraham Berman Address: 7 Yeelim Str., Givat Zeev, Jerusalem Balance held: 20 Name: Irit Freund Address: 9 Zukeh Yam, Havazelet Hasharon 42937 Balance held: 59 Name: Erlich Shoshana Address: 7 Ibn Gvirol, Rishon LeZion 75481 Balance held: 6 Name: Dalia Gavriel Address: 4 Nili St., Gan Yavne 7008 Balance held: 98 Name: Marcel Mizrahi Address: Heiress 4/72 of the late Cohen Kadouri Balance held: 8 Name: Moshe Cohen Address: Heir 10/72 of the late Cohen Kadouri Balance held: 20 Name: Ruti Salomon Address: Heiress 5/72 of the late Cohen Kadouri Balance held: 10 Name: Lily Yosepan Address: Heiress 5/72 of the late Cohen Kadouri Balance held: 10 Name: Mordechai Ben Dov Address: 7 Lubman St., Rishon leZion Balance held: 35 Name: Yehuda Ben Dov Address: Kibbutz Moran, D.N. Lower Galilee Balance held: 34 Name: Savion Tal

D-63 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Address: 44 Geulim, Zichron Yaakov Balance held: 55 Name: Piko Benadet Address: 607/16 Maalot Moriah, Jerusalem 93780 Balance held: 1 Name: Yonatan Goldschmit Address: 8 Nili Street, Holon 58279 Balance held: 12 Name: Wynne Frank Sitrin and Stuart A Frank Address: 7404 Pyle Rd., Bethesda, Maryland, 20817 USA Balance held: 60 Name: Etiel Shador Address: Beit Horim Rachel Lichik, 5 Shabazi, Beit Degan 50200 Balance held: 372 Name: Warshbiak Elimelech Address: 1 Zidkiyahu 1, Beer Sheva Balance held: 7 Name: Moses Robert Address: 5 Sarig St., Carmiel Balance held: 1 Name: David Alan Barnett Address: California USA Balance held: 181

D-64 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Chapter E

Annual report for 2010 on the Effectiveness of Internal Controls for Financial Reporting and Disclosure WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8

Delek Group Ltd. Annual report for 2010 on the effectiveness of internal controls for financial reporting and disclosure, pursuant to Article 9B(a) of the Securities (Periodic and immediate reports) Regulations, 1970

Management, under the supervision of the Board of Directors of Delek Group Ltd. ("the Corporation"), is responsible for setting and maintaining an appropriate internal control for the financial reporting and disclosure in the Corporation. For this matter, the members of Management are – 1. Assi Bartfeld, CEO 2. Barak Mashraki, CFO 3. Leora Pratt Levin, Chief General Counsel 4. Amit Kornhauser, Controller

Internal control of financial reporting and disclosure includes controls and procedures existing in the Corporation, which were planned or overseen by the CEO and the most senior financial officer, or by whoever fulfills those functions in practice, under the supervision of the Board of Directors of the Corporation, and were designed to provide a reasonable measure of assurance as to the reliability of the financial reporting and the preparation of the reports in accordance with the provisions of the law, and to ensure that information that the Corporation is required to disclose in the reports it publishes in accordance with the provisions of the law is collected, processed, summarized and reported on the date and in the format laid down in law. Internal control includes, among other things, controls and procedures planned to ensure that information that the Corporation is required to disclose as aforesaid, is accumulated and forwarded to the Management of the Corporation, including to the CEO and the most senior financial officer or to whoever fulfills those functions in practice, in order to enable decisions to be made at the appropriate time in relation to the disclosure requirement. Due to its structural limitations, the internal control of financial reporting and disclosure is not intended to provide absolute assurance that misstatement in or omission of information from the reports will be prevented or will be discovered. Management, under the supervision of the Board of Directors, reviewed and assessed the internal control for the financial reporting and disclosure in the Corporation and its effectiveness, with the exception of the assessment of the internal control at Delek France BV, the acquisition of which was completed on October 1, 2010 and which was first consolidated in the Company's reports at that date. Based on that assessment, the Board of Directors and Management of the Corporation have concluded that the internal control of the financial reporting and disclosure in the Corporation at December 31, 2010, is effective. The Phoenix Assurance Co. Ltd. ("Phoenix Assurance"), a subsidiary of the Corporation, is an institutional entity, and as such is subject to the directives of the Commissioner for the Capital Market, Insurance and Savings at the Ministry of Finance concerning assessment of the effectiveness of internal control of financial reporting. For Phoenix Assurance, the Management of The Phoenix Holdings, under the supervision of the Board of Directors, reviewed the assessment of the internal control of financial reporting and its effectiveness, based on the provisions of Institutional Bodies 2010-90-6 circular "The responsibility of management for the internal control of financial reporting", according to which the review and assessment of the internal control of financial reporting and its effectiveness in 2010 do not relate to life assurance processes, health insurance processes operated in life assurance systems, and pension fund processes (excluding an investment process), all as set forth in the circular. Based on that assessment, the Board of Directors and Management of The Phoenix Holdings have concluded that the internal control of the financial reporting as relates to the internal control in an institutional body at December 31, 2010, is effective.

WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Declarations of executives (a) Declaration of the CEO pursuant to Article 9B(d)(1) Declaration of executives Declaration of the CEO

I, Assi Bartfeld, declare that – 1. I have reviewed the Periodic Report of Delek Group Ltd. ("the Corporation") for 2010 ("the Reports"); 2. To my knowledge, the Reports do not contain any incorrect representation of a material fact, nor is any representation of a material fact omitted which is needed to prevent the representations contained in them, in light of the circumstances in which they were included, from being misleading in relation to the reporting period; 3. To my knowledge, the financial statements and other financial information in the Reports reflect fairly, from all material aspects, the financial condition, the results of operations and the cash flows of the Corporation at the dates and for the periods to which the Reports relate; 4. I disclosed to the auditor of the Corporation, to the Board of Directors, the Audit Committee and the Financial Statements Approval Committee of the Board of Directors of the Corporation, based on my latest assessment of the internal control of the financial reporting and disclosure: a. all the significant flaws and material weaknesses in the determination or operation of the internal control of the financial reporting and disclosure that could reasonably have an adverse effect of the ability of the Corporation to collect, process, summarize or report on financial information in a way that could cast doubt on the reliability of the financial reporting and the preparation of the financial statements in accordance with the provisions of the law; and b. any deception, whether material or not material, in which the CEO or anyone directly subordinate to him is involved, or in which other employees are involved who fulfill an important function in the internal control of the financial reporting and disclosure; 5. I, alone or together with others in the Corporation – a. set controls and procedures or ascertained the setting and upholding of controls and procedures under my supervision, designed to ensure that material information relating to the Corporation, including its consolidated companies as defined in the Securities (Annual financial statements) Regulations, 2010, is brought to my knowledge by others in the Corporation and in the consolidated companies, particularly during the period of preparation of the Reports; and b. I set controls and procedures or ascertained the setting and upholding of controls and procedures under my supervision, designed to reasonably ensure the reliability of the financial reporting and the preparation of the financial statements in accordance with the provisions of the law, including in accordance with accepted accounting principles; and c. I assessed the effectiveness of the internal control for the financial reporting and discovery, and I presented in this report the conclusions of the Board of Directors and Management as to the effectiveness of that internal control at the date of the Reports. Nothing in the aforesaid derogates from my liability or the liability of any other person under the law.

March 31, 2011 Date Assi Bartfeld, CEO

WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 (b) Declaration of the most senior financial officer pursuant to Article 9B(d)(2) Declaration of executives Declaration of the most senior financial officer

I, Barak Mashraki, declare that – 1. I have reviewed the financial statements and other financial information in the Reports of Delek Group Ltd. ("the Corporation") for 2010 ("the Reports"); 2. To my knowledge, the financial statements and other financial information included in the Reports do not contain any incorrect representation of a material fact, nor is any representation of a material fact omitted which is needed to prevent the representations contained in them, in light of the circumstances in which those representations were included, from being misleading in relation to the reporting period; 3. To my knowledge, the financial statements and other financial information in the Reports reflect fairly, from all material aspects, the financial condition, the results of operations and the cash flows of the Corporation at the dates and for the periods to which the Reports relate; 4. I disclosed to the auditor of the Corporation, to the Board of Directors, the Audit Committee and the Financial Statements Approval Committee of the Board of Directors of the Corporation, based on my latest assessment of the internal control of the financial reporting and to disclosure: a. all the significant flaws and material weaknesses in the determination or operation of the internal control of the financial reporting and disclosure insofar as it relates to the financial statements and other financial information included in the Reports, that could reasonably have an adverse effect of the ability of the Corporation to collect, process, summarize or report on financial information in a way that could cast doubt on the reliability of the financial reporting and the preparation of the financial statements in accordance with the provisions of the law; and b. any deception, whether material or not material, in which the CEO or anyone directly subordinate to him is involved, or in which other employees are involved who fulfill an important function in the internal control of the financial reporting and disclosure; 5. I, alone or together with others in the Corporation – a. set controls and procedures or ascertained the setting and upholding of controls and procedures under my supervision, designed to ensure that material information relating to the Corporation, including its consolidated companies as defined in the Securities (Annual financial statements) Regulations, 2010, insofar as is relevant to the financial statements and other financial information included in the Reports, is brought to my knowledge by others in the Corporation and in the consolidated companies, particularly during the period of preparation of the Reports; and b. I set controls and procedures or ascertained the setting and upholding of controls and procedures under my supervision, designed to reasonably ensure the reliability of the financial reporting and the preparation of the financial statements in accordance with the provisions of the law, including in accordance with accepted accounting principles; c. I assessed the effectiveness of the internal control for the financial reporting and discovery insofar as it relates to the financial statements and other financial information included in the Reports at the date of the Reports. My conclusions with regard to that assessment were presented to the Board of Directors and Management and are integrated into this report. Nothing in the aforesaid derogates from my liability or from the liability of any other person under the law.

March 31, 2011 Date Barak Mashraki, CFO

WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8